As a follow-up to my recent post called "The executor's challenge", I would like to look a bit more closely at the executor's duty to remain impartial between beneficiaries. In law, this is known as the “even-hand rule”. Even when a trust is written so that the executor
has a lot of discretion, he or she must remain impartial between the beneficiaries of the estate.
This sounds simple
in theory but in practice, remaining impartial becomes a swamp of suspicion and
complaints by beneficiaries. Some complaints are about things about which have
very little substance. For example, beneficiaries often complain that the
executor chose a lawyer who is friends with one of the beneficiaries (not the
one doing the complaining, of course).
Other complaints
have more merit to them. Beneficiaries frequently complain that an executor
allowed one of the beneficiaries to go into the family home and take items from
it without affording the same opportunity to the rest of the beneficiaries. A
variation on that complaint is that the executor allowed one beneficiary to drive the deceased’s car or
live in the deceased’s home. Then of course there are the larger complaints that the estate itself is being unfairly distributed.
An executor must realize
that not only must he or she be scrupulously fair, but he or she also must be seen as being scrupulously fair.
An executor should also be
aware that the even-hand rule applies where there is a trust set up for one
beneficiary, with the remainder of the trust going to a second beneficiary on the
death of the first. This is often seen in blended families where assets may be
held in trust for the deceased’s spouse, with the remainder of those assets going
to the deceased’s children on the death of the spouse. It is also seen in other
situations.
The even-hand rule
says that the executor has to be impartial between the first beneficiary (in this case,
the spouse) and the second beneficiaries (the children). This is pretty tricky,
especially if the trust is written so that the executor has a discretion in how much to pay or give to the spouse during his or her lifetime. You may find
that the spouse is unhappy with the amount the executor is supplying from the trust,
and that he or she will take the executor to court to force him or her to pay more. On the
other hand, if the executor is too generous, he or she may upset the secondary beneficiaries
(the children) who may complain that the executor is unfairly using up their
inheritance.
An executor who administers a will with a trust like this must read the wording of the will
carefully. Lawyers have been aware of the even-hand rule for many years, and
with any luck, the trust being administered will mention how to deal with the rule. Lack of specific mention of the rule in the will means that the executor is bound by the even-hand rule.
The obligation to remain impartial between beneficiaries does not in any way mean that an executor may change the terms of a will when that will gives more to one beneficiary than to another. An executor simply does not have the legal authority to decide that the distribution should be varied. Adhering to the even-hand rule means giving everyone what the will says they are to receive, without imposing the executor's personal opinion about who should get what. An executor who decides to make the deceased's will "more fair" by changing who gets what is in direct violation of the even-hand rule.
The best way for an executor to stay on the right side of this rule is to follow the instructions in the will.
Does an executor who is also a residual beneficiary have the right to take large sums of money from the estate for personal use prior to disclosing all the assets of the estate to the other residual beneficiaries? Does this same executor have the right to make personal payments (using debit cards, witdrawals, drafts, online transfers, etc.) from estate accounts (of which they were named joint account holders for the purpose of caring for an elderly person).
ReplyDeleteThe first part of your question can be answered easily, as no executor is ever entitled to use estate funds for his or her own personal use.
DeleteThe second part is a bit more complicated. You are referring to an estate account that is also a joint account. I think you are talking about a situation in which a parent made one of the kids a joint owner of an account to help that parent, and then the parent died. It is in the role of beneficiary that the person may or may not have the right to use those funds. This depends on whether it is a true joint account in which the beneficiary was intended to inherit and keep the funds, or whether it was an arrangement made simply for convenience. You have said it was for convenience, but what matters is what evidence of intention was left by the parent. Does the will confirm what is to happen with the joint account? Does the bank have any record of what the parent's intentions were regarding the account? How do you know it was only for convenience, or are you guessing? The law says that if the account is inter-generational (you haven't said it is but I'm guessing) then the account must be considered part of the estate until it can be figured out whether it's a true joint account or not.
The executor's role in this is to remain neutral until a decision is made, but it doesn't sound as if he or she is doing that. Most of these cases end up being decided by the court. If the judge decides that it's an account made for convenience only, the executor/beneficiary will have to repay what he or she took.
If the executor is not able to remain neutral - and let's face it, almost none of them can - then he or she might have to be removed as executor so that the ownership of the account can be determined.
Lynne
This comment has been removed by the author.
DeleteHi Lynne:
ReplyDeleteSo sorry I haven't responded yet with a thank you to your response to my post above. I have been consumed with this case and doing as much research as I possibly can and losing much needed sleep along with other close family members because of what's been happening with this estate.
With respect to your questions, the executor and executrix (spouses) were added as joint account holders for the convenience of handling financial matters for an elderly lady, my daughter's grandmother. The executrix stated in her discovery that a lawyer had told her that the money was hers so she can go and spend it (while this dispute was in process). These people have cleaned out massive amounts of the estate and have also opened new joint accounts, purchased investments in their own names, while the lady was living without having documents witnessed by finance officials or legal representatives. The matrimonial home was sold while the lady was living and we were informed (during discovery by the executrix) that she was gifted the proceeds (very uncharacteristic of my daughter's grandmother to do that for someone who was not as closely related as her grandchildren were). The executrix has no witness to this either.
Since my last post, both the executor and executrix have tried to renounce their positions but they had been forced to resign as they had already "meddled" in the estate affairs and have been for the past 2 years. Would it be safe to say now that they no longer have access to accounts and also to having their legal fees paid through the estate?
Their lawyer is planning on making application to the court to have them given intervenor status (after a public trustee has been appointed). With them being the Plaintiffs in this case already and the Will having to be proven in solemn form, is this application warranted? Our lawyers are arguing that they should be added as parties in this dispute. The judge has asked for case study on intervenor status to determine whether or not this can be done but there is very little to be found relating to that in our jurisdiction. Do you know of any links or cases where this may have happened?
Thank you so much again for this wonderful blog. You have been very helpful.