James R. Balmforth: Can An Executor Refuse To Pay A Beneficiary?

Typically the answer is no. However, there may be an exception to this general rule. Accordingly, please call Ascent Law LLC (801) 676-5506 for your Free Consultation.

Executors and beneficiaries have a unique relationship under the law. An executor manages a deceased person’s estate and a beneficiary is an individual who will inherit that property. While the executor and beneficiary can be the same person, you should give it some thought when drawing up your Will.

The Executor’s Role

An executor is an individual who is in charge of managing a deceased person’s estate. An executor’s duties include gathering assets, notifying creditors, paying valid claims, and distributing assets to beneficiaries. An executor has a fiduciary duty, which means an obligation of utmost loyalty; he or she must not take actions that would benefit him or herself or other beneficiaries at the expense of the other beneficiaries. The executor must ensure the deceased’s assets are accounted for, debts paid, and estate taxes filed, if necessary. The executor is also responsible for ensuring there are as much of the deceased’s assets to distribute to the beneficiaries as possible. Even if a person is named as the executor, he or she does not have to accept that position. He or she may decline the appointment immediately or during the process if unable to complete the executor’s responsibilities. An executor is also able to consult with attorneys, accountants, and other professionals to ensure the estate is being properly managed.

Probate is the process whereby a person’s estate is administered and distributed after their death. Probate laws vary depending on the state. If a person executed a valid will before they died, an executor was most likely named in the document. The executor is entrusted with carrying out each step of the probate process to ensure the deceased person’s wishes are properly carried out. If a person dies without a will, or intestate, the court will name an administrator to oversee the probate process. The executor is expected to marshal the assets of an estate as part of a complete inventory. Depending on the size and overall value of the estate, the executor will pay any applicable taxes and remaining debt to the decedent’s creditors. The funds for these payments are taken out of the estate. If the debt is greater than the value of the estate, individual items can be sold to cover those obligations, which could leave a beneficiary without an inheritance at all. The executor owes a duty to the beneficiaries of the estate to preserve the value of the estate to the greatest extent possible.

The executor has several duties including:

• disposing of the body;

• obtaining Probate of the will if there is one;

• collecting in and securing the assets of the estate;

• determine and discharging the deceased’s debts;

• keeping proper accounts and distributing the estate assets.

Being an executor can be a very onerous and difficult task indeed. The vast majority of executors are lay family members, not professionals such as accountants, lawyers or trustee organizations. Because a degree of the human element is involved, problems of course arise when executors do not do what they are supposed to do. The most common breach of the executor’s fiduciary duty is delay in obtaining Probate or administering the estate.

A Beneficiary’s Rights

A beneficiary is the individual or individuals named in a will that will inherit property from the deceased. Anyone can be a beneficiary, a spouse, children, other relatives, friends, and even charities. Beneficiaries have rights that entitle them to information about the estate from the executor. Beneficiaries may ask what assets are included in the estate, how much debt the estate must pay, and which assets will be used to settle the said debt. Asking for ongoing reports from an executor is perfectly normal.

The executor and beneficiary can be named as the same person in the Will. It’s perfectly normal and legal. It’s actually a common approach because the executor should be someone you know and trust and it’s common sense that your beneficiaries fall into that column. Conversely, an executor may be someone you know that is not a beneficiary. Maybe you want your four children to inherit everything, but instead of putting one of them in charge, you name your sister or best friend to act as an independent executor.

Downsides

The beneficiary is the one who benefits from the executor’s work, so if you have a number of beneficiaries, it may be easier to separate those roles in order to simplify relations among all parties. The executor has an equal responsibility to each beneficiary to ensure the property that the deceased wanted them to have, gets passed on. If one of the beneficiaries is also the executor, this process can become difficult, especially if assets must be sold to pay debts. Closing an estate and dividing assets can become increasingly difficult if there are multiple beneficiaries with one of them acting as executor. Choosing your executor is important. You want to be confident that whomever you choose will be able to carry out the role of finalizing your estate and doing so fairly.

Remember, being an executor may involve calculating the value of your estate, calculating any taxes owed, selling or transferring property or investments to pay off debt, and that’s all before the duty of distributing your estate to your beneficiaries. Because of the work involved, and the fact that an executor can be found personally liable if anything goes awry, choose carefully and ask their permission first. Whichever route you go, it is vital that the executor and all beneficiaries have a clear understanding of their rights in regards to an estate in order for things to go as smoothly as possible. You are due an inheritance, but you have a problem with the way the executor is doing his job. Depending on the estate in question and the laws of the state, the probate process can be quite complex, but there is a structure to the process. Distribution of the assets of the estate to beneficiaries named in the will or to heirs under intestate succession usually come at the end.

Distribution of the Estate

The length of time it takes to successfully complete the probate process can depend on the complexity of the estate, as well as state law. In most cases, beneficiaries should expect to receive their portion of the estate in a timely manner, but ownership will not transfer until the end of the probate process. Remaining assets are distributed in accordance with the terms of the will or the state’s intestate laws. Although you would expect the executor especially if chosen specifically by the deceased to carry out his or her duties with the utmost care and respect, mismanagement of an estate is not unprecedented.

