Real Time Web Analytics

Thursday, June 16, 2016

Can the executor hire himself to do renovations on estate property?

Is it okay if the executor of the estate hires himself to do renovations on the estate property? A reader recently asked me about this. Read on to see his question and my comments.

"I am the Executor of my Fathers estate. There are four beneficiaries including myself. I spent 8 months after my Father passed away to renovate the home. I have documented each and every day of who did work and time. These people include my wife, family, friends and contractors. I now have sold the home, and need to pay these people. Therefore, what kind of receipts do I require from whom? My major dilemma is myself, I am a contractor, I did extensive work inside and outside of the home, which I kept records of. How do I claim my time re: labour for that work, which is not justified as work to be done as an Executor?"

Executors regularly incur the wrath of beneficiaries when they appear to have benefited personally from something they've done on the estate. In your case, they may not like it that you will be paid for doing renovations. They may wonder if you have done unnecessary renovations just to get a bigger piece of the estate. However, it's really not that unusual for the executor of an estate to determine that an estate property would sell for a higher price if it were renovated or modernized. The key to it is whether there is a benefit to the estate.

Let's say the cost of the renovations is $25,000 but it increases the sale price of the house by $50,000. That is surely beneficial to the estate, as you have not just preserved it, but maximized it. Now, on the other hand, if you spent $25,000 on renovations but only managed to get $10,000 more on the selling price, you can expect the beneficiaries to be justifiably upset that you lost estate money.

Assuming that we have jumped the first hurdle - that of justifiably spending estate money - let's move on to the next. Let's talk about you doing the work yourself and paying yourself.

The general rule is that if an executor does work for the estate that he would have had to pay someone else for, the executor can be paid for that work at the rate such work is normally paid. In other words, if you were going to hire a contractor to renovate the house anyway and that happens to be your profession, you can hire yourself to do it and pay yourself your usual rate. You can pay your workers what you would pay them if the work had been done for a stranger. Set everything (work orders, employment records, invoices) the way you would for any customer. You-as-contractor will send the bill to you-as-executor, because the executor is your client. Then pay yourself out of the estate. Show the expenses on the executor's accounting when that time comes.

You'll find that all of those detailed records you kept will be important. The beneficiaries would have every right to look over expenses you paid to any contractor, and this is true even though you are the contractor yourself. You are going to have to be transparent and be prepared to show all invoices and receipts if the beneficiaries want them. Although there is no legal conflict of interest, you should realize that if you over charge, or do shoddy work, or don't actually increase the sale price of the property, you will have created a conflict of interest that didn't exist before.

As a general rule, if you do everything with integrity and transparency, and you always keep the best interests of the estate in mind, you shouldn't run into trouble.

9 comments:

  1. Excellent common sense response.

    The problem as we all know are often unreasonable, disgruntled beneficiaries. My view is before doing anything consult with the beneficiaries and see if they are all on board. Discuss the benefits of your plan. If they are not on board then sell the house ASAP. No point destroying family relationships over an estate house. Disgruntled beneficiaries can tie up an Estate for years. I've been there, I am there.

    ReplyDelete
    Replies
    1. That is a very good point and I wish I had mentioned it. Discussing plans ahead of time is a great idea. In most cases there will not be consensus because people do get pretty sensitive about estate matters, but at least if the executor encountered unanimous opposition he could, as you say, just sell the house as is.

      Lynne

      Delete
  2. Indeed...I set up a secret FB page that only the executors have access to. I find it easy to communicate with the other beneficiaries (my siblings) and allow them to make comments. I also know when posts are read and such...this allowed me to avoid headaches and solicit input. Luckily my moms estate was simple and there's not much left other than waiting for the 6 months for creditor claims and then taxes.

    ReplyDelete
    Replies
    1. This is a really good idea. Glad you shared it.

      Lynne

      Delete
  3. Dear Lynne

    My wife is a non-resident. She and her two siblings (both resident) have inherited money and property from her recently deceased Father. We understand that withholding tax will be due on her share (she will not be liable for any inheritance tax in the country of residency). Is this withholding tax paid by the estate thereby reducing the distribution to all beneficiaries, or is it just deducted from my wife's share?

