Examples of Executor Misconduct

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Being the executor of a will is a big responsibility. Most people who undertake this role do so with the best of intentions, but many are unfamiliar with the requirements of their position and inadvertently breach their duties. A small percentage of estate executors deliberately take advantage of their position of trust, depriving beneficiaries of the estate of their rightful share.

Most of the time, what is considered executor misconduct involves actions that are intentional or reckless. However, when an executor breaches their duties, whether intentionally or not, they may be found personally liable for any losses suffered by the estate.

If you are an executor, this blog post will help you understand (and avoid) some of the potential pitfalls you could encounter. If you are an heir or beneficiary of an estate who suspects executor misconduct, this blog post will help you understand how to protect your interests.

When the Executor of an Estate Breaches Their Duties

The executor of an estate is a fiduciary: someone who is obligated to act in the best interest of another person or persons. In the case of a decedent’s estate, the executor is responsible for managing the estate for the benefit of the people who will inherit from it. There are numerous ways that even a well-intentioned executor may breach their fiduciary duties, including:

Failing to Safeguard Estate Assets

One of the first responsibilities of an executor is to identify, gather, and safeguard the estate. Failing to do so could cause estate assets to be lost, damaged, or wasted, causing loss to the beneficiaries of the estate and possibly to creditors of the estate.

Failing to Timely File Documents and Keep Beneficiaries Informed

Perhaps the most common example of executor misconduct we see involves executors who simply fail to timely file documents with the probate court and fail to account for their management of the estate to the beneficiaries or inform beneficiaries of their rights. Executors are required by law to do these things, but even if they were not, failure to inform beneficiaries is likely to lead to resentment and suspicion, which in turn may cause beneficiaries to initiate probate litigation against the executor.

Failure to keep beneficiaries informed of the progress of administration and of their rights is not a problem limited to executors of probate estates. The trustee of a trust may also neglect their obligations to beneficiaries, causing similar problems.

Failing to Abide by the Terms of the Will

An executor is the personal representative of an estate in which there was a valid will. (The personal representative of an estate without a will is called the administrator of the estate). An executor is obligated to abide by the terms of a valid will so long as doing so is not impossible. For instance, if a will says, “I leave my Batmobile to my dear friend Alfred,” but the deceased did not own a Batmobile, the executor cannot carry out that instruction.

However, if the will instructs the executor to distribute an asset to one person, and the executor intentionally distributes the asset to someone else, that would constitute executor misconduct.

Self-Dealing or Conflict of Interest in the Administration of the Estate

An estate executor is required to manage the estate in the best interests of the beneficiaries of the estate. That may include selling or investing estate assets. An executor must not manage the estate in a way that benefits the executor at the expense of beneficiaries.

For instance, an executor should not invest estate funds in their own business ventures, sell estate assets to themselves at less than fair market value (or at all in some circumstances), or loan money to themselves from the estate, even if they intend to pay it back before it is time to distribute the estate to beneficiaries. While an executor of an estate is entitled to payment for their services, compensating themselves at an unreasonably high rate could also be considered self-dealing.

In general, if an action looks like it could improperly benefit the executor, the executor should avoid taking that action. An executor should hold estate funds entirely separate from their own funds to avoid even the appearance of self-dealing.

Failing to Pay Legitimate Estate Debts in the Proper Order

Another of an executor’s duties is to pay legitimate debts of the estate in the order established by law. Michigan law establishes a priority of debts so that if there are not enough assets in an estate to pay all debts, the most important debts will be paid first. If an executor pays a debt that is not legitimate, or is lower in priority than another debt, they could be personally liable to the estate for any losses suffered.

Mismanagement of Estate Assets

This is a broad category that includes many actions that could harm the estate’s value. An executor is obligated to manage an estate’s assets prudently. Investing estate assets in an ill-advised or sketchy investment is one common type of mismanagement. Another type of executor misconduct that falls under the umbrella of estate mismanagement is failing to maintain assets such as real estate, which then decline in value.

In addition to paying estate debts, the executor of an estate is also obligated to collect any debts that are due to an estate. Failing to collect accounts payable is another example of mismanagement of estate assets.

Other Neglect of Duties Resulting in Executor Misconduct

There are many things an executor is supposed to do in the course of administering an estate. These duties include filing the will and other required documents with the court and ultimately distributing estate assets to the beneficiaries after all debts have been paid. An executor who fails to fulfill these duties delays the administration of the estate, which delays the beneficiaries’ receipt of their inheritance and could diminish the value of the inheritance.

Avoiding and Responding to Executor Misconduct

An executor who wants to avoid committing misconduct against an estate should have the help of an experienced probate attorney to administer the estate. A probate attorney can advise the executor, help them carry out their duties in a timely and thorough manner, and steer them away from doing things an executor cannot do without risking liability.

However, if an executor chooses not to get or follow legal guidance and commits misconduct, heirs and beneficiaries may need to take court action to address the misconduct. This can result in the executor being ordered to take or refrain from certain actions. If necessary, the executor may be removed and replaced. A probate attorney can also represent aggrieved heirs and beneficiaries in an action against an executor.

To learn more about executor misconduct or the Michigan probate process, contact Estate Planning & Elder Law Services to schedule a consultation.

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