Over the last year, the Covid-19 pandemic forced many of us to confront our thoughts and fears about illness and death. As unpleasant as these topics are, perhaps even more unpleasant is the “planning” aspect, which became a top priority for many last year.
The somber reality accompanying death is the realization that someone—most likely our family members or loved ones—will have to perform certain “administrative” duties on our behalf, such as carrying out our last wishes, sorting through our belongings, and locating important financial documents. As anyone who has experienced this firsthand will tell you, undertaking these responsibilities is no small task. The responsibilities of the executor or administrator include the collection of assets, the preparation of estate and final income tax returns, the payment of all estate tax and administrative expenses of the estate, and the delivery of assets to the intended beneficiaries or trustees of trusts established by a decedent.
To put it bluntly, administering an estate is a job. Therefore, it is critically important to select the best person for it. But what if someone steps forward and simply assumes those responsibilities without formal court appointment?
As it happens, case law in the last few decades has increasingly found that a person who assumes responsibility for handling the affairs of your estate—whether selected by you or not and whether they realize it or not—is stepping into a fiduciary role. And it may prove to have consequences. A growing number of jurisdictions across the United States have recognized that such “de facto” fiduciaries can be held accountable for their actions and decisions, just the same as a formally appointed fiduciary would. This means they can be surcharged or fined by a court for any conduct deemed to be improper.
In New York, the concept of the de facto fiduciary first emerged in the trusts and estates context in the mid-1980s. In one estate case, a Surrogate’s Court judge held that an individual who had assumed the role of executor of an estate could be compelled to account (i.e., prepare and produce a record or statement of the estate’s financial affairs) on exactly the same basis as a court-appointed fiduciary.
That decision laid the foundation for a series of similar decisions in the 1990s, including a widely cited 1995 appellate court decision known as the “Matter of Sakow,” the facts of which provide a good illustration of a de facto fiduciary scenario.
The case dealt with the estate of Max Sakow, who died in 1956. His two daughters, Diana Sakow and Evelyn Breslaw, brought suit against their brother Walter Sakow alleging that he fraudulently deprived them of the inheritance from their late father’s estate while acting as the estate’s de facto executor. During a bench trial, evidence showed that after his father’s death (and despite not being formally appointed executor), Walter began to transfer his father’s properties to himself either directly or through third-party transfers. While his sisters received support from their mother, Rose Sakow, who was in fact the nominated executor of the estate, the sisters never received a formal distribution.
At the bench trial, the mother testified that she allowed Walter Sakow to make all business decisions on behalf of the estate and would willingly sign “any document he presented to her.” The evidence presented at trial further established that Walter Sakow acted as the “principal decision maker” with respect to the distribution and disposition of his father’s assets without any opposition from his mother. In fact, on numerous occasions, Walter allegedly forged his mother’s name on checks purporting to be from the estate and even filed a lawsuit on behalf of the estate to recover certain property belonging to it. The appellate court found that his conduct unequivocally established that Walter Sakow was the de facto executor of the estate and was therefore required to account to his sisters for all property belonging to and originating from the estate.
In light of this and other decisions, it is natural to be wary of overly controlling and greedy relatives. But it is worth noting that de facto fiduciaries don’t always fit that mold. Sometimes they aren’t antagonists at all. In the 2007 case Seth v. Lakeden Realty Corp., a New York court emphasized that the concept of the de facto fiduciary also applies in scenarios where the fiduciary acts properly in administering the affairs of the estate. Therefore, rather than being chastised and surcharged, a good de facto fiduciary may also claim commissions for performing their role responsibly.
Such fiduciaries can also be trusted people outside the family, such as an attorney or financial advisor, who just happens to assume more responsibility in the affairs of the estate than originally contemplated. In the opinion about the estate of Nuo Djeljaj, a Surrogate’s Court judge held in 2012 that an attorney had stepped into the role of de facto fiduciary for Djeljaj’s estate after the attorney’s real estate agency handled the decedent’s real estate loan transactions and investments and even distributed some of the estate’s assets. In light of these actions, according to the court, “the [attorney] was performing two of the primary functions of a de jure executor or administrator: investing the decedent’s funds and making distributions to the beneficiaries of [the decedent’s] estate.”
Accordingly, the Surrogate’s Court ordered the attorney to file a formal accounting with respect to the real estate transactions and the distributions.
Managing the affairs of a loved one’s estate can be complicated and time-consuming. Thinking about your own mortality and whom to appoint to manage your affairs can be even more daunting. But the takeaway from these cases is relatively simple. When selecting the people who will serve as executors or trustees of your estate, you should specify people who will approach the task with the diligence it requires. And if you ever find yourself in what might be deemed a de facto fiduciary role, know that courts are increasingly imposing upon you the obligations and duties of appointed fiduciaries.
Yolanda Kanes is a partner at Tannenbaum, Helpern, Syracuse & Hirschtritt focusing on trusts and estates. Amanda M. Leone is an associate in the firm’s Litigation and Dispute Resolution practice.