Personal Representative Liability | MN Probate Law

Posted on June 27, 2019 by jlawyer

Personal representative liability in a Minnesota Probate

“Liability” is a very serious concern. Black’s Law dictionary defines “liability” as:

The state of being bound or obliged in law or justice to do, pay, or make good something; legal responsibility. Wood v. Currey, 57 Cal. 209; McElfresh v. Kirkendall, 36 Iowa, 225 …

It is important to understand that a personal representative or an executor of an estate could be held “liable” or “obligated in law or justice” to pay for certain debts if he/she is doing things improperly. What does improperly mean? It is complicated, but improper personal representative conduct can include things like:

Breach of Fiduciary Duty
Negligence
Failure to pay creditor claims
Failure to make distributions properly
Excessive cost and fees for the administration of the estate

All of the above are only a few examples of improper behavior of a personal representative which could cause liability. Minnesota probate law if very clear that personal representatives needs to serve the estate – not themselves.

Failing to serve the estate can result in a claim for breach of fiduciary duty. When someone signs a petition to probate the estate in a Minnesota court, they also must sign a document called an “Acceptance of Appointment and Oath.” This oath is taken very seriously by the courts. The personal representative is swearing, under oath, that they fill follow the law.

Breach of Fiduciary Duty

The most common example of personal representative liability in a Minnesota probate is a claim for breach of fiduciary duty. What does this mean?

Basically, a “fiduciary” is alike a bank: they are required to hold money, in trust, for others. They most be honest and diligent and invest in a prudent manner.

They must pay bills and act in a lawful fashion. Unfortunately, a number of personal representatives often view estates as a “free lunch” and act less than honestly. Doing so can create claims for breach of fiduciary duty. The big example is not handling estate cash properly.

Some common examples of breach of fiduciary duty are:

Self-dealing
Improperly using estate money
Combining estate funds with personal funds
Failing to invest properly
The failure to act in the interested parties’ (heirs) best interests
Lying about estate assets
Not locating estate assets
Favoring one beneficiary over others

Above are only some of the examples we have seen as Minnesota probate attorneys.

Minnesota Probate Lawyers

Of course, it is always a good idea to talk with an experienced probate attorney if you have any questions about personal representative liability.

Joseph M. Flanders and Flanders Law Firm LLC have helped both personal representatives and heirs deal with this thorny legal issue. A lot of money can be at stake in estate and people need to deal with it properly.

Contact the probate law firm today for your free initial legal consultation. 612-424-0398.

Minnesota Probate Law | How Ethical Personal Representatives Avoid Lawsuits

Posted on August 11, 2015 by jlawyer

When most people have their Wills drafted, they choose highly responsible and wise family members or friends to serve as their personal representatives. Likewise, when someone dies without a Will (intestate), probate courts appoint well-qualified individuals to serve in this role.

While acting as a fiduciary, your personal representative has legal permission to manage your assets so that if your estate is large enough, all of your outstanding debts can be paid and all gifts can be distributed to your named beneficiaries.

Yet as straightforward as this process sounds, problems can easily arise. Here’s a look at the main duties your personal representative must handle, along with tips for addressing these tasks in a timely and fully transparent or honest fashion. When any unique challenges develop, many personal representatives request the help of a Minnesota probate attorney.

Key Duties Required of a Minnesota Personal Representative

Must locate and protect all estate assets. After properly notifying all of the testator’s creditors and beneficiaries that the probate process has begun, the personal representative must carefully locate and appraise all of the estate assets. S/he must then make sure they’re kept in a secure location throughout the probate process. When necessary and affordable, outside appraisers can help the personal representative make sure accurate values are assigned to all assets;

All legitimate, outstanding creditor debts presented must be paid, along with all probate expenses. Minnesota creditors have up to four months to present their valid claims against the estate if they want them to be paid. Common probate expenses can include all funeral/burial expenses, final medical bills, all legitimate debts owed to creditors, attorney fees, and all taxes due;

