Estate, Powers and Trusts, § 11-1.6: Property Held as Fiduciary to be Kept Separate

A fiduciary is a person who is person who holds a legal relationship of trust with respect to another person. With regard to estate planning, examples of fiduciaries include an executor of a decedent’s estate and the trustee of a living or testamentary trust. A fiduciary can have a variety of duties and responsibilities. However, when performing his or her duties the fiduciary must do so in an honest, responsible manner, with the best interest of the beneficiaries in mind. Fiduciaries are often given the power to manage assets belonging to an estate or trust. New York estate law requires that during the process of estate administration or trust administration, when fiduciaries hold property for the benefit of others that property must be kept separate from property owned by them personally. Under New York Estate, Powers and Trusts, § 11-1.6, this means that if a fiduciary commingles property, then that fiduciary would have committed a breach of fiduciary duty. As you contemplate drafting your will and appointing an executor it is would be wise to consult an experienced New York Trust Lawyer who will educate you on the duties and responsibilities of an executor and who will make sure that your will is drafted in a manner that reflects your estate planning goals.

1. Tax elections by personal representatives: Estates, Powers and Trusts, § 11-1.2
2. Validity of execution of power to sell, mortgage or lease real property by less than all qualifying executors: Estates, Powers and Trusts, § 11-1.4
3. Payment of testamentary dispositions or distributive shares: Estates, Powers and Trusts, § 11-1.5
4. Limitations on powers and immunities of executors and testamentary trustees: Estates, Powers and Trusts, § 11-1.7

“Commingling” is a legal term used to describe a breach of trust involving a fiduciary mixing assets that the fiduciary holds for a client or beneficiary with his own funds. Commingling makes it difficult to determine which funds belong to the fiduciary and which belong to the client. For example, if a fiduciary has a brokerage account to which he makes periodic deposits and he then begins to deposit his client’s funds, it would be difficult to determine how to allocate gains or losses.

Under EPTL 11-1.6, a fiduciary must follow the following rules:

1. A fiduciary must not commingle his own property with property held as a fiduciary.
2. A fiduciary must not open a bank or investment account in his own name and deposit a beneficiary’s property.

Furthermore, New York law has rules that banking institutions must follow with respect to ensuring that a fiduciary does not commingle his funds with those of a client or beneficiary.

A violation of prohibitions against commingling is a misdemeanor.

1. Every fiduciary shall keep property received as fiduciary separate from his individual property.  He shall not invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary;  provided, however, that any bank or trust company, when acting as fiduciary, whether alone or jointly with an individual, may with the consent of the individual fiduciary, if any (who is hereby authorized to give such consent), register and hold stock or other securities (referred to in this § as “securities”) in the name of the nominee of such bank or trust company;  and provided, further, that any individual acting as fiduciary is authorized to direct any bank or trust company incorporated under the laws of this state, any national bank located in this state or any private banker duly authorized by the superintendent of financial services of this state to engage in business here (who, as private banker, maintains a permanent capital of not less than one million dollars) to register and hold any securities in the name of a nominee of such bank, trust company or private banker (referred to in this § as “bank”).  Such bank shall not redeliver such securities to the individual fiduciary, who authorized their registration in the name of a nominee of the bank, without first registering the securities in the name of the individual fiduciary, as such.  But, any sale of such securities by the bank at the direction of the individual fiduciary shall not be treated as a redelivery.  The bank may make any disposition of such securities which is authorized or directed by an order or decree of the court having jurisdiction of the estate or trust.
2. Any bank shall be absolutely liable for any loss occasioned by the acts of its nominee with respect to the securities so registered.
3. The records of such bank shall at all times show the ownership of any such securities and of those held in bearer form.  Such securities and those held in bearer form shall at all times be kept separate from the assets of the bank and may be kept by such bank
   1. in a manner such that all certificates representing the securities from time to time constituting the assets of a particular estate, trust or other fiduciary account are held separate from those of all other estates, trusts or other fiduciary accounts;  or
   2. in a manner such that, without certification as to ownership attached, certificates representing securities of the same class of the same issuer and from time to time constituting assets of particular estates, trusts or other fiduciary accounts are held in bulk, including, to the extent feasible, the merging of certificates of small denomination into one or more certificates of large denomination, provided that a bank, when operating under the method of safekeeping security certificates described in this subparagraph (B), shall be subject to such rules and regulations as, in the case of state chartered institutions, the state superintendent of financial services and, in the case of national banking associations, the comptroller of the currency may from time to time issue.  Such banks shall, on demand by the fiduciary, certify in writing the securities held for such fiduciary.
4. Any person violating any of the provisions of this § shall be guilty of a misdemeanor.
5. This § shall apply to all estates and trusts now in existence or which may hereafter come into existence.

Creating a trust, will and other estate planning documents is an important process that will affect how your estate is managed once you pass away. It will also impact the financial future of your family members. It is important to make sure that it is done correctly and to understand the responsibilities and limitations of your executor and other fiduciaries involved. The staff at Stephen Bilkis and Associates has years of experience working closely with New York clients to draft wills and other estate planning documents such as trusts, powers of attorney and living wills. To learn more about estate planning, contact us at 800.696.9529 to schedule a free, no obligation consultation regarding your estate plan.