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Protecting the Executor from Unfounded Allegations

Managing an Estate is Harder Than It Looks

There are various situation where non-attorneys become executors of an estate. Many (if not most) people placed in this situation do not have adequate knowledge on the subject.[1] In fact, such a person might not think twice if their relative or friend called them to ask “if it’s OK” to be an executor “if anything happened to them.” A layperson likely envisions the role of an executor as one who makes sure the decedent’s asset distribution matches the last will and testament. That line of thinking is not incorrect. The problem, however, is that this is the end goal, and there are much time-consuming battles to fight, until the executor actually gets to distribute the decedent’s assets.

Most non-attorney executors have an outside career or familial obligations and might not allocate the requisite time to understand the legal requirements. Unfortunately, the probate rules are demanding and exact. And when unexpected claimants stake a claim over the decedent’s assets is when an executor runs into avoidable problems and needs to protect herself. In some cases, it may be too late. The best solution is for the busy executor to hire an attorney immediately. The attorney would advise and prepare each step of the way. The attorney’s fees are usually paid through the estate; with no direct cost to the executor.[2] On the other hand, improper estate handling could place the executor personally responsible.

An executor must manage the estate with a reasonable duty of care from day one.[3] For example, before the court grants a letter testamentary (appoints) the executor; an executor could only utilize estate’s funds to pay for funeral expenses and only what is “necessary to preserve” the estate.[4] After receiving the letters testamentary, the executor has three main duties: gathering assets (filing an inventory with the court);[5] administering assets (taking care of the estate)[6]; and distributing assets.[7] Each of these steps present many potential pitfalls for an executor. For an approximate timeline, see New York Probate Timeline – A Sample Case Study.

New York law provides broadly that an executor is personally liable when the executor fails to “exercise reasonable care, diligence and prudence.”[8] As mentioned, one such situation is when the executor utilizes estate assets prior to the court’s permission. Another one is when executor distributes assets too soon and not in the proper order of priority. For example: paying out government owed taxes is priority.[9] In fact, it is unwise to distribute the assets prior to seven months, else the executor may be liable to pay out a legitimate debtor claim.[10] On the other hand, a delay of distribution beyond a reasonable time could lead to an executor owing as much as 9% interest.[11]

Additional problems could arise if the executor is not balancing the assets equitably among the beneficiaries. If an executor must sell off assets to pay creditors, he must do so in a fair manner. An executor must treat the estate beneficiaries equitably; else the executor be responsible from any resulting losses and dismissed.[12] Additionally, an executor must treat such estate selling as a prudent investor.[13] Moreover, there are many other nuances to know which an warrants the executor’s dismissal. For example. it is often tempting for a busy executor to handle a limited estate through their own account. Yet, this can lead to the executor’s dismissal.[14] Another is doing a disservice to either the surviving spouse or to beneficiaries under twenty-one years. By New York Estate rules, up to $25,000 in cash and value is excluded from the estate proceeding and is disbursed immediately.[15] Ignoring this rule not only hinders the decedents, but also places the executor prime for dismissal  and payment of interest on the money for the delay.

There are many such intricate rules the N.Y. appointed executor must follow. Often, an executor’s appointment can quickly turn from prideful responsibility into a regretful burden. Managing an estate can be burdensome to the busy executor—regardless of the potential for compensation. Yet, the executor could place themselves in financial and legal problems if not acting as the law intends. Which is why, it is best for the executor to hire an attorney. Not only would that protect the executor from personal liability and from dismissal challenges; but would also ensure estate’s proper administration per the decedent’s last wishes. If you were appointed as an executor, call me at (212) 233-1233 to discuss your best course of action.

[1] In New York, barring a few exceptions, any competent U.S. citizen over the age of eighteen could be an executor. SeeN.Y. Surr. Ct. Proc. Act Law § 707 (McKinney 2018).

[2] There could be indirect costs if an executor doubles as a beneficiary. The more expenses paid out, the less assets left to distribute. Such executor could consider foregoing their statutory executor fees. Seeid§ 2307.

[3] N.Y. Est. Powers & Trusts Law § 11-2.3 (McKinney 2018).

[4] Id.§ 11-2.3.

[5] 22 N.Y. Comp. Codes R. & Regs. § 207.20 (McKinney 2018).

[6] See Surrogate’s Court: Fiduciary Responsibilities

[7] N.Y. Est. Powers & Trusts Law § 11-1.5.

[8] Id. § 11-4.7.

[9] 31 U.S.C. § 3713 (2018).

[10] N.Y. Surr. Ct. Proc. Act Law § 1802.

[11] E.g., In re Marsh, 966 N.Y.S.2d 456, 459 (2013) (unreasonable delay in distribution resulted in a personal liability of 9% interest).

[12] See In re Estate of Witherill, 828 N.Y.S.2d 722, 725 (2007).

[13] N.Y. Est. Powers & Trusts Law § 11-2.3.

[14] See N.Y. Surr. Ct. Proc. Act Law § 719.

[15] N.Y. Est. Powers & Trusts Law § 5-3.1.