Can An Executor Withhold Money?
The death of a loved one can open the door to a flood of so many different emotions, and grief can exhibit in various ways. You might find yourself impatient with or suspicious of the individual who has been appointed to manage your loved one’s estate through probate, even if you’ve never been a particularly impatient or suspicious person before. That individual, called the executor of the estate, might even be a family member with whom you normally have a close relationship. But now there are money, assets and debts on the line, and you find yourself wondering what exactly she’s doing with that money. Maybe you’re the primary beneficiary and it’s supposed to pass to you, but she’s whittling away at the balance. You can take comfort in knowing that there are some firm laws in place to monitor the activities of an executor.
The term “fiduciary” infers a great deal of responsibility. A fiduciary is legally bound to act in good faith to preserve the rights and well being of others, in this case the decedent’s estate and beneficiaries. This means putting their interests ahead of her own. If she doesn’t do so and you can prove it, you have legal recourse. One of the executor’s first responsibilities after opening the estate with the probate court is to gather all the decedent’s assets, but this doesn’t mean transferring bank and investment accounts into her own name. It means moving the funds into an account or accounts in the estate’s name. Probate is a process carried out under the watchful eye and supervision of the court. After the executor has identified and gathered all assets, she must submit a list of everything the decedent owned, including cash accounts and their values as of the date of death. Beneficiaries are entitled to copies of this report. If you notice that something is not on the list and you think it should be, you have a right to bring this to the court’s attention. The executor will almost certainly have to spend at least some of the money in the estate’s banks accounts, and she might have to liquidate or sell some or all of the decedent’s property to raise more money if the final bills are more than what was left in cash. They are also responsible for meeting the costs associated with managing the estate through probate. Appraisers might be necessary to value estate property, and they’ll expect payment. She might feel that she needs a lawyer’s assistance with certain estate matters, and the lawyer will expect to be paid as well. You might also notice checks made out to the executor, but this doesn’t necessarily mean she’s stealing from the estate. She’s entitled to make a claim to the estate for reimbursement if she spends her own personal money on estate-related expenses for things like postage, copying or even travel costs. In some states, she can simply take the money if she keeps proper receipts, but she might need court approval first in others. Executors are also typically entitled to compensation for all their hard work. In reality, many family members who act as executors waive this fee, but others might not. Executors can’t simply decide how much they’re entitled to receive for their services. Payment may require court approval, even if the decedents will states how much the executor should be paid. Some states have laws in place to determine how much an executor should be paid.
When you make a will you also need to name one or more people to be your executor. This is the person whose role it is to make sure that your wishes are carried out as you have set out after you die. It’s up to you who you choose but this is not a decision to be taken lightly. Here’s what you need to know about the role of the executor. An executor is legally responsible for carrying out instructions set out in a will after someone has died. It is not an easy job, practically or emotionally, and can take several months, if not longer. Specific duties may involve:
• Registering the death – if there is no one else to do it – and sending certified copies of the death certificate to financial institutions, such as banks, building societies and insurance companies
• Getting copies of the will
• Finding all financial documentation relating to the deceased person
• Working out all the money owed to and by the estate, and valuing the estate
• Applying for probate
• Preparing and sending off the documents required by the probate registry and HM Revenue & Customs (HMRC)
• Opening a bank account on behalf of the estate
• Ensuring all property and post is secure as soon as possible after death
• Collecting all assets and money due to the estate of the person who died
• Deciding when to sell property so the beneficiaries get the most money
• Distribute the estate to the beneficiaries as set out in the will
• Ensuring tax forms are completed and that the correct inheritance tax, capital gains tax (if an asset increases in value during probate between the time of death and when it is sold) and income tax is paid
• Arranging the funeral if specific instructions are stipulated in the will
If there is not enough money in the estate to cover any outstanding liabilities such as bills or tax, then it is best to seek legal advice as dealing with an insolvent estate can be complicated. In fact you can have up to four executors to share the responsibility out, but all decisions must be made jointly. It is a good idea to appoint at least two executors, or a main executor and a substitute. This could be a family member and a professional, such as a solicitor, an accountant or the bank. This will cover you if your first choice dies or is otherwise unable to carry out their duties. Executors must be 18 or over and of sound mind, but apart from that, it’s up to you who you pick. Close family and friends and those who stand to inherit from your will are eligible, indeed they are common, but you may also decide on a professional executor, or both. This way you could appoint, for example, a sibling to deal with family matters and a solicitor to handle the legal, tax and property issues. The role also requires them to be responsible, rational and fair-minded. It’s a bonus if they are also good at paperwork and managing legal issues.
