Are beneficiaries responsible for premature distribution errors?

[NBrazil]

What is the name of your state (only U.S. law)? [Florida/Wisconsin]

Yeah, me again... with the tri-probate nightmare of Wisconsin, Florida and Australia being handled by a brother. Basically, my brother, who is executor, wants to make a preliminary distribution of the funds from an estate before probate is finished. I'm figuring he wishes to recover most of his costs (which have been substantial) while the exchange rate is good.

The attorneys have warned him that there may not be enough left over to cover all expenses and debt obligations, but are willing to do so because a lot depends on tax liabilities and penalties which remain unknown to this date (2 years since this started) and could very well take more YEARS to determine. So it is also likely it will be okay.

I've looked at the preliminary numbers, and in MY humble opinion, I feel that the estimated funds could be just enough to pay all obligations (including his expenses), taxes and debts EXCEPT for unsecured debts (credit cards).

But, in the case it isn't, I'm concerned that I will be liable for "my portion" of the premature distribution (which I'm really signing over to him... I expect nothing from this estate personally) that I must sign to "receive."

Before I sign anything he asks me to, I want to make sure that any problems that result are his and his alone. It isn't that I don't care, its just that he wants me to sign this, and I don't want to sign anything that could harm me.

So it comes down to this... it is my understanding that any misdistribution of assets falls back on the Executor, right? As a "beneficiary" who "receives" money that hasn't gone through probate - I'm not legally accountable to return it if the estate cannot pay its obligations, however the Executor is (his mistake, his problem)?

Again, I would be receiving NOTHING, only signing it over to him.

 

[NBrazil]

Clarification

As a clarification, I'll try and outline my concern...

Estate (in Probate) --> distributes funds (at the direction, and insistence of Executor) to three beneficiaries BEFORE all accounts settled.

These funds are used to reimburse executor for his expenses (legal fees, debt payments taken from his OWN money, etc. while the money for the estate is tied up as it appears it will be for at least another - the third - year, if not longer, because of government involvement due to back taxes and penalties) as each beneficiary signs over their portion of the premature distribution.

At a later date can those who have a claim against the estate (creditors, etc.) come after the beneficiaries for payment, or does everything go through the estate and executor?

I'm trying to avoid the possibility that a creditor comes after me for money I never had other than to turn over to the executor for his expenses.

I hope between these two entries I've made my concern clear.

 

[anteater]

Estate (in Probate) --> distributes funds (at the direction, and insistence of Executor) to three beneficiaries BEFORE all accounts settled.

These funds are used to reimburse executor for his expenses (legal fees, debt payments taken from his OWN money, etc...

As I recall, your brother has had some odd notions and/or done some odd things before.

I don't get it. He should be able to seek reimbursement from the estate for any of his out of pocket expenses incurred as executor without going through a preliminary distribution to beneficiaries.

I don't recall if the primary probate is in WI or FL (and, honestly, I doubt that I would try to look up any statutes covering this anyway ). But many states have law statutes that enable the executor to "claw back" any distributions if the estate runs dry. And, if I were executor, you would have to sign an explicit agreement to do so before receiving any distribution.

 

[NBrazil]

Wow

I don't get it. He should be able to seek reimbursement from the estate for any of his out of pocket expenses incurred as executor without going through a preliminary distribution to beneficiaries.

Well, the ONLY estate resources (money) exists in a bank account in Australia which is the result of having sold property down under. As we know, this forum does not address international law so as to the reason he is doing it as a distribution is unknown to us. Maybe that is the ONLY way he can access the funds? I don't know. The attorneys seem to be in charge of the purse strings.

But many states have law statutes that enable the executor to "claw back" any distributions if the estate runs dry. And, if I were executor, you would have to sign an explicit agreement to do so before receiving any distribution.

Hm, this is complicated by the fact that there are two co-executors (brother and girl friend of the deceased). The former has taken on pretty much all of the responsibility, the latter isn't doing anything. A really DUMB thing that the deceased did to show his love for the GF.

So you are saying that he can indeed take back any distributions he authorized when the estate runs dry (before paying off all creditors)? Well then, since he has offered to sign an agreement to assume all liabilities himself (just the opposite of what you've "advised") for the distribution that he is insisting upon, I'd best get that first before adding my signature to the distribution document, eh?

For a small businessman, he sure isn't being savy about all of this. But there are complications - lots and lots of back taxes and penalties (Australia) for income taxes improperly filed by the deceased - and for which the government cannot give any clear answers as to the amounts as yet (and for which it may take at least another year).

I'll ask him WHY he must do it as a distribution when he should be able to just seek reimbursement from the bank account in Australia. (I continue to wonder if international law gets in the way... sheesh!)

