WayForth is a downsizing, senior move management, and estate clean-out company. We offer our probate resources as support for families settling an estate, but we do not offer legal services. If you’d like more estate settlement information, please download our probate workbook, How to Settle an Estate Without Losing your Mind or Breaking Apart Your Family.
By the time Bill called us for support, he had mismanaged his father’s estate so spectacularly that we couldn’t help him recover. Bill didn’t handle distribution of assets properly, and he had mixed up the estate finances. The estate beneficiaries ended up suing Bill, the executor of the estate, for executor misconduct. They had his wages garnished to pay them back for money lost from the estate. Bill subsequently lost his house, his savings, and even his marriage.
This is exactly what an executor should not do and is one of the saddest cases we’ve ever seen of executor misconduct, but it underscores the fact that probate is a legal process. If an executor of an estate is not following the law, there are legal consequences. You could be personally liable for every dollar owed by the estate to creditors and beneficiaries—and potentially do jail time.
Here are four common causes of executor misconduct, and tips on how to avoid tripping over a legal hurdle.
Executor Misconduct 1: Not Recording the Will
Legally, an administrator or executor of an estate can’t do anything until they’ve been certified by the court, so it’s important to get on the probate court calendar as quickly as possible.
Part of that certification process is also finding the will, if there is one, and filing it with the court. This may sound simple enough, but if you’re not sure there’s a will or don’t know where it is, you need to show the court that you’ve made a good-faith effort to find it. That means going through all of the decedent’s papers, calling their attorney, checking with their bank to see if they have a safety deposit box, and going to the courthouse to see if a will has been filed there.
Even if a will is 30 years old and most of its beneficiaries have died, if that’s the most recent version, that’s the one that needs to be filed and followed. If there is no will, the executor of the estate must petition the court to declare the estate “intestate.” In that case, you’ll have to follow state laws to determine rightful heirs before settling an estate.
Executor Misconduct 2: Failure to Find and Protect the Assets
Locating assets can turn into a scavenger hunt. We’ve worked with clients who had no idea about some of the assets their parents owned, including property in other states, expensive jewelry hidden in the false bottom of a trunk, and long-forgotten bonds now worth a small fortune. You must find and report everything the decedent owned, because if something turns up later—after probate closes—you could have to dive back into more paperwork.
The key words here, though, are “securing” and “preserving.” Once you’ve found everything and made a complete inventory of assets, it’s your legal responsibility to secure the assets so they aren’t lost or stolen, and that they maintain their value between the time of the death and when probate finally settles an estate.
Executor Misconduct 3: Bungling the Finances
Until probate settles, you must manage the finances of the estate as if it were a separate business. This is where we’ve seen too many people risk executor misconduct by mixing money from the estate with other funds.
You also must collect any debts owed to the decedent, including back pay, pension income or Social Security that was due at the time of the death. Executors must file estate taxes and personal income taxes for the decedent. All of this estate accounting will eventually be filed with the court.
Most states also allow estate executors to receive “reasonable” payment from the estate for their services, but here’s the catch—you don’t get to decide what’s reasonable. The court will decide for you, and your record-keeping must be scrupulous. We’ve seen clients pay their personal bills out of the estate’s accounts and give themselves generous bonuses for the hours they’ve put in. This is clear executor misconduct. Remember, it’s not your money. Everything belongs to the estate, and every dime you spend needs to be approved by the court.
Executor Misconduct 4: Ignoring Creditors and Giving Stuff Away
Technically, distributing assets is the primary job of an executor, but all of these other steps have to be completed before this can happen. Where we’ve seen executors run into trouble is when they make distributions too early or in the wrong order.
Regardless of what’s in the will, creditors have top priority when it comes to receiving assets from the estate. But not all creditors are equal. Every state has its own priority ranking (of course, Uncle Sam is usually at the top). If an executor of an estate fails to distribute based on the correct priority, the executor may have to make up the difference with their own money.
Only after all creditors are paid should an executor distribute any remaining assets to beneficiaries—and then only to named beneficiaries (or legal heirs if there is no will). It’s tempting to give a little something to family members or friends who were close to the decedent, but if they aren’t named as beneficiaries, anything you disburse outside of the will could end up coming out of your own pocket.
Regardless of the issue, though, there’s one law every executor should follow: When in doubt, ask. Check with the probate court before paying out any money, and if the estate is particularly complicated you may want to bring in a probate expert. That can save you a lot of headaches—and a lot of money—down the road. Just ask Bill.
Need Help with an Estate Liquidation or Sale?
Our team of estate liquidators specializes in helping families and executors organize, move, and then sell estate belongs through an official estate sale. From initial planning to getting the house ready to go on the market, we help save you time and make the entire process as easy as possible. We’ll even finance our own services.
If you’d like help planning what to do with the belongings in an estate, we can help at every step in the process.
WayForth is a downsizing, senior move management, and estate clean-out company. We offer our probate resources as support for families settling an estate, but we do not offer legal services.