A Realistic Look at Using Co-Fiduciaries
Co-fiduciaries may seem like a good idea to those looking to appoint friends or family as agents, either as personal representatives or as agents under powers of attorney. However, some caution must be used when deciding whether, and in what instance(s), co-fiduciaries may be a good idea.
Co-fiduciaries may be a reasonable choice in certain circumstances, i.e., where the potential appointees know each other and have a reasonable amount of trust and good will toward each other and the other’s abilities and decision-making capacities. There may be circumstances, especially in familial situations, where two agents can make difficult medical or financial decisions for an elderly family member where the principal has taken the time to make his/her wishes clear to the co-agents. This is especially true where the agents both share similar beliefs in the meaning of life and death, and more importantly, have the same belief set regarding life and death as the principal. However, as often as not, an appointment of co-fiduciaries can lead to further deterioration of a strained family relationship or friendship, and can involve the principal in litigation at a time when the principal can least “afford” the distraction, emotionally or financially. For these reasons, it is important to discuss with your estate-planning professional all possible alternatives to the appointment of co-fiduciaries and give the estate-planning professional all of the relevant background information for the situation to allow the professional to give appropriate guidance and counsel.
Co-Fiduciaries in an Estate.1 Under Colorado law, two or more co-personal representatives must make decisions for the testator/decedent unanimously, unless a governing document has terms otherwise (i.e. a document which names a person as a tie-breaker if the agents cannot agree). See Colo. Rev. Stat. Ann. § 15-12-717 (2016) (“If two or more persons are appointed corepresentatives and unless the will provides otherwise, the concurrence of all is required on all acts connected with the administration and distribution of the estate.”).2 Generally, co-fiduciaries must participate in the administration of a decedent’s estate or risk some liability for failures associated with a lack of participation. The flip side of that coin is that each co-personal representative is potentially responsible for the actions or acts of his/her co-fiduciaries if he/she knew of the tortious actions of the cofiduciary, unless the governing instrument states otherwise.
“One of several fiduciaries is normally not liable for the acts of a cofiduciary unless there has in some way been a failure in the former’s own duties. Each cofiduciary, however, must participate in the administration of a decedent’s estate or trust, assuming at least that such participation is not excluded by the terms of the governing instrument. Thus, a trustee is under a duty ‘to use reasonable care to prevent a cotrustee from committing a breach of trust or to compel a cotrustee to redress a breach of trust.’ RESTATEMENT (SECOND) OF THE LAW OF TRUSTS § 184. A fiduciary must not delegate duties to a cofiduciary, at least in the absence of compelling circumstances that require it in the interest of proper administration. A cofiduciary who violates these duties is liable. When cofiduciaries are both liable, their liability is joint and several; and when neglect renders one liable for the wrongful act of the other, either may be required to make good for the entire loss. In such a case the greater fault of one may create a right of indemnity in the other.” Colorado Law of Wills, Trusts, and Fiduciary Administration, § 40.13, citing Scoles and Halbach, Problems and Materials in Decedent’s Trusts and Estate 760 (Little Brown and Co., 5th ed. 1993).
It is important to recognize that the communications between the co-agents must be thorough and completely transparent to insure that all decisions are made based on all pertinent facts. If the principal is a person with diminished capacity and/or an at-risk adult, the need for honest and forthright communications between the agents is even more heightened and the requirements for full disclosure is of utmost importance. And, this is where co-fiduciary relationships which are not stable or already grounded in trust do not normally fare well. If two parties have historically not been able to work together and lack trust, it is unrealistic for a principal to appoint them as co-fiduciaries to work in harmony under the stressful conditions associated with acting as a fiduciary.
Co-agents under powers of attorney. Unlike the legal presumption present with co-personal representatives, co-agents under a power of attorney can work independently unless the governing document dictates otherwise. Colo. Rev. Stat. § 15-14-741 (2016). However, even if co-agents can work independently and without consultation with the other co-agents, autonomous actions without the knowledge or understanding of the other co-agent can create financial or medical decisions that conflict for the principal. If the co-agents are not in agreement on a course of action on behalf of a principal, the ability of each co-agent to bind the principal may create unnecessarily complicated circumstances for the principal, both financially and medically. Thus, if there is any question for the principal about the ability of co-agents to work together for the benefit of a principal, the principal would be wise to only nominate one agent and have such agent be required to consider the input of the other party, but ultimately be solely responsible for decision making. The other possible option is to appoint co-agents, but have a neutral third-party act as a tie breaker if the parties do not agree on a course of action.
In conclusion, the appointment of co-fiduciaries may seem like a reasonable idea in the mind of the principal, but there are numerous considerations for the legal professional to discuss regarding the ramifications and/or dangers of such an appointment.
Written by Jessica H. Catlin
1. The duties of care of a co-fiduciary in an Estate are essentially the same in a Trust context.
2. Co-trustees are held to the same standards as co-personal representatives. “If there are two or more trustees, the powers conferred upon them can properly be exercised only by all the trustees, unless it is otherwise provided by the terms of the trust.” See RESTATEMENT (SECOND) OF TRUSTS § 194. And, the duty of each cofiduciary is to participate in the administration of the trust and use reasonable care. “If a trust has more than one trustee, except as otherwise provided by the terms of the trust, each trustee has a duty and the right to participate in the administration of the trust; Each trustee also has a duty to use reasonable care to prevent a co-trustee from committing a breach of trust and, if a breach of trust occurs, to obtain redress” See RESTATEMENT (THIRD) OF TRUSTS § 81.