Thanks for addressing this in very general terms. So we beneficiaries ARE liable for executor mistakes only because the executor is liable for their mistakes. Hm, I really doubt that he would sue us to "claw back" because he knows it would be like trying to get blood from a stone - we aren't getting a dime of this distribution! So unless creditors can bypass the estate, we should still be "safe?"

So, bottom line... the Executor can "claw back" premature distributions from beneficiaries (which he won't because we're not getting any) but there is no mechanism for creditors to bypass the estate and seek what is owed them directly from those same beneficiaries? That is what I really need to know. Regardless, I think I'll take the document he is offering.

PS - could the co-executor be liable for his mistakes? That would be a terrible unintended consequence of the deceased! Dumb, dumb, dumb!

 

[NBrazil]

While I'm still interested in a general answer to the question in bold... I managed to talk with the brother/executor and actually now understand a great deal more about what's going on and the reasons for his actions.

While I understand them, I do not necessarily agree with the manner in which he has arranged them (the international aspect of this is "an island" - meaning some details have been left out about what is going on in the states and this affects his ability to recover costs associated with that portion of the process from the international resources, which are the ONLY resources!). Anyway, when I brought up my discomfort with this recovery being done by a preliminary distribution he relented and said that he is allowed to claim a 3% fee against the total of the estate value as executor and so before going ahead with his plan, he will see if that will be an easier way to recover some of his costs. If not, he'll be happy to sign an agreement to assume all liabilities of a distribution.

Of course this is moot in some way, I suppose, because he already IS liable. Ah well.

 

[davew128]

Anyway, when I brought up my discomfort with this recovery being done by a preliminary distribution he relented and said that he is allowed to claim a 3% fee against the total of the estate value as executor and so before going ahead with his plan, he will see if that will be an easier way to recover some of his costs. If not, he'll be happy to sign an agreement to assume all liabilities of a distribution.

Generally most states permit that fee to be paid to the executor as compensation for his services. Out of pocket expenses are NOT included in that 3% fee.

 

[NBrazil]

Generally most states permit that fee to be paid to the executor as compensation for his services. Out of pocket expenses are NOT included in that 3% fee.

Hm, but what IS compensation BUT payment for out of pocket expense? I don't understand. Surely there are costs involved in administering an estate. In fact I shudder to think what would have happened if I were the Executor.

So far it has cost him nearly $40,000 in fees and such. If it were me, well... that's all she wrote. I couldn't afford to pay attorneys or taxes or pretty much anything ahead of time. It would have been a lost cause.

Well, it probably still is in regards to beneficiaries, but it would have been a lost cause to creditors if I were the Executor!

So, do a lot of estates just "evaporate" (for debtors and beneficiaries alike) for lack of funds to bring them to probate? Curious minds want to know, LOL.

Well, I guess in his case he will substitute the 3% to cover some of his costs and reduce the money the estate owes him for his out of pocket costs. But from what you seem to be saying, he could (and should), just take that AS compensation and still "bill" the estate like a debtor? That is the right way?

Well, no way the estate has that much so I think he will subtract his compensation from his "bill." That's the impression I get. Very fair of him.

 

[anteater]

Hm, but what IS compensation BUT payment for out of pocket expense? I don't understand. Surely there are costs involved in administering an estate. In fact I shudder to think what would have happened if I were the Executor.

The executor is allowed compensation for the executor's time spent in administering the estate.

857.05(2)
(2) Services. Subject to the approval of the court the personal representative shall be allowed for his or her services commissions computed on the inventory value of the property for which the personal representative is accountable less any mortgages or liens plus net principal gains in the estate proceedings at a rate of 2% or a rate that the decedent and the personal representative, or the persons who receive the majority interest in the estate and the personal representative, agree to in writing; and such further sums in cases of unusual difficulty or extraordinary services as the court determines reasonable. If a personal representative is derelict in duty, his or her compensation for services may be reduced or denied.

Expenses involved in administering the estate - probate fees, attorney fees, accountant fees, etc. - are usually paid directly from the estate's funds. But, if the executor has been essentially lending money to the estate to cover those expenses, then the executor is entitled to be reimbursed when liquid funds become available to the estate.

 

[NBrazil]

Yep - that's it EXACTLY, Anteater! His personal business has taken out loans to deal with expenses in administering the estate and he needs some reimbursement NOW to keep on going in both areas. So THAT explains why he was seeking a preliminary distribution even though all the issues have not been worked out financially, ESPECIALLY back taxes and penalties of the deceased. He only has a rough estimate of what may come down, but the Australian government authorities move slowly (the lawyers told him it could take at least another year, if not longer).

He just can't wait until liquid funds become available to keep going. Hence the petition.

 

[anteater]

OK, but this is what caused me to say, "I don't get it" before.

If there are funds in the estate to do a partial distribution, then there must be funds available to reimburse the executor for estate expenses paid by the executor out of pocket.

I've never known a state that would lump money owed to an executor for estate expenses paid personally by the executor with all the other claims against the estate.