For many people, being appointed as the Personal Representative of an estate (whether named as Executor in a Last Will and Testament or appointed as Administrator in an intestate estate with no Last Will and Testament) is often the first time in their professional or personal lives that they will serve in the role of a “fiduciary.” Fiduciaries have significant responsibilities with respect to the administration of the estate. As a fiduciary, the Personal Representative swears an oath before the Court that they will uphold those responsibilities and duties on behalf of the estate. If a fiduciary fails to abide by those duties, significant consequences can occur, both for the estate and for the fiduciary in an individual capacity. The administration of one probate estate can look vastly different from the next, owing to the unique facts and circumstances surrounding each estate, and as a result, there are numerous pitfalls that a Personal Representative must avoid when administering an estate. Therefore, it is critically important that a Personal Representative has competent representation during the probate administration of an estate to ensure that the Personal Representative is not violating their fiduciary responsibilities.
Mismanaging Assets.
One significant problem that a Personal Representative may run into when serving in a fiduciary capacity is the mismanagement or misuse of estate assets. The assets of the decedent come into the hands of the Personal Representative in a fiduciary capacity, and the Personal Representative has the great responsibility to ensure that estate assets are only used for the purpose of administering the estate. This includes satisfying the valid debts of the decedent, paying the administrative costs of the estate (such as attorney’s fees and probate filing fees), and making final distributions to the heirs of the estate. The assets of the estate do not belong to the Personal Representative, and the Personal Representative cannot use those assets for non-estate purposes. If a Personal Representative uses estate assets to pay for his or her own personal expenses (i.e. using estate funds to pay personal bills, groceries, shopping, etc.) they have violated their fiduciary duty to the estate. The consequence of such action is the Personal Representative will become personally liable to reimburse the estate to the extent of the misused funds. If the misuse of estate funds is so great that the estate cannot then satisfy valid debts of the decedent that are filed by creditors within the six-month window for presenting claims, the Personal Representative will become personally liable for those debts. Therefore, it is crucial that the Personal Representative only use estate assets for estate purposes.
Failing to Timely Disallow Claims.
As noted above, there is a six-month window in Kentucky where creditors of the decedent can file claims against the estate to seek repayment of such debts. The six-month window begins on the date of the appointment of the Personal Representative. Once a proof of a claim is filed against the estate, the Personal Representative then has sixty (60) days from the date of the claim being filed to determine whether the claim is valid and thus allow or disallow the claim. If the Personal Representative believes the claim is invalid or wants to contest the claim, the Personal Representative has to disallow the claim by filing notice of the disallowance with the Court and serving that notice of disallowance on the creditor. If the Personal Representative believes that a claim is not valid but fails to file a notice of disallowance within the sixty-day timeframe, then the claim will be deemed valid and the estate will have to satisfy the claim. Where a Personal Representative fails to disallow in a timely manner, the Personal Representative could face liability from the heirs of the estate to the extent that a claim is, in fact, invalid and materially impacts the value of the estate to be distributed to the heirs. Again, the Personal Representative has a critical responsibility to stay on top of all claims filed against the estate and properly manage all deadlines with respect to allowing or disallowing such claims.
Early Distributions.
Finally, the most common area where Personal Representatives can run afoul of their fiduciary responsibilities to the estate involves making early or partial distributions of estate assets to heirs before the six-month window for creditors’ claims has expired. In some cases, the Personal Representative is sympathetic to the heirs’ desire to get “part of their share” of the estate as quickly as possible. Sometimes, the Personal Representative is an heir themselves, and perhaps they want or need their share sooner than the six-month point too. Unfortunately, problems arise when the Personal Representative makes an early distribution of estate assets before the six-month window has expired, and then subsequently a valid claim is filed against the estate. If, at that time, the estate has insufficient assets to satisfy the claim (precisely because the Personal Representative has already distributed assets to the heirs), the Personal Representative will find themselves in a bind with the shortfall. The Personal Representative can try to recover assets already distributed to the heirs so that the estate would have sufficient funds to satisfy the claim. However, if the heirs have already spent or used up those funds (which is often the case with an early distribution), the Personal Representative may not be able to recover any assets from the heirs. At that point, the Personal Representative would be personally liable to satisfy the claim filed against the estate. Therefore, a Personal Representative should never make any distributions of estate assets until after the six-month window for creditors’ claims has expired, at which point the total debts that the estate has to satisfy will be finally determined. Only once all valid debts are satisfied after the six-month window can the Personal Representative then safely make distributions to the heirs.
These are just some examples of how a Personal Representative can open themselves to liability and claims by heirs, creditors and/or the Probate Court by not following the statutory rules. Wherefore, it is important to have a licensed attorney to represent you to protect yourself when serving in a Personal Representative capacity.