Let’s take you back to September 1995 when an Iowa district court appointed Dennis Rutter as executor of his mother’s estate. By the time Dennis filed his first estate accounting and probate inventory, he had mismanaged his mother’s estate so carelessly that his brothers and sister had to petition the courts for fiduciary removal.
Dennis had also mishandled asset distribution, and he commingled the estate’s finances with his own. The lower courts erred in keeping Dennis on as executor, forcing the beneficiaries to bring fiduciary litigation action against their brother.
After years of appeals, the Supreme Court of Iowa ordered a redo of probate proceedings, holding In the Matter of the Estate Rutter (Iowa 2001) that the lower court should have immediately removed Dennis.
The judiciary thereafter appointed a new executor who filed a revised inventory, re-performed estate accountings, resubmitted a final report, and redistributed estate assets.
Dennis eventually had to pay out-of-pocket restitution to his brothers to indemnify the estate for years of mismanagement and for reimbursement of legal expenses and fees along with interest.
What happened to Dennis is exactly what executors should not do when performing their fiduciary duties, yet sadly enough, the attorneys at Iowa Probate Litigation deal with such similar situations every day.
Executors need to understand that probate is a court-supervised procedure and when fiduciaries do not follow the rules, the courts will dismiss them and make them personally liable for their negligence.
Here are four regular executor misconduct issues that call for fiduciary removal and some tips on how to avoid them.
Delays in Discovering the Will
Finding the will may seem like a simple task, however, testamentary documents are occasionally difficult to locate.
If you’re uncertain if the deceased left a will or if you know that he did but are unable to find it, you’ll need evidence proving that you’ve made good-faith efforts to locate the testator’s estate planning documents.
This proof will come in handy later when beneficiaries bring action to remove you from your position for delaying probate.
Executors can often find the decedent’s estate planning documents:
- Locked in the testator’s safe deposit box at his bank.
- Registered at the decedent’s local courthouse.
- Held at the office of the testator’s estate planning attorney.
- Locked in a secret safe in the deceased’s home.
- Secured with a next of kin, close friend or family member.
- Digitized on the testator’s computer
Executors are also responsible for recording the correct testamentary document with the courts–there may be two or three modified wills out there and it’ll be your job to find the most recent.
Finally, if no will exists, executors owe a duty to successors to have the courts declare the estate intestate.
Remember also that before you can perform your executor duties, the courts must appoint you as a fiduciary of the estate, so it’s important to find the testator’s will and record it as quickly as possible with Iowa District Court to get your certification proceedings scheduled on the probate court calendar without delay.
Failure to Discover Assets and Protect Estate Property
Executors often say locating the assets in the will is harder than it sounds. Many personal representatives consequently have no idea how many assets the deceased owned or where to find them when their tenures start—i.e. land in other states, art, heirlooms, valuable personal property hidden somewhere in the decedent’s home, and paper stocks or bonds purchased fifty years ago (and not online.)
As an executor, the law obligates you to find, secure and preserve all real property and assets the decedent owned and report the inventory to the courts. If hidden property turns up after you’ve administered assets, you’ll almost surely have a lot of explaining to do while defending fiduciary removal proceedings brought by disgruntled heirs.
The terms “securing” and “preserving” are also extremely relevant here because even when all the testator’s assets are accounted for, the fiduciary is legally responsible to guard the inventory from theft and manage its value until the beneficiaries take their inheritances.
When discovering assets, executors should first start off with examining the will and afterwards contact the decedent’s estate attorney to get a copy of the asset list the testator prepared while planning his estate.
Other sources where fiduciaries can discover asset existence include:
- Financial files kept with the deceased’s accountant.
- Bank statements found in the testator’s home.
- Current dividend payouts received the decedent’s mail.
- Filed tax returns with state and federal agencies
- Online life insurance policy and retirement benefit search engines.
- Paid asset search agencies.
- State and local unclaimed property websites.
Mismanaging Estate Finances
Executors must treat the estate’s finances (revenues and liabilities) as if it were a business disconnected from its owners. A breach of fiduciary duty calling for executor removal will subsequently arise when personal representatives mismanage probate income or use the estate’s bank account for their own personal use.
Managing estate finances includes:
- Collecting debts owed to the decedent.
- Finding hidden creditors to settle accounts.
- Depositing pension income and other revenues into the estate account.
- Paying the deceased’s state and local income taxes.
- Performing court-mandated estate accountings when winding down probate.
It’s therefore imperative that fiduciaries keep meticulous records while performing executor financial obligations and never commingle funds by using the estate’s account to pay personal debts. Even if you’re both an executor and a beneficiary, the money is not yours yet—all the proceeds belong to the estate until the court approves the final accounting and authorizes distribution of assets among heirs.
To avoid executor removal proceedings, you should further consider employing certified public accountants, probate attorneys and professional auditors to help you manage the estate account during your tenure.
Disregarding Probate Protocol and Gifting Estate Assets
All beneficiaries really care about in the end is receiving their inheritances in a timely manner. But before that can happen, the executor needs to settle estate debts.
Executor misconduct calling for their discharge will occur when fiduciaries make early distributions without first setting aside assets to pay estate debts or when executors perform probate procedures out of order.
Irrelevant to what the will bequeaths to beneficiaries, the law obligates you to pay the testator’s liabilities and taxes first. Creditors and Uncle Sam therefore will always hold priority in asset taking over the successors.
In Iowa, priority ranking for paying estate liabilities is as follows: court costs–taxes–creditors–accountants/assessors–legal fees–executor fees. Failing to observe this protocol may call for the executor to step down from his or her position.
Creditors may also bring fiduciary litigation when executors settle estates out of order (distributing a creditor’s property to a beneficiary), making the personal representative liable to pay the testator’s debt.
Likewise, when the courts order recipients of early distribution to return their assets to the estate for debt payment, the executor will almost surely face fiduciary removal proceedings and tortious interference of inheritance lawsuits brought by the harmed beneficiaries.
Executors also have the power but not the authority to gift estate assets to individuals not identified as beneficiaries in the will. Gifting outside the provisions found in testamentary documents may provoke executor removal proceedings and require the fiduciary to pay out-of-pocket restitution to the inheritor who lost the asset.
You should seek the advice of a seasoned probate attorney to help you understand probate debt settlement protocol and gifting before you assume your executor post. Fiduciaries who do this will avoid having to defend their actions in court later.
Let’s leave you with one paramount rule that every executor should observe after accepting a fiduciary position—always seek advice from an expert probate attorney when in doubt—Dennis Rutter should have done this before settling his mother’s debts and submitting his final accounting to the courts, which would have saved him from facing an adverse fiduciary litigation verdict years after probate closed.
