One of the most important decisions in estate planning is appointing the person who will take care of your estate after you pass away. This person has a fiduciary duty to manage your final affairs in the best interests of your estate and its beneficiaries. When naming non-family members, especially employees or farm tenants, significant care should be taken to ensure that they truly have your family’s best interests at heart.
The consequences of trusting the wrong person are illustrated in the Nebraska Court of Appeals’ recent opinion in In re Estate of Hyde.
In re Estate of Hyde: Case Study
In In re Estate of Hyde, Decedent named his farm manager as the Personal Representative of his estate. Decedent’s Will allocated his residence, certain farm ground, farm equipment, a BMW, and crops to the Personal Representative. Additionally, the Personal Representative had an option to lease the total farm ground that comprised the estate. The remaining farm ground was allocated to Decedent’s nieces and nephews, with all remaining property bequeathed to his siblings. Despite having counsel advising him, the Personal Representative made a number of errors that ultimately resulted in his removal.
First, the Personal Representative paid himself a salary of $5,500 per month, along with the associated employment taxes, from the estate’s funds. Despite a salary not being contemplated by the Will and none of the beneficiaries agreeing to a salary, the Personal Representative still paid himself nearly $100,000 from the estate.
Additionally, some of the farm ground, farm equipment, and the BMW were securing debts. Under Nebraska law, debt secured by estate property is generally distributed with the property. Instead of distributing the BMW to himself subject to the debt, the Personal Representative used estate assets to pay off the debt associated with the BMW so he could take the vehicle free and clear. He also distributed multiple vehicles and pieces of farm equipment to himself despite the lender having a security interest in the property. Finally, the Personal Representative farmed ground that was allocated to Decedent’s nieces and nephews but didn’t keep a record of the income earned. The Personal Representative failed to distribute such income to the nieces and nephews, in part because he couldn’t tell what income was attributable to them.
Self-Dealing in Fiduciary Relationships
These acts by the Personal Representative constitute “self-dealing.” Self-dealing refers to someone using their fiduciary capacity to conduct transactions that only benefit themselves. The court found that the egregious actions of the Personal Representative warranted his removal.
How Do You Choose the Right Fiduciary?
Unfortunately, situations like the one illustrated in In re Estate of Hyde are not uncommon when non-family members are named as Personal Representatives. While a person may be trustworthy during life, when significant money is involved, their personality and priorities can change. This is especially true with employees or tenants, who may have a sense of entitlement to your assets. Some may even be hostile to your family members, who they believe are less deserving of your assets than they are.
It is therefore important to take significant care when naming your personal representative, trustee, or power of attorney to avoid potential scenarios like In re Estate of Hyde.
At Goosmann Law Firm, our estate planning attorneys have the experience to advise you as to the mechanics, risks, and benefits of any plan. If you’re ready to create a new plan — or update an existing one – we are ready to help.
This blog is for informational purposes only and does not constitute legal advice. You should not act or rely on any information in this blog without first consulting a qualified attorney regarding your specific situation.