A formal inventory must be prepared and presented to the court, indicating all of the testator’s assets. This list should also include the fair market value of each asset at the time of the testator’s death. Should there be any outstanding liens against any property, the specific dollar amount owed and all related information should also be included. All debts should also be noted in the inventory, including specific information regarding each creditor/party that must be repaid. A wise personal representative will share this information with the beneficiaries as s/he deems appropriate. It can also help to meet with the beneficiaries and answer their questions about the probate process;
A final accounting of the estate must be presented to the court. Every transaction conducted by the personal representative on behalf of the estate must be properly recorded and documented in writing for the court. This allows the judge to make sure that all funds expended have been legitimately spent. Receipts must be kept for all services rendered to the personal representative in the course of his/her duties. Should it appear at this stage that the estate will not be able to give each beneficiary all that was originally promised, the personal representative might want to ask for the court’s advice on how to address this issue with them;

A final distribution of all gifts should be made to the beneficiaries. Since some estates may not be large enough to transfer all promised gifts to the beneficiaries, it’s often wise for a personal representative who has been promised a set payment for his/her services to fist meet with the beneficiaries before accepting any personal payment. These individuals must realize that Minnesota personal representatives are often paid between $25 — $50 an hour for their services, unless higher fees were guaranteed based upon the representative’s professional status and experience. A proper fee can usually be agreed upon, once the beneficiaries can see that they are being awarded the maximum percentage possible of the original gifts or funds promised to them.

As implied above, personal representatives can often avoid lawsuits if they’ll meet with all interested beneficiaries throughout the probate process. If a Minnesota probate attorney has been hired by the personal representative, s/he may want this lawyer to create a document for all of the beneficiaries to sign — indicating that they understand why they’re receiving less than was originally set aside for them — and that they’re in agreement with the final accounting.

Minnesota attorneys and lawyers

If you have questions about the home, transfer of title to real property, or other Minnesota probate questions, contact Flanders Law Firm LLC at 612-424-0398.

Minnesota Probate Laws | The Meaning of a “fiduciary”

Posted on May 6, 2015 by jlawyer

Many of my clients have questions about the meaning of the word “fiduciary” as it applies to probate law.

The definition and discussion often revolves around Minnesota probate and or Minnesota trust law. For this article I will discuss the definition as it applies to personal representatives and Minnesota probate (although the general rules apply in all cases).

Minnesota Probate Law

Minnesota statute 524.3-703 provides the legal definition of a fiduciary in terms of Minnesota probably law. Below are the pertinent portions of the statute:

524.3-703 GENERAL DUTIES; RELATION AND LIABILITY TO PERSONS INTERESTED IN ESTATE; STANDING TO SUE.
(a) A personal representative is a fiduciary who shall observe the standards of care in dealing with the estate assets that would be observed by a prudent person dealing with the property of another, and if the personal representative has special skills or is named personal representative on a basis of representation of special skills or expertise, the personal representative is under a duty to use those skills. A personal representative is under a duty to settle and distribute the estate of the decedent in accordance with the terms of any probated and effective will and applicable law, and as expeditiously and efficiently as is consistent with the best interests of the estate. The personal representative shall use the authority conferred by applicable law, the terms of the will, if any, and any order in proceedings to which the personal representative is party for the best interests of successors to the estate.

. . .

As you can see, the definition of a fiduciary and what the fiduciary duties are in a probate are clear and well defined. Basically, a fiduciary is a legal definition of a person was been appointed to care for the property and legal rights of another. This is a very serious position which should not be taken lightly.

Violation of fiduciary duties

If the personal representative of the probate estate is not following Minnesota law, that person can be held personally liable for any mistakes, fraud, or misrepresentations that may have been committed. The people holding the personal representative accountable are often the heirs, beneficiaries, and or creditors of the estate. Failing to comply with the law as it defines a fiduciary is a sure way to be sued. Some common examples of failures of a personal representative include:

failing to properly notify creditors of estate debts
failure to properly account for estate assets,
failure to file an accurate inventory and/or final accounting
failure to notify heirs of their rights
not paying taxes of the deceased person in a timely fashion

In my estimation, as an attorney was been practicing probate law for a number of years, the personal representative duties are often rather obvious, unfortunately, some individuals are unable to meet the standard of caring for others. This is unfortunate.

