5.0 Personal Representative: Duties Generally
5.1 The Statute:
“§ 7-101. Duties of personal representative generally
(a) Fiduciary responsibility. — A personal representative is a fiduciary. He is under a general duty to settle and distribute the estate of the decedent in accordance with the terms of the will and the estates of decedents law as expeditiously and with as little sacrifice of value as is reasonable under the circumstances. He shall use the authority conferred upon him by the estates of decedents law, by the terms of the will, by orders in proceedings to which he is party, and by the equitable principles generally applicable to fiduciaries, fairly considering the interests of all interested persons and creditors.
(b) Time for distribution. — Unless the time of distribution is extended by order of court for good cause shown, the personal representative shall distribute all the assets of the estate of which he has taken possession or control within the time provided in § 7-305 of this title for rendering his first account.
(c) Exoneration for certain payments. — The personal representative does not incur any personal liability by his payment of claims or distribution of assets even if he does not consider claims for injuries to the person prosecuted under the provisions of § 8-103(e) or § 8-104 of this article, if at the time of payment or distribution:
(1) He had no actual knowledge of the claim; and
(2) The plaintiff had not filed on time his claim with the register.”
“§ 7-102. Possession and control of estate
A personal representative has a right to and shall take possession or control of the estate of the decedent, except that property in the possession of the person presumptively entitled to it as heir or legatee shall be possessed by the personal representative only when reasonably necessary for purposes of administration. The request by a personal representative for delivery of property possessed by the heir or legatee is conclusive evidence, in an action against the heir or legatee for possession, that the possession of the property by the personal representative is reasonably necessary for purposes of administration. The personal representative may maintain an action to recover possession of property or to determine its title.”
5.2 Introduction – Duties of Personal Representatives
The Personal Representative of an estate has certain responsibilities and obligations that are set by statute and case law. According to the Annotated Code of Maryland, Est. & Trusts Article, § 7-101, a Personal Representative is a “fiduciary.” “He is under a general duty to settle and distribute the estate of the decedent in accordance with the terms of the will and the estates of decedents’ law as expeditiously and with as little sacrifice of value as is reasonable under the circumstances.”
Each estate is quite unique and consequently requires individualized attention. Nevertheless, the administration of an estate follows a logical progression of gathering assets, paying debts, and following the dictates of the will (or, in the absence of a will, the dictates of the intestacy statute).
The purpose of this discussion, however, it not to set forth the specific tasks of a personal representative. Instead, this discussion will focus on the nature of the fiduciary obligation of the personal representative.
In general, the Personal Representative has a duty to settle and distribute the estate in accordance with the terms of the will or in accordance with the laws of descendants as expeditiously and with as little sacrifice of the value as is reasonable under the circumstances. In order to accomplish this task, the Personal Representative takes possession and control of the estate. The Personal Representative has a duty to notify the heirs and legatees and to prepare and file an inventory of the estate. The Personal Representative must arrange for appraisals of all of the property of the estate in order to pay the inheritance tax to the state and any estate tax due the federal government. The Personal Representative has a duty to account for the management of the estate to the Orphans’ Court and to the heirs. The Personal Representative may be held liable by the creditors of the estate, the heirs of the estate, or by any other taxing authorities if the Personal Representative fails to properly execute the duties of his or her office.
5.3 The Duty of Loyalty
One fundamental duty of a Personal Representative is that of loyalty. According to Est. & Trusts Article § 7-101, this duty is to “all interested persons and creditors” of the estate. Every action that a Personal Representative takes must take into account the impact that class of beneficiaries and/or creditors.
A Personal Representative should never place him/herself in a position that may favor the Personal Representative’s interest over the interest of the beneficiaries and/or creditors. The Personal Representative must consistently avoid conflicts of interests. Aside from a reasonable fee for services, a Personal Representative must not derive any personal advantage from, or realize a profit in, dealing with the estate.
5.4 The Duty of Prudence
The Personal Representative has a duty to exercise care, diligence, and prudence in dealing with the estate’s property. The Personal Representative’s conduct will be considered reasonable if he or she acts as a “prudent person” would act. The “prudent person” theory means that the Personal Representative must act with the care and skill that a prudent person would exercise in his or her own affairs.
5.5 Preserving the Assets
The Personal Representative is under a duty to preserve and protect the assets of the estate. This includes such assets as real estate held by the estate, household furniture, furnishings, and collectibles. The Personal Representative is under a duty to provide adequate security and protection for these and other items. It is important that the decedent’s insurance agent be contacted and that the Personal Representative review all of the insurance coverage for assets belonging to the estate.
