The death of a parent is a difficult time that brings out strong emotions and highlights any family conflict. Add to that the distribution of assets and there is a strong potential for family conflict – even more so when the executor is not up to the task.
Consider the hypothetical case of Jessica in Minneapolis, whose father died four years ago. She was entitled to a percentage of the value of her childhood home, which was sold shortly after her father’s death.
At the time, the lawyer said all beneficiaries had to wait eight months before the proceeds of the sale were paid to ensure no unknown creditors would come forward – a process known as probate. This was double the legally required minimum notice period of four months in Minnesota. (1)
Jessica’s late father had no creditors or unknown debts, so his lawyer sent a letter to Jessica’s sister, who was the executor of the will, asking for an expedited payment. Jessica was asked to sign a release and then the funds were sent to her a few weeks later.
Four years have now passed. During that time, Jessica’s sister failed to carry out the terms of the will; I no longer talk to the other beneficiaries; delayed the transfer of three other properties to her siblings; fired the original attorney and exhausted the estate’s resources. He is now asking Jessica to return almost half of her inheritance to help pay the $60,000 in legal fees incurred while paying off the other estates.
Jessica feels her sister mishandled the estate settlement process and doesn’t want to pay. She claims that her share of the estate has already been settled, including the associated legal and probate fees deducted, and since she did not benefit from the rest of the estate, she should not have to pay.
Jessica is right that the process was mishandled. Aside from the other properties’ mishandling of payments, payments before the end of the testing process are not best practice nor recommended, so Jessica should have waited.
It is best to settle all matters of the estate first, which includes payment of any creditors’ claims against the estate, compensation of the executor, taxes and fees incurred to settle the estate, before making any payments.
Ordinarily, legacies are paid out of the value of the estate that remains after all costs and claims have been deducted – what is known as the ‘residual estate’.
In the case of this will, certain bequests were made in the form of specific properties, but if the estate is unable to pay all its obligations, the sale of these properties to pay the bills would take priority over the bequest.
Unfortunately for Jessica, when she signed the release, she likely also signed a repayment bond – and this would legally oblige her to give back some of her inheritance to help pay for the additional legal fees incurred in settling the estate.
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Jessica can afford to repay the money from the savings she set aside for an emergency fund, but paying it will set her back financially because she will have to rebuild her emergency fund at the expense of her regular retirement fund contributions.
She may want to work with her financial advisor to develop a plan to help recover from the loss of those funds.
Jessica could also choose to fight the claim in court, as she already has a bad relationship with her sister. However, this could cost more than her sister is asking, and the release and refund bond she signed could limit her recourse against the executor.
Jessica may still want to consult a probate attorney to try to have her sister removed as executor. Replacing it could help prevent further additional costs and ultimately lead to the estate being closed.
It is not easy to remove an executor, but Jessica could argue that her sister should be relieved of her duties due to her inaction and delay in dispersing the three estates, mismanagement of costs and lack of communication and hostility towards the other beneficiaries.
To do this, Jessica would need to gather all the testamentary documents, including the original will, as well as evidence to support her case for removing her sister. She would then make a formal application to the successful court. The will may name a successor executor, but if not, the court may appoint one.
Estate settlement is a complex and time-consuming process. It is important that beneficiaries fully understand the implications of what they agree to or any documents they sign.
Being an executor involves a great deal of responsibility, and the person chosen must be prepared and competent to carry out these duties. If not, beneficiaries may need to take action.
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Estate Exec (1).
This article provides information only and should not be construed as advice. Offered without warranty of any kind.
