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Tuesday, October 30, 2018

Part IV of IV Parts: Five Keys CPA’s Should Know to Avoid Probate (and Trust) Problems & Litigation

  1. Fair treatment of beneficiaries and creditors – many executors tend to have a bias towards the beneficiaries of the estate. Under Florida law, the executor has a duty to both the beneficiaries and the creditors. The executor should treat both creditors and beneficiaries with equal duty of loyalty. At times, some executors may want to limit or withhold notice to one or more creditors, whether an individual or a corporate creditor. For example this is not an uncommon occurrence with respect to credit card companies, where a family member serving as executor wishes to engage in negotiations to pay less than the full amount due to the credit card company in order to secure savings to the family or the executor himself/herself.This can also come into play in situations where the decedent had outstanding loans at the time of his death. Should the executor try to negotiate the final payment to less than the amount due on the note in order to obtain a favorable result for the beneficiaries? There may be some facts or circumstances that would permit such a result, but certainly the executor must make that decision with the advice of counsel under a careful analysis of all the facts and circumstances of each administration. The fair treatment of beneficiaries of course brings into discussion, fair treatment of all beneficiaries. Fairness to all beneficiaries can be problematic in many families, especially in situations where certain siblings don’t get along with others, or where there are certain valuable pieces of tangible personal properties and more beneficiaries than property. Consider the mother who passed with two valuable diamond rings, and three daughters. Or where the will provides that the tangible personal property shall be divided equally among the beneficiaries and the executor is a son, and his two siblings are beneficiaries. The will says, if the beneficiaries cannot agree on an equitable distribution of the property, the executor makes the final determination.If the executor favors himself over his siblings, that may lead to a dispute. There are only some of the incredibly challenging issues that face fiduciaries!
  2. Fiduciary/Beneficiary – Believe it or not, we’ve seen situations in a second marriage as follows; the decedent named one of his sons as the executor and successor-Trustee of his trust and the decedent’s surviving spouse was an income beneficiary of the trust, while the executor/Trustee and the other son were remaindermen beneficiaries.Can’t you just see the train wreck about to occur? The surviving spouse wanted to maximize her income from the trust, and the adult sons wanted to minimize her income in order to maximize their growth opportunities with regard to the underlying trust’s investments.You may not be shocked to learn that this case did devolve into a bitter lawsuit. Another case we’ve seen involved a closely held business, in which one of the adult children was an executive, and several other children had no active interest in the business. The closely held business was an asset of the estate, of course a very illiquid asset. All the decedent’s children had an equal interest in the company but only the executive was drawing a salary and had a primary interest in ensuring the ongoing viability of the company. Of course, the liquidation value of the company was of interest to all the family members as it was a significant asset of the estate.In this situation, some of the business’s non-active family members may have harbored hostilities towards the executor merely because on the passing of the father, the son took over the reins of the business.On top of that, he had executive power over the estate as the executor and successor-Trustee.Again, the result – litigation. In some of these cases, much if not all of the fighting could be avoided by having a corporate fiduciary serve instead of a family member/beneficiary or surviving spouse/beneficiary. Perhaps the ideal situation would be to have these issues addressed in the estate planning stage.However, if identified and discussed at the outset of the administration, there is the possibility that adjustments could be made even post mortem. For example, the executor may agree to decline to serve, or carefully guided discussions and perhaps agreements between the parties might reduce the friction between beneficiaries and the fiduciary.

In summary, after many years of dealing with these issues, there is one suggestion that experience tells us may be helpful, be proactive!  Pre-plan and identify issues, clearly communicate and discuss various issues and anticipate both problems and possible solutions. In some cases, nothing will prevent disagreements and lawsuits, but with planning, good communications and careful anticipation informed with experience, you may at the least give you and your clients a chance at better results.


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