{Read in 5 Minutes} As a Trusts and Estates attorney, I frequently represent people nominated as Executors and offering Wills for probate in the Surrogates Court. Sometimes people die intestate, and I represent a family member in applying to become the Administrator of the Estate. Executors Administrators — collectively referred to here as fiduciaries — have an obligation to manage the Estate to the best of their abilities, to preserve as many assets as possible for its beneficiaries. But what happens when an Executor or Administrator has a conflict of interest?
This is not as uncommon as it sounds. Sometimes, conflicts of interest are serious, and other times they are minor and simply require a little bit of due diligence. For example, a major conflict of interest might be an Executor or Administrator who is accused of stealing assets from the deceased before they died. Obviously, that would mean that there were less funds to go to the beneficiaries, which would give them a significant conflict of interest. A minor conflict of interest might be that the deceased was in the process of selling a piece of property to the Executor, who is a long time friend, and died before completing the transaction.
During the lifetime of the deceased, they could have done whatever they pleased. However, once the Court appoints an Executor or Administrator of the Estate, they often need the Court’s approval (even if no other beneficiaries object). This may be something that is a minor conflict, that the Court just wants to review the circumstances to make sure everything is over and above board.
What should beneficiaries do if they sense there is a conflict of interest, whether it be major or minor? It depends on whether they are aware of this conflict of interest before or after the Court appoints the Executor or Administrator.
Before Appointments
•When the Executor or Administrator is applying to the Court for Letters (the Court order allowing them to serve). There are certain people who have rights to object to this. This may be an objection beyond just the qualifications of the fiduciary. For example, it might be an objection to the probate of a Will. But it might also be whether the Executor should serve or the Administrator should serve. People in this position should review SCPA §707 which refers to who is disqualified for serving as Executor hyperlink the word disqualified to an article we have called who should be my Executor.
•However, there is a sentence in the statute that says the Court may decline to appoint a fiduciary who “does not possess the qualifications required of a fiduciary by reason of substance abuse, dishonesty, improvidence, want of understanding, or who is otherwise unfit for the execution of the office.” In my experience, this one sentence is one of the most litigated in all inheritance disputes! The objecting party may raise this when filing objections. And the Courts may hold a hearing to determine whether or not this person is a suitable fiduciary. Obviously, if they have a major conflict of interest, the Court may consider that and appoint someone else, or, in some cases, even the Public Administrator.
•If the Court has already appointed the Executor, the beneficiary really only has a couple of options. First, they can make an application to remove the Executor or Administrator for not acting in the interest of the Estate. The court can hold a hearing and determine whether or not to remove them; If the allegations are serious and well-documented enough, the Court can even suspend them pending the hearing.
•The other option is that the beneficiary can compel an accounting from the Executor or Administrator. The Executor or Administrator would then need to file their accounting with the Court, and the beneficiary would have standing to challenge any self-interested transactions (even if they occurred before the deceased died) as part of the accounting. No, the accounting proceeding doesn’t stop the Executor or Administrator in their tracks; it only asks the Court to make things right.
What’s most important here is communication. The beneficiaries should always voice any concerns they have about the Executor or Administrator to the Executor or Administrator, and the Executor or Administrator should keep the beneficiaries informed about the status of the estate. Effective communication can help prevent a significant amount of litigation.
For more information on this topic. Please contact me.