Executor Problems with Beneficiaries

If you are an executor who has problems with beneficiaries, it can be a stressful time. The good news is that as long as you are acting property, following the law and following the advice of your attorney, your problems with beneficiaries can be handled without a significant time delay and with minimal stress and expense. The key is to have an experienced estate attorney advise you in the process.

If you are an executor who has problems with beneficiaries and you are looking for an experienced New York estate attorney, you can send us an email at [email protected].

If you are an executor who has problems with beneficiaries you are not alone. Many executors experience one or more of the following issues:

• giving an executor a hard time
• asking for accountings and reports
• questioning everything an executor does
• being belligerent, disrespectful and hostile to the executor
• bringing an unwarranted will contest just to harass the estate and get a bigger share than they are entitled to by the terms of the will
• suing the executor personally
• going after the executor’s own assets
• going after property that the executor received outside of the estate
• claiming that the executor is stealing from the estate
• claiming that the executor is mismanaging the estate
• complaining of unequal treatment
• giving inflated numbers of the estate, in an effort to artificially maximize their share
• claiming an inflated elective share

In this guide we address the common problems that executors have with beneficiaries and provide some advise on how to avoid or mitigate those problems.

Being an Executor is Not Easy

Many (if not most) people who are placed in the situation of being an executor do not expect to be facing off with hostile beneficiaries.^[1] You might not have thought twice when your relative or friend called you to ask “if it’s OK” to be an executor “if anything happened to them.” You likely envisioned the role of an executor as one who makes sure the decedent’s asset distribution matches the last will and testament. And now you are realizing that there may be time-consuming battles to fight and complicated rules to follow until you actually gets to distribute the decedent’s assets.

Most non-attorney executors have an outside career or familial obligations and don’t have the requisite time to deal with the constant demands of the beneficiaries on their time in addition to having to deal with the actual work of the estate. Unfortunately, the probate rules are demanding and exact. And when beneficiaries start to create problems is when an executor needs to protect his or 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.

How You Can Avoid or Mitigate Problems with Beneficiaries

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.

Avoiding Being Personally Liable

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]

What are the Common Problems to Avoid

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 estate attorney such as Albert Goodwin who can be reached at 212-233-1233. Not only would that best protect the executor from personal liability and from dismissal challenges; but would also ensure estate’s proper administration per the decedent’s last wishes.

Beneficiaries Accusing the Executor of Taking Advantage of the Estate

One of the biggest problems that executors can face from beneficiaries is accusations of taking advantage of the estate. Executors are most often accused of

• stealing from the estate
• inflating expenses
• self-dealing

Unfortunately for an estate, when an executor is accused of stealing, they have to present an accounting to the court, which creates a problem for the executor in terms of time, expense, stress and delay.

A New York estate accounting is a tightly regulated format, having the executor list every asset they received from the estate, every expense down to the penny with the exact date, income of the estate and supporting documentation. What usually happens next is the estate attorney for the beneficiaries presents demands for documents to support the accounting, with the the estate executor than having to provide supporting documentation for each one of the accounting items. Estate accountings and the supporting documentation can run for tens, hundreds, or thousands of pages. Estate attorney for the beneficiaries would also present follow-up written questions about the accounting (called “Interrogatories”), and take examination under oath from the executor and other relevant parties (called “Examination Before Trial” or “Depositions”).

New York estate accountings are not cheap, because an air-tight accounting cannot be prepared without the assistance of a very experienced New York estate attorney and a forensic accountant who has experience with estate accountings. Because the estate has to pay for all of those expenses, the result is less money to distribute to the beneficiaries, which in turn creates another problem for the exefuro who is then accused of wasting estate money on an accounting. When beneficiaries get belligerent, hostile and unreasonable, they can create such a catch-22 for the executor. Beneficiaries are of course not happy about this added expense (which they themselves have caused), and now accuse the executors of inflating the attorneys’ fees and pay their attorney to challenge those fees (a situation that we like to call “fighting fire with fire”).

