We are attorneys who compel trustees and executors to account and represent beneficiaries in contesting accountings. This happens when beneficiaries believe that the executors or trustees are omitting assets from the accounting or are inflating expenses.
Contesting an Accounting
The fiduciary’s lawyer first presents an informal account to the beneficiaries or heirs. When there are no issues with the accounting, the beneficiaries or heirs sign a receipt and release agreement in exchange for receiving their distribution.
However, there are times when these beneficiaries or heirs have issues or objections with the accounting. In this case, an accounting lawyer for the beneficiaries can contest an accounting by sending the objections to the fiduciary’s lawyer.
The most common objections relate to:
- Cash proceeds that have not been deposited into the estate account
- Sales of estate assets that have been recorded in the accounting schedule but have been sold below market value
- Unjustified expenses or disbursements
When there are objections, the beneficiaries’ lawyer sends the reasons for the objection to the fiduciary’s lawyer. This begins the procedure for settlement negotiations, where the parties hopefully ultimately agree on how the estate should be distributed.
It is more beneficial for the beneficiaries and fiduciary to agree on an informal account than to go through the more expensive process of filing a formal account with the court. Filing a formal account with the court will cost legal and court fees, which will be taken from the estate. These additional costs will reduce the beneficiaries’ distribution. For this reason, if the objective is to maximize the beneficiaries’ distribution, entering into a settlement may be more cost-effective than compelling the accounting, depending on the amount of net estate involved.
Compelling an Accounting
When the parties cannot arrive at a settlement to the objections, the beneficiaries might have no other option but to file a petition to compel the fiduciary to account with the court for the account’s approval.
Here, a citation is issued to the fiduciary to submit to the court an accounting that is in accordance with the court’s accounting standards. It involves a detailed presentation of schedules, accounting for all money flowing in and out of the estate account. This includes the itemized accounts for the principal received, income, funeral and administrative expense, unpaid claims, unpaid administrative expenses, distributions, new investments, or executor, administrator or trustee commissions.
Most informal accounts we have seen do not observe the accounting schedules mandated by the court. For this reason, preparing this accounting schedule can take time, which could lead the fiduciary to accept a settlement rather than go through a more rigorous process of having the account approved by the court.
Once the fiduciary submits an accounting to the court, the beneficiaries can submit to the court their written objections to the account.
This court procedure takes time and expenses in terms of legal and court fees, which are taken from the estate. This additional cost reduces the beneficiaries’ shares in the distribution of the estate. For this reason, even if a petition to compel an accounting is filed, the fiduciary, especially when also a beneficiary, will attempt to arrive at a settlement to maximize the distributions.
Contesting and compelling an accounting can be a complex matter, requiring the experience of an accounting lawyer. An experienced accounting lawyer can successfully raise objections and efficiently represent the beneficiaries’ interests to arrive at the best possible settlement for the client. Should you need legal representation, we at the Law Offices of Albert Goodwin can help. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].
How Beneficiaries Identify Problems in Accountings
Identifying issues in an accounting requires careful analysis. Common red flags include:
- Missing assets. Assets the beneficiary knows existed are not reflected in the accounting. Bank accounts, real estate, vehicles, collectibles, or other items may have been overlooked or improperly excluded.
- Below-market sales. Real estate or other assets sold at prices substantially below their apparent value, particularly when sold to family members or other related parties.
- Excessive expenses. Administrative expenses that seem disproportionate to the work involved. Attorney's fees, executor's commissions, and accounting fees that exceed reasonable amounts.
- Unexplained disbursements. Payments listed in the schedule without clear identification of the payee or purpose.
- Investment underperformance. Trust assets that lost value compared to reasonable benchmarks.
- Self-dealing transactions. Sales to the fiduciary or family members, especially without independent appraisal or court approval.
- Cash inconsistencies. The schedules don't balance or there are unexplained gaps in the cash flow.
The Initial Document Review
Before formally objecting, the beneficiary's counsel typically requests and reviews supporting documentation:
- Bank statements for all estate accounts.