If an heir or beneficiary believes the executor is not fulfilling her legal obligations, a petition can be filed with the court for either a complete accounting of the estate’s assets or removal of the executor in a serious case of mismanagement. An executor who is violating his duties can be held in contempt of court, which can carry fines and even a jail sentence. The heirs or beneficiaries can also pursue a civil lawsuit to recover lost or stolen assets, and legal fees. Only parties with legal standing can force an executor to finalize an estate. Individuals with a legal interest in an estate have standing. Examples of interested parties would be beneficiaries and heirs, or conservators or guardians named in a will. An interested person first must come forward to force an executor’s hand to finalize an estate. An interested party can gather information to prove an executor’s inefficiency if he believes the estate is being mismanaged. He can request that the executor disclose all the actions taken while handling the estate’s business.

If the executor refuses to cooperate, he should hire an attorney should to make a formal request for the information. If an estate closes within one year it is usually not considered overdue.

An interested party can make a written demand to finalize an estate directly to an inefficient executor. Making the demand through an attorney can be stronger and may get a quicker result. The demand should outline proof that the executor is neglecting his role. It may also set a deadline for finalization of the estate to avoid legal action. If an executor refuses to finalize an estate after a written demand, the interested party should contact the probate court and request a hearing to close the estate. This is done by filing a motion along with evidence that the executor neglected his duty to finalize the probate file. The motion and the hearing date must be served on the executor and all other interested parties in the estate. The complaining party and his attorney must attend the hearing to orally argue why the executor should be ordered to finalize the estate. The judge can then issue an order forcing the executor to do so.

When an Executor Refuses or is Unable to Act

When an executor refuses to act, beneficiaries of the will may become upset because the executor is the only person who can ensure the estate gets distributed. Fortunately, there is a process for the reluctant appointed personal representative the term used for executor, administrator, or trustee is to renounce the appointment. The first step is to determine whether the executor is really refusing to act. Perhaps the person is just moving at a slower pace than others would like or is getting everything in order behind the scenes before taking action. People work in different ways, so don’t assume the worst of the person before you have all the information.

Additionally, remember that it is not easy to be a personal representative. It can take a lot of time and effort, all while the person appointed as executor is grieving the loss of a loved one. Residual beneficiaries of a will have the right to be informed as to what the executor is doing. Not all executors realize this. If you are a residual beneficiary, you can contact the executor or the executor’s lawyer and ask for an update. If, after communicating or trying to communicate with the executor, you still believe he or she refuses to act, it is time to encourage the executor to renounce. There are many reasons why people refuse to take on the job of executor. They may be unable to act for health or emotional reasons, or simply because they don’t have the time. If a person appointed in a will does not want to take on the job of being a personal representative, he or she cannot be compelled to do so.

Common causes of executor misconduct, and tips on how to avoid tripping over a legal hurdle.

• 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.

• Failure to Find and Protect the Assets: Locating assets can turn into a scavenger hunt. Working 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.

• 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.

• 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. 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.

The Rights of Beneficiaries to Wills

A beneficiary is an individual or entity to whom a deceased benefactor known as a decedent bequeaths real and personal property, cash or other assets. The will defines the decedent’s intended beneficiaries and the inheritance they are to receive. Named beneficiaries have certain rights to the estate and their inheritable assets. However, beneficiaries are not necessarily entitled to anything beyond what the decedent bequeathed to them, and have limited rights even in this regard.

Designation and Inheritance

A beneficiary is entitled to know that a will names her as a beneficiary, along with the full inheritance the decedent assigned to her. The executor is obliged to notify the beneficiary that she is named within the will, and to provide her with information regarding what she is to receive. However, the beneficiary is not entitled to receive, appraise or view her inheritance until probate completes and ownership of the property transfers to her. The executor has an obligation to the beneficiaries to exercise reasonable diligence when administering the estate. While state probate laws define what constitutes “reasonable,” in general, the executor should transfer ownership of all beneficiaries’ inheritance within a year after the decedent’s passing. If the executor requires additional time, he must provide the beneficiaries with a reason for the delay. Otherwise, the beneficiaries may petition the adjudicating court to appoint a new executor, who can assume responsibility for dividing the estate’s assets accordingly.

Abatement is the process of liquidating an estate’s assets to cover its outstanding liabilities. Estate faces abatement when it holds more debt than it owns in disposable assets, and beneficiaries can lose some or all of their inheritance in the process. In this situation, a beneficiary’s rights come second to the rights of any creditors, as the estate’s liability to its creditors supersedes anything else. The estate cannot bequeath property or assets it does not own, so it must settle its outstanding claims before the court can determine what it lefts to distribute amongst the beneficiaries. Although most states first liquidate any assets not specifically assigned to a beneficiary, assigned property and cash are not exempt from abatement. In the event that part of the beneficiaries’ inheritance covers the estate’s liabilities, the court divides the remaining assets by percentage, with each beneficiary receiving a share that is equal to the inheritance the decedent defined. If the estate breaks even after covering its liabilities, or takes a loss, the beneficiaries are entitled to nothing and receive no inheritance.