Minnesota probate attorneys lawyers

If you find yourself in a situation we have questions about your fiduciary duties as a new personal representative, or if your questions about a person representative who is not doing his or her job, contact the probate lawyer at Flanders Law Firm LLC, 612-424-0398.

Personal Representative Liability for Failure to Pay Probate Estate Taxes

Posted on January 26, 2015 by jlawyer

An important case was issued recently out of the Western District Court for the Western District of Pennsylvania, United State v. Stiles, No. 2:13-cv-00138.

This case provides and excellent explanation for why people should not administer estates (especially large ones) without the help of a lawyer.

Facts of the Case

Julia Stiles died in 2002. Her son was appointed executor (personal representative) of her estate (it is not clear whether he did so with the use of an attorney or not).

The tax return for the estate was not filed until June of 2008. On June 9, 2008, a representative of the Secretary of the Treasure Internal Revenue Service of the United States (IRS) assessed federal income taxes, interest, and penalties against the estate in the amount of $2,093,091. That is a lot of money in taxes.

The real property in the state of Delaware was sold in August 2002, for $379,000. Once the property was sold, the proceeds were distributed to the heirs shortly after the sale. The IRS did not receive any proceeds from the sale of the property.

Between 2002 – 2005, the son distributed approximately $775,000 from the estate to himself, and $425,000 to each of his two sisters. At the start of April 2008, the estate’s investment account was worth $1,787,660. In April of 2008, David Stiles distributed $110,635 from the estate to the Delaware Division of Revenue.

The IRS can Charge Interest on Late Payments

The IRS presented evidence to the court that interest was owed on unpaid income taxes. Interest on the income tax assessments is assessed under 26 U.S.C. 6601(a) and (b) from the date that the Stiles’ tax liabilities became due at a rate set forth in 26 U.S.C. 6621(a). Penalties are also allowed by federal law.

The law on failing to pay estate taxes

The IRS in this case filed for a summary judgment. In essence, this means that the IRS felt that the Stiles had not cognizable defense. The court agreed.

In seeking to foreclose its tax lien on the estate, the IRS argued in its summary judgment motion that there was a prima facie assumption of tax liability. Therefore, since the government had arguably met its burden, the Stiles had to file a responsive statement of facts. They did not do so – ostensibly because they did not appear to be represented by counsel.

Personal Representative Liability Law

The personal representative of the estate also argued that the estate was now insolvent and therefore the IRS could not foreclose in its tax lien.

The IRS argued that, because the personal representative of the estate was a fiduciary that it could hold him personally liable for the tax debt. The IRS cited law which provided that:

“Personal liability can attach, to the extent of the distribution, if the government establishes three elements: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive knowledge of the liability for unpaid taxes.” United States v. Tyler, No. 10-1239, 2012 WL 848239, at *10 (E.D. Pa. Mar. 13, 2012). “

The court agreed with the IRS’s argument and found the personal representative liable for a tax debt in the amount of

What is even more confounding is that the personal representative admitted that he knew about the tax liability:

David Stiles admitted, through testimony, that he knew in 2002 about the estate’s federal tax liabilities. (ECF No. 35 ¶ 17); see Estate of Stiles, 2011 WL 5299295, at *6 (“[David] Stiles testified at trial that he knew as of 2002 that estate taxes would have to be paid in addition to the yearly fiduciary income taxes, but he made no affirmative efforts to pay those taxes or learn of the deadlines by which they should have been paid.”). On June 18, 2003, during a telephone call with his lawyer, David Stiles was informed that the estate’s tax returns were late. Estate of Stiles, 2011 WL 5299295, at *6. Based on the record before the court, David Stiles knew about the estates’ tax liability, at the latest, on June 18, 2003. David Stiles continued to distribute assets out of the estate through 2006.³ (ECF No. 35 ¶ 19.) The record before the court shows that David Stiles had knowledge of the estate’s tax liability and continued to distribute assets out of the estate rendering it insolvent. See Tyler, 528 F. App’x, at 200-02.