After the accounting and all the supporting documentation and information are presented, it is up to the parties to determine if they wish to proceed to trial. Many times the accounting plainly demonstrates that all of the assets of the estates are there and all expenses are proper. If there are irregularities, they are mostly small. Sometimes beneficiaries create more problems for the executor and insist that executors have taken advantage of the estate and a trial follows, to which we provide a vigorous defense.

Beneficiaries Demanding an Accounting

A compulsory formal accounting is a problem for the executor as it can be frustrating and time-consuming. If you are an executor or administrator of an estate, the last thing you want to do is to have to provide a formal accounting. But the beneficiaries are making you do it, so here you are.

A formal accounting has many downsides and problems, not only for the executor but for the beneficiaries as well:

• It requires a lot of work from the executor. The executor has to spend time on the accounting, time he could have spent on his professional and personal pursuits. The executor will not be paid extra for the work of providing an accounting.
• Expensive. The fees for attorneys, accountants, and appraisers being involved can add up to tens of thousands of dollars.
• Gives beneficiaries another reason to complain and cause problems. To add insult to injury, the beneficiaries will complain that the executor is spending too much on lawyers and accountants, even though it is the beneficiaries themselves who created the accounting situation in the first place.
• Exposes the executor to potential liability. Once the executor files the accounting, the beneficiaries’ attorney will try to find inconsistencies in order to extract a settlement from the executor.
• Can force an unjust settlement. The prospect of a drawn-out compulsory accounting proceeding can squeeze the executor into giving up a share of their rightfully owned estate just to avoid the torture.
• Leaves less money in the estate to be shared. Money can be better spent by you and beneficiaries then paying lawyers and accountants.

An executor is better off trying to settle for an informal accounting. Since a proceeding for a compulsory accounting has been filed against you, you will have no choice but to file some sort of an accounting. An informal accounting is a good way for the executor and the beneficiaries to try to find common ground, avoid more problems and resolve a case without the expenses and the time commitment of a formal accounting.

An informal accounting has many benefits over a formal accounting:

• It requires less work. Because you don’t have to use court-mandated forms, there is less work to do. For example, you would not have to list every single item of expense and income, you can just give a summary of income and expenses.
• Cheaper. Less attorney and accountant fees.
• Easier to work things out. The atmosphere of a contested accounting is less contentious so it’s easier to work things out.
• Less problems. Because it’s less complicated and requires less of a disclosure, an informal accounting creates less problems
• More money left over for a settlement. As opposed to giving estate money to lawyers and accountants, keep the money for yourselves and the beneficiaries

Make sure to include all expenses. Just like filing a tax return for a business, an executor will have problems with the beneficiaries if they neglect to list all of the expenses. Make sure the beneficiaries will not charge you for money that is not due to them but was spent on the expenses of the estate. Look over the estate accounts and even the decedent’s personal bank accounts and possibly your personal bank accounts (ask your estate attorney). Even small expenses can add up to large sums fairly quickly. No expense should be left unaccounted for.

An executor should be involved in the accounting process. It’s easy to just let the attorney and the accountant handle the accounting. After all, they’re getting paid to do it. You can’t do everything yourself, and you have to delegate. However, this does not mean that you should not be involved in the process. After all is said and done, the executor is in the crosshairs and at the risk for problems from the beneficiaries, not the attorney or the accountant. So make sure you check their work.

Do not procrastinate. Start compiling the accounting as soon as the Citation for Compulsory Accounting is served, if not before. This is because it takes months to put together an accounting, but the court is only going to give the executor from thirty to sixty days. Courts know that executors have the option to start putting the accounting together before the court issues the Accounting Order; this is why courts give so little time to file an accounting. To avoid problems from the beneficiaries, the executor should not procrastinate. Call your New York estate lawyer and tell them to start working on the accounting right away.

The sooner you start, the more time you have to fix any issues that may come up, so that you’re one hundred percent protected from any allegations and problems that may come up from the beneficiaries. Even if the beneficiaries will ultimately agree to work things out based on an informal accounting, you will still need to file some kind of accounting, so get to work!