Professional executors: a solicitor, bank or accountant will charge for their service. Look closely at the fees: it could be an hourly charge or a percentage of the estate, often between 1% and 5%. Think about whether you’re happy for a chunk of your money to be taken in this way, rather than going to your loved ones. Make sure you therefore understand how you will be charged and how much before you commit. On the other hand, if your financial affairs are complex having a professional executor will bring the benefit of independent, specialist knowledge. Family and friends; they will have to make the tough decisions demanded of the role, while also dealing with their grief. Many people refuse to take on the role for these reasons. However, loved ones will know you and how you would want your wishes to be carried out should disputes arise. Make sure that you discuss this with the family members you choose, and give their full names and addresses in the will, so they can be located easily. If an executor finds it too difficult to carry out their role, they can choose to appoint a solicitor to carry out the administration. If there really is no one else then, as a last resort, a government official called the public trustee will be your executor. This is most commonly employed when everything in a will is left to one person who can’t act as executor themselves, for example, a child or someone who has a disability which means they are unable to deal with financial affairs. What’s called letters of administration are granted by the probate registry to allow the deceased person’s estate to be divided up under intestacy rules if there is no will or no living executors. An executor may have to apply for probate, which gives them the legal right to deal with someone’s estate. It may not be necessary if the estate is quite small. If more than one person is named as an executor, you must all agree who makes the application for probate. To apply via post you’ll need to complete form PA1 and the relevant inheritance tax form or you can apply and pay online. When you receive a grant of probate, make several copies, as you will need them for asset holders. Inheritance tax must be paid before applying for the grant of probate. It is quite possible for someone to be named as an executor in a will who wasn’t told beforehand and doesn’t want to be held personally responsible for the job. There are also situations where someone accepts the role, but later changes their mind but doesn’t have the opportunity to discuss it with the person who appointed them. If this is the case you need to speak immediately after the death to the principal probate registry or to a legal professional for advice. You have a number of options:
• Completely give up your right to apply for probate (“renunciation”) by filling in a renunciation form and sending it to the probate registry
• Appoint an attorney to act on your behalf in administering the estate
If you’ve already started to deal with the estate after the person has died, you will need a good reason to step down, such as ill health or family emergency. You might want to change a will to:
• reduce the amount of inheritance tax or capital gains tax payable
• settle a new claim against the estate
• provide for someone who was left out of the will
• move the deceased’s assets into a trust
• clear up any uncertainty over the will
To change a will, you need to make a “variation”. You don’t need a formal document or deed, you can write a letter as long as it meets these conditions. If the variation means there’s more inheritance tax to pay, you must send a copy to HM Revenue and Customs (HMRC) within six months of making it. You don’t need to send a copy to HMRC if the variation doesn’t change the amount of inheritance tax due. Any changes to the will must be completed within two years of the death. The executor is also responsible for paying out to all beneficiaries and must follow the instructions in the will. However, there are some exceptional circumstances where an executor can “withhold” settlement, but this would need the approval of all fellow executors. Examples could include:
• If unknown/unspecified debtors arise, the executor can delay settlement for up to six months, whilst the debtor is settled.
• If the executor has concerns over the welfare of a child beneficiary, due to parental issues, they can apply to the court to withhold settlement, but ultimately must pay the child their entitlement from the will when the age of majority is attained by the child.
• In exceptional cases where the executor thinks that a beneficiary is vulnerable, for example maybe they have an alcohol or gambling addiction, then the executor can pay the benefits into a discretionary trust. If no trust exists, the beneficiaries have to be paid directly from the executor.
You can appoint a number of executors who can share the responsibility of dealing with the estate, but they must all agree on the final decisions. Sometimes disagreements arise, for example, about the correct time to sell a house to make the most money. Any issues need to be resolved in order for probate to move forward. If communication doesn’t work then one person can renounce their role as executor or they can head to the probate court to have the other removed. You will need to seek legal advice in this situation.
A beneficiary may wish to consider a claim against an executor in many situations, but common scenarios include:
• A delay in the administration of the estate or the distribution of money to beneficiaries;
• Disagreement about the sale of a house belonging to the estate. The house may be being sold too slowly or at the wrong price, or perhaps at a price which is too low, to someone closely associated with the executor;
• If an executor is rejecting or failing to seek sensible financial advice on financial issues, such as the sale of valuable items or shares at the right price;
• Failing to act quickly in respect of ‘volatile’ assets such as shareholdings. The value of shares might dramatically decrease, diminishing the value of a legacy of shares to beneficiaries;
• There may be disagreements between family members about where the deceased should be buried or about their headstone;
• There may be accusations that an executor is acting in an obvious ‘conflict of interest’ if they are also a beneficiary as well.
• It may be alleged, for example, that they are using the estate’s money to improve or repair a house that only one executor/beneficiary is due to receive under the will;
• There may be a refusal on the part of an executor to investigate financial losses or allegations arising before the deceased died, perhaps during a period of time when the deceased was mentally incapable or vulnerable. The value of an estate when someone dies may be considerably lower than the beneficiaries of the estate expected, due to some of the deceased’s funds being spent or diminished during their lifetime. This may occur where an executor has also been an attorney for the deceased person during the last phase of their life. Perhaps money has been gifted or misused by the attorney during this period;
• The executors may refuse to provide adequate information to beneficiaries about the estate (although there are limits in what a beneficiary can reasonably ask for information about);
• There may be an alleged failure to communicate with beneficiaries about what is happening or the administration of the estate may have halted due to an inability between executors to agree on what should be done;
• The executors may have to deal with claims against the estate from other people, for example under the Inheritance (Provision for Family & Dependents) Act 1975 or a challenge to the validity of a will itself.
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