- Closing statements for any real estate sales.
- Appraisals of estate assets.
- Receipts and invoices for major expenses.
- Tax returns filed by the estate.
- Cancelled checks for significant disbursements.
- Brokerage statements for any investment accounts.
The documents allow counsel to verify the accounting against the underlying records. Discrepancies between the accounting and the documents become focal points for objections.
Drafting Objections
Formal objections must meet specific standards. Each objection should:
- Identify the specific schedule and item challenged.
- State the basis for the objection (factual, legal, or both).
- Specify the relief sought (disallowance, surcharge, recalculation, additional disclosure).
- Reference supporting evidence where possible.
Vague or general objections are typically dismissed without consideration. Specific, supported objections move the case forward.
Discovery in Contested Accountings
Once objections are filed, discovery typically follows. Common discovery in contested accountings includes:
- Document requests for the fiduciary's complete records.
- Interrogatories about specific transactions and decisions.
- Depositions of the fiduciary and key witnesses (accountants, investment advisors, property managers).
- Expert witness disclosures and depositions.
- Subpoenas to third parties (banks, brokers, attorneys, real estate brokers).
Discovery can be substantial in complex cases. Each side seeks to develop evidence supporting their position while testing the other side's claims.
Expert Witnesses
Contested accountings often involve expert witnesses on specific issues:
- Real estate appraisers. When property sales are challenged.
- Investment professionals. When investment performance is challenged.
- Forensic accountants. When complex tracing or analysis is required.
- Business valuation experts. When closely held business interests are involved.
- Art and collectibles experts. For specialized assets.
Expert witnesses are expensive but often essential. The cost of expert testimony must be weighed against the expected recovery in objections.
Common Surcharge Calculations
When objections are sustained, the court calculates surcharges. Typical surcharge measures include:
- For below-market sales: The difference between sale price and fair market value, plus any profits the buyer realized.
- For improper investments: The amount lost compared to what a prudent portfolio would have earned.
- For excessive expenses: The excess over what was reasonable.
- For self-dealing: Return of all profits to the estate plus possible additional damages.
- For undisclosed transactions: The amount the estate should have received.
- For interest: The estate's lost earnings on improperly held funds.
The total surcharge can exceed the amount in dispute when interest, fees, and consequential damages are added.
Forfeiture of Commissions
In addition to surcharges, fiduciary misconduct can result in commission forfeiture. The court can:
- Deny all commissions if misconduct affected the entire administration.
- Reduce commissions in proportion to the misconduct.
- Order repayment of commissions already taken.
- Bar future commissions if the fiduciary continues serving.
For substantial estates, the statutory commissions (5% on the first $100,000, 4% on the next $200,000, 3% on the next $700,000, 2.5% on the next $4 million, 2% above $5 million) can be substantial. Loss of commissions is a major financial consequence of misconduct findings.
Attorney's Fees
Attorney's fees are sometimes awarded in contested accountings:
- The fiduciary's attorney's fees can be paid from the estate if the work benefited the estate.
- If the fiduciary's defense was unsuccessful or the misconduct was clear, the fees may be denied or assessed against the fiduciary personally.
- The beneficiaries' attorney's fees are sometimes paid from the estate if the objections benefited all beneficiaries.
- In cases of egregious misconduct, the fiduciary may be ordered to pay the beneficiaries' fees.
The fee award rules create incentives for fiduciaries to settle reasonable claims rather than litigate them.
Settlement Considerations
Most contested accountings settle. Settlement decisions involve:
- The strength of the objections and likelihood of success.
- The expected recovery if objections succeed.
- The cost of continued litigation.
- The estate's overall size and the impact on net distributions.
- The fiduciary's ability to pay any surcharge.
- Time required to litigate vs. settle.
- The emotional and family costs of continued conflict.
Counsel helps weigh these factors. The right settlement extracts the value of the meritorious objections without the costs and risks of full litigation.
