It is well-settled that executors and other fiduciaries such as attorneys-in-fact are required to handle the assets under their control in a reasonable and prudent fashion. When a fiduciary crosses the line either by failing to act, or by engaging in imprudent management of assets, he risks being relieved of his authority to act and of being surcharged in an amount equal to the value of the lost assets. Interestingly, whether the fiduciary is removed and/or surcharged appears to be dependent on whether the fiduciary’s conduct resulted in a loss, rather than on the reasonableness of the fiduciary’s conduct itself.
This apparent from two recent decisions of the Second Department involving claims that the fiduciary breached his/her duty of care. In Matter of Nellie G., 2007 NY Slip Op 01877, 2d Dep’t, March 6, 2007, the Second Department reversed a trial court decision revoking a power of attorney and appointing an independent guardian. The appellate division found that the trial court was justifiably concerned about the fitness of the attorney-in-fact to manage the assets of her mother. However, in light of its finding that the questionable transactions did not harm the mother’s interests and did not benefit the attorney-in-fact, the Second Department held that the fiduciary’s actions did not warrant the revocation of the power of attorney and the appointment of an independent guardian.
In Matter of Katz, 2007 Slip Op 06431, 2d Dep’t, August 14, 2007, the appellate division reversed a decision of the Rockland County Surrogate’s Court where the sister of the executor claimed, inter alia, that the executor failed to invest estate assets pursuant to the dictates of the decedent’s will, causing the assets to lose value. In Katz, the executor did not engage in risky or questionable behavior but simply left the estate assets in a mutual fund rather than investing them in certificates of deposit pursuant to the terms of the will. Since the sister was able to demonstrate that investing in accordance with the will would not have resulted in a loss, the Second Department held that the executor’s “negligent retention of assets” constituted imprudent asset management and surcharged the executor for the difference between the value of the assets on the date they should have been invested less the proceeds from the sale of the assets when they finally were sold.
While the conduct of the fiduciaries in each case was scrutinized, it appears that the result of the conduct, rather than the conduct itself, is determinative when considering whether a fiduciary acted prudently. Al long as a fiduciary is fortunate enough not to cause any pecuniary harm, the court seems prepared to overlook conduct that might otherwise be deemed imprudent.
This article first appeared in the December 2007/January 2008 issue of the Women’s Bar News, a publication of the Women’s Bar Association of the State of New York.
Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.