5.6 Conduct in Investing
With regard to investing, the Personal Representative’s first duty is to protect capital and avoid undo risk. The Personal Representative is also under a duty to use reasonable care and skill to make property productive, within the guidelines of the will and of state law restrictions. If the Personal Representative invests estate assets in speculative ventures, he or she is risking personal liability in the event that a loss is sustained, unless that investment is authorized specifically by the terms of the will. The bottom line is that a Personal Representative must exercise prudence, discretion, and intelligence to safeguard the estate’s principal, but at the same time generate as much income as is reasonably possible.
Fortunately, it is the conduct of the Personal Representative, rather than the investment performance, that is judged by the courts. The Personal Representative will be personally liable only when losses result from his or her imprudent conduct, rather than because investment performance has not been as good as possible. The Personal Representative may retain non-income-producing-assets, but only if the will specifically authorizes him or her to hold those assets (or if there is some overriding reason for keeping them).
Maryland law (Est. & Trusts Article § 15-106) provides a list of “lawful investments.” This is a list in the statute of various investments, generally an investment guaranteed by the federal or state government or an agency of the federal or state government. The statute establishes guidelines but does not insure protection for the Personal Representative. Reasonable care must still be exercised in selecting securities by the Personal Representative. The fact that there is a statute providing certain “lawful investments” does not mean that any other investment is unlawful in any sense. The duty to use reasonable care and skill in selecting investments is the fundamental test in reviewing a Personal Representative’s activity.
The Personal Representative must be more concerned with the safety of the principal than with enormous profits. Diversification is the key to safety in this area. Even with special language in the will relieving the Personal Representative of the obligation of diversifying assets, we suggest that the Personal Representative maintain records showing why he or she did not diversify. Again, the key in this area is the use of reasonable care in managing investments.
Est. & Trusts Article § 15-114 establishes guidelines and standards for the investment of assets. This provision, by its terms, only applies to trust companies or persons who made an election to be governed by this Section. Generally, § 15-114 permits the portfolio as a whole to be reviewed rather than focusing on an examination on an asset by asset basis. Additionally, the guidelines set forth considerations the fiduciary may take into account when making an investment decision, including: the general economic conditions, the possible effect of inflation, the expected tax consequences of a decision, the role each investment plays in the portfolio as a whole, the expected total return of the investments, the reasonableness of any costs associated with an investment, and the status of the related assets of beneficiaries. Although arguably Maryland law already dictates a “whole portfolio” approach to fiduciary investments, we recommend following these guidelines.
5.7 Maintaining Accurate Records
Maintaining accurate records is another important duty. The Personal Representative must account periodically to the beneficiaries. Keeping beneficiaries informed is an extremely good way to avoid litigation and maintaining accurate records greatly reduces the possibility of having a successful suit against a Personal Representative. In addition, accurate records ease the task of rendering the formal account to the Orphans’ Court and/or Register of Wills. If accurate records are not maintained, the preparation of various accounting can become a nightmare.
5.8 Duty Not to Delegate
Personal Representatives may not delegate his or her fiduciary responsibility. This duty “not to delegate” is derived from the nature of the position as Personal Representative. Obviously, a Personal Representative is entitled to employ counsel, accountants, and others to help in the tasks. The Personal Representative, however, has a duty to careful monitor all work and, of course, “signs off” on every task.
In the case of several Personal Representatives, each Personal Representative is under a duty to the beneficiaries to participate in the administration of the estate and to use reasonable care to prevent other Personal Representatives from breaching the fiduciary responsibilities.
If you are going to make any investment changes, timeliness is the key. This means that the Personal Representative must implement his or her plan as quickly as possible after prudent decisions have been made.
An astonishing number of lawsuits involve a Personal Representative’s failure to file tax returns in a timely manner. Unless the Personal Representative has reasonable cause for not complying with the time requirement, he or she will be held personally liable for interest and possibly penalty charges resulting from taxes paid late or not paid.
5.10 Powers of a Personal Representative
In order to properly administer an estate, the Personal Representative must be given the power to perform his or her duties. In many instances the will enumerates a broad range of powers given to the Personal Representative. In the absence of certain powers delegated by the will, State law enumerates a long list of powers that the Personal Representative may exercise in carrying out his or her duties. (The statutory powers may also be in addition to any power authorized by a will, unless such powers are limited by the will). The statutory powers include the power to hold assets, receive assets from other sources, deposit funds in estate accounts, pay or settle any claims with a creditor of the estate, pay the funeral expenses, pay taxes, insure property, pay off debt, continue to operate an unincorporated business venture that the decedent was engaged in at the time of his or her death, perform the contracts of the decedent, exercise options on life insurance policies, employ attorneys and other specialists, prosecute or defend litigation, and make partial and final distributions.