Beneficiaries Bringing a Will Contest

Beneficiaries sometimes bring a will contest, which could potentially be a big problem for the executor in terms of time and expense. To successfully defend a will contest in New York, an executor and their attorney needs to go beyond the basic law. It is crucial to look at the extent of the relationship between the decedent and the people making the will contest, argue whether there was a confidential relationship between the will-maker and executor and argue the decedent’s medical record.

Relationship between the decedent and the objectants to the will. Typically, if a beneficiary’s share is diminished by the will, they either (1) had a bad relationship with the decedent or (2) had little or no relationship with the decedent. Beneficiaries’ motivations in contesting the will are clear from the start – they will try to throw everything at the will and see what sticks, in the hope of creating problems for the executor and using that to obtain a settlement.

The very few cases where the person whose share is diminished by the will had a good relationship with the decedent are more difficult to defend and are more prone to settlement, but still have a very high success rate in being defended, as the courts are mindful of testators having independence and the right to set up their estate any way they see fit. The objectants would still have to go through the process of trying to prove insufficient mental capacity or to prove that the decedent was coerced into making a will, which requires proof that is difficult to get.

The two arguments objectants usually make are that the decedent did not have the mental capacity required to make will or was coerced into making a will.

Being a caretaker is scrutinized, but defendable. Executors often think that helping the decedent will score them points in court when trying to defend a will against a contest. The truth is more complicated. Being close to the decedent is a positive factor for an executor in a New York will contest,  but being a caretaker for the decedent is a negative factor for the executor, which can create more problems with the beneficiaries.

If the people who the decedent left assets to were the decedent’s caretakers, then they would have to explain to the court how is it that they received the estates and the objectants did not. Many times this explanation is relatively simple – if the objectants did not have a good relationship with the decedent, and it can be proven, then the reason for cutting them out will be evident.

Executor helped the will-maker with the will? not great, but defendable. Any help by the executors or beneficiaries in procuring the will is considered a negative factor for the executor and a plus for the people objecting to the will. Arranging the appointment with the estate attorney and driving the decedent to the attorney’s office are considered bad. Being in the room with the decedent during the appointment with the estate attorney is even worse. While in New York, helping the decedent with the will is not a major factor like it is in some other states, it is still considered a negative. However, this is not the biggest problem and is ultimately defendable.

Mental capacity is mostly a battle over the medical records. To challenge the decedent’s mental capacity, the objectants will obtain the decedent’s medical records and will try to use them to show that the decedent did not have the capacity.

• Clean record – Sometimes all the medical records that the objectants were able to get are all clean, with the decedent having excellent capacity. That usually closes the case. The objectants can try to continue the case, but this kind of case is so weak that it often goes away with a Motion to Dismiss.
• Inconclusive record – in many cases, the decedent’s medical record is inconclusive and it’s really up to the respective parties’ estate attorneys and medical experts to show the court whether or not the decedent had the capacity to make a will. The law presumes capacity, so the absence of capacity must be proved. Even if the decedent had diminished capacity some of the time, it is still possible for them to have lucid times when they did have the capacity to make a will. Testimony from the attorney who drafted the will is helpful to see just how the decedent did on the day of the will execution ceremony.
• Not so great record – In some cases, the medical records point strongly to the decedent’s incapacity. For example, when the decedent is diagnosed with late-stage Alzheimers. Or the decedent is on very strong medication, making them delusional. A bad medical record can be a real problem for the executor. This is when cases get very contested and it may be time to consider a reasonable settlement.

Coercion or pressure to make a will is hard to prove – Undue influence or duress is almost impossible to prove because even if, theoretically, it were to happen, there would be no one there to witness it. The objectants to the will were certainly not there. They cannot say that the decedent told them so because the words of the decedent are not acceptable as evidence in a New York estate due to the evidentiary rule called the “Dead Man’s Statute.” This is even beside the point that anything they would claim the decedent said would probably not be admissible due to it being hearsay. An attempt to claim undue influence or similar coercion ultimately brings us back to the mental capacity issue and medical records.