Finally, it appears that the personal representative was relying on a defense of bad legal advice. The court also did not find this argument compelling, providing that: “Relying on the poor advice from an attorney is not a defense. It is unfortunate that the Stiles received poor legal advice; however, poor advice does nothing to mitigate their liability for the decisions David Stiles made in managing the estate.”

Seek out competent legal counsel

Having experienced, competent probate attorneys for a Minnesota probate is a must. Personal liability is very real and must be taken seriously by all potential personal representative.

For further information, contact Joseph M. Flanders at 612-424-0398.

What are the fiduciary duties of a Minnesota personal representative?

Posted on October 10, 2014 by jlawyer

In any Minnesota probate, a personal representative will be appointed to run the estate.

If there are over $75,000 in probate assets, the estate will need to be probated by the personal representative. The assets of the estate will be distributed to the heirs of the deceased person. Distribution can be effectuated by the deceased person’s Will or via an intestate administration. An intestate administration means someone died without a Will. Typically, a person will work with an attorney to follow the law and understand what they must do according to the law.

We often discuss the legal concept of “fiduciary duties” with out clients. The personal representative must serve as a “fiduciary” for all heirs, creditors, and other interested parties.

Fiduciary duties of a Minnesota personal representative?

In a typical probate, the personal representative will have a fiduciary duty obligation to the heirs.

A typical situation my office sees is where the children of the deceased person are the only heirs. In this scenario, the eldest child is often “nominated” by the deceased person to be the personal representative.

The personal representative must pay expenses of the estate and then distribute assets and money to their siblings. While working on the estate, the personal representative owes fiduciary duties to their siblings – whether they like them or not. Sibling rivalry can often get in the way of a proper administration.

It is also important to remember that the personal representative has a difficult job and that the money in the estate does not belong to them.

The personal representative is serving the estate. There are many instances of probate litigation (lawsuits) where the personal representative may not be doing what they are supposed to be doing. When thinking about the term fiduciary duty, please try to remember that it means to be honest and fair with the deceased person’s money.

Duties owed to creditors in a Minnesota probate estate

The personal representative will also owe a fiduciary duty to creditors of the estate. If there is over $75,000 in probate assets, the personal representative is required to distribute assets and pay creditors.

Commonly, the debts of the estate include a mortgage on home, credit-card bills, utilities, and other contractual debts of the deceased person. Sometimes, the estate has very little debt because, as people age, they often pay off the home and other debs.

There are also certain probate asset exemptions which we discussed in previous articles. Exemptions include: the homestead of the decedent, $10,000 of personal property, and one automobile. Life insurance is also an exemption. This means that assets will not be collectible, in most instances, by creditors.

Paying creditors claims is relatively simple. If the personal representative has knowledge of money owed to any person or business, those debts should be paid out of the estate. However, there are also instances when a personal representative does not have knowledge of debts owed by the deceased person. In these instances, the notice of publication – which is published in the newspaper – will be published so that unknown creditors have four months in Minnesota to file a claim against the estate.

It is very important for the personal representative to work hard to discover debts that need to be paid. After payment of debts (minus exemptions), the remaining money will then be distributed to heirs.

As a warning to people who may be considering serving as a personal representative – not paying estate debts is where liability of the personal representative most often arises. This is because, at times, the personal representative may not be diligent in discovering otherwise known creditors. Obviously, this can be a very large problem. The court may hold the personal representative liable for not doing their job correctly.

An personal representative may want to speak with a probate attorney

For further information about the meaning of personal representative duties, and fiduciary duties, contact Joseph M. Flanders, a Minnesota probate lawyer, at 612-424-0398.

The firm offers free initial consultations in all cases.