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Thursday, April 20, 2017

The executor has used estate funds for personal use. What can a beneficiary do?

If you were a beneficiary of an estate and you found out that the executor was skimming from the estate, would you know what to do? Would you know what legal solutions were available? A reader recently asked me what to do in that situation. His question and my response are below:

"My brother recently became executor for our mother's estate. He has asked all beneficiaries to sign a full release for an interim disbursements. He was very upset when I refused to sign a full release and that got me wondering what was going on. After much debate, I finally got him to send us documentation on the estate which showed a very different amount in the estate bank than what he had sent us originally. He then confessed to "borrowing" from the estate for personal use. Do I have any recourse to have him removed as executor? The will has been probated and all was going OK until I found out about the borrowing. Is there anything I can do about reducing his executor fee? Is he in breach of fiduciary duty? Is he in contempt of probate court? Did he break the law?"

There are some options open to you, all of which are based on the fact that as executor, he is not allowed to "borrow" from the estate. Yes, he is in breach of his fiduciary duty.

One solution is for his executor fee to be reduced by the amount that he borrowed. He might agree to this voluntarily if it avoids a lawsuit, and if the dollar amounts are suitable. If he does not agree, you can ask the court to order it.

Reducing his fee would mean that he would remain as the executor. If you believe that is not the best thing for the estate, or if the amount he took is more than his fee would cover, you could ask the court to remove him as executor. As a general rule, courts do not like to remove executors because it means going against a choice made by the testator, who had her reasons for appointing him. It's your mother's will and she had the right to choose who she wanted. However, it certainly can be done with the right evidence of misuse of estate funds.

You would have to provide the court with the consent of another person who is willing to take on the job (and there are some rules about who that can be), because the court is not going to remove an executor without a replacement. The process of removing him would also involve him passing his full accounts in front of the judge.

Your brother is not in contempt of probate court. However, as mentioned, he has breached his duty to the estate and to the beneficiaries and that is the basis of any lawsuit that would ensue. Because you are a beneficiary, you are directly affected by his actions and therefore you are a person who has legal standing to bring an application to the court. In reality. most of these matters don't make it all the way to court because things get settled along the way, but each case is unique.

When you ask whether he has broken the law, you are really asking whether criminal charges can be laid against him. In theory, this is possible. However, in real life the legal waters are very muddied and involve civil law more than criminal law, so the police stay out of it. This is because the grant of probate allows your brother to legally access the money. It allows him quite a bit of leeway in how he uses it. If you want to bring charges because he has misused the funds, this puts the police in the position of having to interpret a civil document and its usage in the context of probate law, which really can only be done by a judge. Criminal charges are rarely laid against executors except in very extreme cases and usually it's after the matter has been through civil court so that the issues have been dealt with. In other words, it could happen but at this point it's premature.

I suggest that if there is any way the matter can be settled without a lawsuit, you should try to take that route. Perhaps your brother could find a way to replace the funds. Lawsuits are expensive and time-consuming, and will likely destroy your brother's relationship with you and the other beneficiaries.




4 comments:

  1. Excellent.

    I have the exact opposite situation. 11 years and still working and waiting to resolve and settle my situation all due to misbehaving lawyers. Be very careful when you lodge a complaint with the LSUC against a lawyer in a city where all lawyers know each other. The LSUC is a Society for Lawyers who pay fees. They pay lip service to the little people. I have conducted myself accordingly.

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  2. If the executor is also a beneficiary does that change the situation ? If I'm both couldn't I just say I was giving an interim disbursement of the estate ?

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    Replies
    1. Paddy;
      All other beneficiaries would also need to be provided an interim distribution at that time, in equal proportion to the total distribution they are ultimately to receive.
      In reference to the original topic, it appears the executor was attempting to hide from the other beneficiaries, that he had taken money from the estate.

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  3. As an executor is required to maximize the value of an estate, then estate funds are to be invested or at least earning interest until they are distributed. In addition to replacing the entire capital amount taken, I expect the executor brother should also be reimbursing the estate for the amount of investment income that was not earned as a result of his 'loan'.
    With regard to Lynne's final comment, based on the questions asked, I sense the executor brother's relationship with at least the writer, has already been damaged.

    ReplyDelete

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