An Executor's Breach of Duty to the Estate
Under the law, the executor of an estate is a fiduciary. Consequently, the executor owes the beneficiaries the highest legal duty of care and loyalty to properly manage the estate for their benefit. If the executor fails in this duty, he or she can be removed from that position and be liable to the estate for damages.
An executor's job can be demanding and the expectations are high. An executor is responsible for:
- Locating all the beneficiaries and giving them notice;
- Collecting all the decedent's assets and preparing and filing an inventory and a list of claims with the court;
- Properly notifying creditors of the decedent's death;
- Filing appropriate forms with the IRS giving notice of decedent's death;
- Paying creditors and taxes as appropriate;
- Protecting and managing the estate's assets;
- Distributing estate property in accordance with the will's terms and the law; and
- Closing the estate.
Some of the common mistakes executors make which can lead to breach of duty claims include:
- Distributing property to the beneficiaries too soon;
- Paying creditors too early;
- Failing to keep beneficiaries properly informed;
- Failing to act in the estate's best interest;
- Failing to take proper care of the estate's assets;
- Commingling personal funds with estate funds; and
- Taking compensation from the estate inappropriately.
Read on for some specific examples of executors behaving badly.In re Estate of Montemayor
Decedent Mother's will left all her estate to her nine children and appointed Son as independent executor. The estate's sole asset was Mother's house and the lot it sat on. There was evidence that before the will was admitted to probate, Son rejected an offer to purchase the house. The court heard further evidence that thereafter, he moved from a garage apartment on the property to the main house. He changed the lock on the gate and denied the other beneficiaries access to the house. He lived on the property rent-free and failed to properly maintain it. According to the court, he said that he would not sell the property, and would live in the house until he died. All of this behavior led the probate court to remove him as executor. The appellate court upheld the probate court's decision, stating that sufficient evidence supported the conclusion that Son had breached his fiduciary duty to protect the beneficiaries' interest and "allowed his personal interest to conflict with his fiduciary obligations."In re Roy
Decedent Mother owned approximately 10 acres of land that was leased for several years to Company, a steel tank fabrication company owned and managed by Son. Company used the land for its business operations. When Mother died, her will left the property to Son and her other three children, with Son being appointed independent executor. Evidence showed that when Company's lease on the property was up for renewal, Son hired an appraiser to examine the property without giving notice to the other beneficiaries. Based on the appraisal, he then cut the rent on the property by nearly half. Company renewed its lease for the next three years at this reduced rate before the other beneficiaries became aware of it. In addition, when Mother's residence was sold, Son paid himself $5000 in fees and administrative expenses, none of which were including in the accounting of the sale. The other beneficiaries sued to have Son removed as executor and appointing another brother in his stead.
The court concluded that Son's concurrent positions as beneficiary, independent executor, and president of Company created a conflict of interest, and that he violated his fiduciary duty by failing to disclose the fees he paid himself for the residence sale, as well as failing to disclose the rent reduction.Sierad v. Barnett
Father died without a will, and the court appointed Daughter 1 as administrator. Father had another daughter, Daughter 2, who along with Daughter 1 was heir to his estate. Daughter 2 sued, alleging breach of fiduciary duty. After a complicated procedural history during which Daughter 1 disappeared for a time and a new administrator was appointed, the court found that Daughter 1 had breached her duty by treating the estate property as her own, to the detriment of others' rights in it. The trial court found that Daughter 1's actions included (among other things):
- Living in Father's house rent-free and failing to pay the mortgage, which led to a foreclosure proceeding;
- Making unauthorized withdrawals from bank accounts;
- Failing to account for a $999 money order known to be in the decedent's possession;
- Failing to account for insurance proceeds on covered damage to the house; and
- Disposing of the home's furnishings without approval or accounting.
If you are in a situation where you are concerned by an executor's actions, your first step should be to seek advice from an attorney experienced at handling probate litigation. Give me a call at (903) 944-7537 to discuss your concerns.