When I start representing someone who is about to become a Fiduciary (Executor or Administrator) of an Estate, I always talk about “how an Estate finishes”. Like many things in life and business, if you know where you are trying to go it is much easier to make a good plan to get there.
Not every State handles “estate completion” the same way. There are two basic approaches: mandatory accounting vs non-mandatory accounting.
In a mandatory accounting State, there is some proceeding that must be filed so the the Court knows the Estate has been completed and the fiduciary has done what they are supposed to do. This generally involves filing forms and paying a filing fee, and there are generally time constraints (so if it is not ready to be completed you have to explain why). I’m not going into more detail because New York (where I practice) is NOT a mandatory accounting State.
In a non-mandatory accounting State, the fiduciary is not required to file anything with the Court to show that the Estate is completed. This raises two logical questions:
- What SHOULD fiduciaries do to complete an Estate and protect themselves?
- What happens in New York if there is some issue or problem in completing the Estate?
What a fiduciary SHOULD do is keep good records, communicate regularly with the beneficiaries in a transparent way, file any tax returns that are required, and then….SEEK TO COMPLETE THE ESTATE WITH AN INFORMAL ACCOUNTING.
This is done by showing the beneficiaries what has been done. This can be done with a letter, or on a spreadsheet, or in any way that shows a bottom line for a proposed final distribution. With this informal accounting we would send a document called a “Receipt & Release”. This document essentially says “I know what you did as Fiduciary and I agree it was correct and I agree with the bottom line and I release any claims I may have about this”. The letter to the beneficiary makes clear that when the Receipt and Release is signed “then you will get your money”.
What if the beneficiaries don’t agree? Or don’t respond?
While New York is not a mandatory accounting State, the Surrogate’s Courts have an Accounting Department, and there is plenty of law on how one CAN file a formal Accounting Proceeding. Unfortunately, this happens a lot. The Accounting Department is where the action is, and most of the really acrimonious disputes are there.
In a nutshell, when a Fiduciary wants approval for what he has done, or what he is proposing to do to complete the Estate, a formal accounting is filed with the Court. The Court will then issue a Citation to the interested parties, which essentially says “Fiduciary has filed the attached accounting and is asking the Court to approve it. Come to Court on (date) or a Decree will be issued approving the Accounting.”
If a beneficiary gets such a Citation and wants to dispute something, they come to Court and file Objections to the Accounting. This then becomes a case, like any other civil litigation….discovery, motions, conferences, etc.
Generally, an expensive, nasty mess.
Which is why it’s better to do a good job as fiduciary and find a way to account informally.
Next post – what if you are the beneficiary and the Fiduciary doesn’t account (formally or informally)…. at that point it’s a “Petition to Compel an Accounting”