New York has strong protections for executors against problems with beneficiaries – New York has estate laws that are relatively favorable to executors of contested wills. There is no burden of proof reversal when a beneficiary is a caretaker of the decedent, although there can be a rebuttable inference. If an objectant wishes to contest a will in New York, they would have to go through us first, and we are very good at what we do.

Beneficiaries Trying to Remove the Executor

Although New York law gives judges broad discretion to disqualify executors, the law also gives great respect to the decedent’s decision to appoint an executor. The courts will not disqualify a person from an appointment unless there is a real concern for the estate.

Many attempts to disqualify an executor happen simply because the other beneficiaries don’t like the executor and are trying to cause problems for no reason. They say they are “not comfortable” with the executor. But the truth is, it is not their choice who the executor is. The testator gets to nominate the executor, and it’s a decision that the beneficiaries would have to live with.

Most executor disqualification attempts allege some sort of dishonesty. Such attempts are usually tied in with other attacks on the estate, as part of a broader strategy. For example, potential heirs might allege that the executor is hiding the estate’s assets and is for that reason not qualified to act as an executor. Or, they may say that the nominated executor tricked the decedent into making a will. Allegations alone are not enough to remove or disqualify an executor, and those allegations are notoriously difficult to prove.

New York law states that an executor appointment can be denied “by reason of substance abuse, dishonesty, improvidence, want of understanding, or who is otherwise unfit for the execution of the office.” It also gives some other reasons to disqualify an Executor, see NY SCPA 707.

A vast majority of alleged problems with executor qualifications are not upheld by New York courts. However, we’ve seen cases where executors were disqualified, especially with wills where there is an alternate executor specified.

Sometimes a bond is enough to calm any concerns with the executor and stop the beneficiaries from creating problems. A bond essentially is insurance on any potential misconduct by the nominated Executor. However, some executors don’t qualify for a bond, and a small percentage of estates are so large as to preclude any sort of bond that makes financial sense. Those are the cases where executor qualifications can become a problem.

The most important thing an executor can do to not get disqualified and to avoid other problems form the beneficiaries is to comply with all New York laws, follow all of the court’s orders and not miss any deadlines specified in the law or set by the court.

Beneficiaries Trying to Claw Back the Executor’s Share in the Decedent’s Business

Executors often find themselves in a situation where beneficiaries cause problems by making a claim to the executor’s own part of the business that they were in with the decedent. The beneficiaries will not care about the hard work that the executor has put into the business. They do not care about having the business prosper, its employees paid and its function be a contribution to society. All they want is to cause problems, chasing a hard dollar.

Executors find that the beneficiaries are looking for the executor to buy out the executor’s share of the business at the risk dissolution of the business and having its assets sold off. Beneficiaries may also try to secure dividends from the business and/or a monthly or annual payout for the interesest of the decedent – they wish to receive income from the business indefinitely, decades after the decedent is no longer around.

If the beneficiaries have a way of showing that they have 20% of the shares of a company, they will have a bigger capacity to cause problems for the executor, because of the chance that they can legally force the company into dissolution.

What the beneficiaries pretend to not understand is the fact that liquidity is hard to come by in a company. Most companies are struggling, and are finding just enough income to pay its staff and hopefully something to the owners. For most companies, getting a large payout or periodic shareholder dividends is just not realistic.

If you are a shareholder, you will need to hire a New York estate attorney who understands where you are coming from and has experience in convincing beneficiaries that the value of the business interest of the decedent usually does not translate into a large payout for the decedent’s heirs, that businesses have limited cashflow and that they will have to settle for something reasonable.

Depending on the circumstances, we either try to arrange financing to buy the beneficiaries out for a reasonable amount, or agree on some sort of reasonable periodic payout to the beneficiaries from the business, limited to a number of years.

In executor problems with beneficiaries, having an experienced New York wills, trusts and estates attorney can make all the difference. You can call us at 212-233-1233 or send us an email at [email protected].

[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.

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