Jimmy H. and Johnny H. and their father, Wally, operated Triple H Farms as a partnership for 15 years. When Wally died, the brothers dissolved the partnership, but Jimmy H. and Johnny H. owned the Triple H property 50/50 as co-tenants. Jimmy H. died 5 years later and Johnny H. was appointed his independent executor. Johnny H. sold the land and split the proceeds 50/50 with Jimmy’s widow, Sandi.
Sandi protested that because Jimmy H. had made improvements to the land, she should get 63% and Johnny H. should get 37%. Sandi also sought to remove Johnny H. as the executor of the estate because he had divided the property without giving her credit for the improvements, had refused to allow her children access to the land and had mismanaged the estate by wasting estate assets through incurring excessive administration expenses.
Was Sandi entitled more than 50% of the proceeds from the Triple H land?
Sandi provided receipts showing Jimmy H. had paid $10,000.00 for fencing, $35,000.00 for a barn and $15,000.00 for the water well. Johnny H. proved he contributed $5,000.00 for road construction and maintenance. After the probate judge examined the evidence, he found that Sandi was entitled to distribution of 60% of the proceeds and Johnny H was entitled to 40%. The judge then ordered Johnny H. to make distributions of the proceeds accordingly.
Was Sandi able to have Johnny H. removed as executor?
Sandi’s claims were that Johnny H. mismanaged the estate and that he was incapable of performing his fiduciary role as executor due to a conflict of interest.
It would seem that wasting assets of the estate through excessive expenses would be mismanagement of the estate. However, under Texas Estate Code §404.0035(b)(3), to remove an executor, the person seeking removal must show that the executor committed not just ordinary mismanagement but gross mismanagement. In this instance, though the probate court thought Johnny H. had not been as prudent as he might have been in managing the expenses of the estate, his conduct did not rise to the level of gross mismanagement. To reach the level it would have to be glaring, flagrant or obvious.
Texas Estates Code §404.0035(b)(5) provides that an executor can be removed if he becomes incapable of properly performing his duties as a fiduciary due to a material conflict of interest. Sandi claimed that Johnny H. was disqualified from serving as executor because he claimed a greater share of the estate than that to which he was entitled and this created a material conflict of interest. The probate judge said that Johnny H. had merely raised a good-faith disagreement with Sandi over his ownership and that this conflict, standing alone, would not justify removing him as the executor. The court reasoned Johnny’s claim did not harm the estate because the court resolved the conflict by determining the appropriate division of the property.
Then the court looked at the size of the father’s estate, Wally’s knowledge of the conflict, Johnny H.’s good faith in asserting the claim, and his disclosure of the conflict. The found: (1) the estate was relatively small; (2) Wally obviously knew that conflict might arise when he named Johnny H. as executor; (3) Johnny H. had acted in good faith; and (4) he had openly disclosed the conflict. Therefore, the court held Johnny H.’s conflict of interest did not prevent him from performing his duties as executor.
What conduct amounts to gross misconduct?
Certain conduct would be considered gross mismanagement which would justify removal of an executor. Each case must be looked at independently and analyzed as to its unique facts.
A court deemed an executor’s behavior gross mismanagement (which disqualified him) when the executor sold property from the estate and paid himself almost $100,000.00, despite the fact that the will did not authorize him to take a fee for his services as executor and he was not named as a beneficiary under the will. This same executor failed to pay property taxes on another piece of property, resulting in the property being scheduled for foreclosure for taxes due.
It is obvious that this executor’s conduct was more egregious than that of Johnny H. However, misconduct worse than Johnny H.’s but which falls short of misappropriating the entire estate for oneself can be more difficult to assess as whether it is mere misconduct or gross misconduct. It is often not easy to determine where to draw the line.
What amounts to a material conflict of interest?
What separates a mere conflict from one that is material enough to prevent the executor from performing his fiduciary duties is not always easy to determine.
In one instance the executor was one of nine children who were all beneficiaries of their mother’s estate. The major asset was the deceased mother’s home. The executor turned down an offer to purchase the house and, instead, moved into the house, living there rent-free. The executor refused to sell the property and divide the proceeds with his siblings. This executor effectively took the entire estate for himself, leaving out all the other beneficiaries. The siblings filed to remove him as executor based upon this conflict of interest. The court found that a material conflict of interest justified removal of the executor.
The example above is blatant, making it relatively easy to see why the court removed the executor. Contrasted with Johnny H.’s behavior, it is equally easy to see why the court did not remove Johnny H. Just as with the issue of gross mismanagement, it is the facts that fall between these two situations that are less easy to determine.
If questions concerning the executor’s actions arise during the administration of an estate, it is best to consult an Elder Law attorney or other attorney knowledgeable in managing estates to determine if an action to remove the executor is warranted.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is in Fort Worth, Texas. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at firstname.lastname@example.org or by phone at 254.797.0211.