    ReplyDelete
  4. Executor just buried our mother without telling mus. Hired her lawyer to do accounting. Refused to give us info on estate. The lawyer also refused to give us information. Also the lawyer says she has a year to complete this. My mom had a house, sold four months ago. The taxes, done, probate done. Sister lived in the house without permission. She said she was separated from husband. Now she wants executor fee. What can we do. This has been horrible.

    ReplyDelete
    Replies
    1. Hi Chuck,
      Burying your mother really does sound horrible, but the rest of it isn't so bad.

      Don't waste your time talking to the lawyer because the lawyer works only for the executor. The lawyer can only give info to his or her client. Most people think that the lawyer is the "estate lawyer" and therefore will talk with anyone involved in the estate but that is not the case.

      It actually sounds as if this executor is moving things along, if all of that has been done and it's not yet a year since your mother's death.

      The year referred to by the lawyer is what is known as "the executor's year". It's a common law concept that says that an estate without complexities should be wrapped up in about a year. If the estate is still outstanding after that time is up, you would be within your rights to push the executor.

      I agree that the lack of information is frustrating and possibly problematic. I honestly don't know why executors get so damn precious about estate information but they sure do. You could try forcing an accounting out of her by hiring a lawyer.

      Her living in the house is also problematic. She is not entitled to live there at estate expense. If she wants to live there, she should be paying rent. Of course she won't produce information because then you'll find out she isn't paying rent. The amount she should have paid in rent should be deducted from her executor fee or from her share of the estate.

      It's ok that she hired the lawyer to do her accounting. I've prepared plenty of accounting reports for clients over the years. However, since preparing the accounting is a basic core of executor work, the executor fee should be reduced by the amount paid to the lawyer to do the accounting. Otherwise you're paying twice.

      When she's got everything wrapped up, which I expect won't be long now since things seem to be moving along, you'll get an accounting from her. It should cover everything she has done with the estate. When you get it, you have the right to ask questions or ask for more detail, or to ask that things be adjusted (like the rent I mentioned). This usually sends executors off like fireworks but it's your right not to sign off on an accounting that you don't agree with.

      Be aware that if you don't approve of her accounts, she will threaten to apply to the court to pass accounts. If she does, that's all to the good because then you'll be able to point out the problems to the judge and have her fee adjusted.

      Lynne

      Delete
  5. Lynne, I am a little confused. Why would she (Executor) threaten to apply to the court for Pass Accounts? How many Executors do that on themselves? If she does all the better for the beneficiary, but he will still have to retain a lawyer and state his case. That could be costly.
    I think that in this case, based on what I read, the beneficiary will probably need some expert advice with the accounting. We know nothing about the relationship between the lawyer and the Executor. I hope we get to see how this is settled.
    Part of the problem IMO is that we don't get the full story. I have noticed this with many of the letters presented. I think there is something odd with this story.

    ReplyDelete
    Replies
    1. Plenty of executors apply to pass the accounts, because they can't get the beneficiaries to approve of them, and they want to get the estate out of the way with some confidence that there will be no future lawsuit.

      As for not getting the whole story, welcome to my world :) When people tell me their stories and ask me their questions, they state what they believe is relevant to the issue. Sometimes they include the parts they think will bring about a favourable answer. This is why I always tell people to go see a lawyer for a more detailed answer than I could give on a blog - because I don't get to ask the questions I would ask if sitting down in a meeting. Most of the time, people honestly do their best to tell the story properly but between legalese in the documents, unfamiliarity with the court system, getting info second or third hand from the rest of the family, and emotions running high, accuracy is usually lacking.

      When I have meetings with people in my office, we hash things out for an hour or two so that I get the whole story. That will just never happen with a blog post.

      I too hope that some of the people who ask questions here will come back and let us know what came of their situations.

      Lynne

      Delete

You might also like

Related Posts with Thumbnails