April 9, 2024
An estate trustee has a right to be indemnified for its proper costs and expenses.
An estate trustee may be removed pending the passing of accounts, but they are entitled to have a holdback set aside to cover their costs of passing accounts.
The passing of accounts is the process by which the estate trustee reports to the beneficiaries and the court about the financial state of the estate. Beneficiaries may object to the passing of accounts if they are not satisfied with the report. Once the objections are dealt with, the court approves the accounts, and the assets can be distributed, and the trustee’s compensation is fixed by the court.
In many estates, formal passing of accounts is not required, because the beneficiaries consent to the accounts and release the trustee.
THE CASE
That is not the situation in complex estates such as the one in Trezzi v. Trezzi. That estate led to high conflict litigation between the beneficiaries. As a result, a corporate trustee was appointed as “estate trustee during litigation”(ETDL).
The trustee did not oppose a motion to discharge them but sought a $500,000.00 holdback for future fees. The beneficiaries proposed between zero dollars and $50,000.00. A motion was required. The judge ruled that the trustee ought to be protected by the $250,000.00 holdback.
The accounts prepared by the ETDL matched the complexity of the estate and were over 600 pages in length. Notices of objections were filed and remained to be resolved. The ETDL’s response to the objections, many of which criticized its performance, was 75 pages long. This complexity is not typical of most estates.
Unfortunately, even modest estates can lead to conflict and resolution. This one just had more money, and more assets – real estate worth about $13.5 million and $500,000.00 in cash.
The existing law was not clear about the right to a holdback for future ETDL duties.
A trustee’s right of indemnification takes precedence over both beneficiaries and creditors of the estate.
A trustee’s right of indemnification takes precedence over both beneficiaries and creditors of the estate.
The judge determined that, if they are removed, they deserve security for those costs- in this case, a holdback.
Estate law has many sources but is rooted in equity- the historic branch of judge made law which promotes fairness. Where the ETDL is a neutral party appointed on consent and is ordered to pass accounts, it would be inequitable not to protect their fees through a holdback.
There are also good public policy reasons to do so. The passing of accounts is a remedial process- if the court is satisfied with the accounts, no remedy is required, but objections may result in a remedy, including a finding that the ETDL owes the trust money, or the opposite. A high conflict estate differs from most estates and involves costs similar to a court action.
Unlike some prior cases where a holdback was denied, the ETDL in this estate offered to fund the beneficiaries costs of resolving the objections. In addition, the ETDL was not defending their personal interests. It would be hard to get neutrals to agree to act as ETDL if they might not be paid. It is the beneficiaries who benefit from the passing of accounts in a complex estate, and they should bear that expense out of the estate.
The judge examined the cost estimates supplied, saw them as too high, and set aside half that amount as the holdback.
TAKEAWAYS
- High conflict estates sometimes cannot to avoided.
- Passing of accounts in a complex estate, is itself a complex process.
- Add high conflict and complexity together, and costs will be substantial.
- This sometimes leads to an ETDL being necessary.
- The ETDL has to get paid.
- The way to save costs is to reduce conflict.
HOW WEILERS LLP CAN HELP YOU
At Weilers LLP, our wills and estates lawyers know how to talk to you about tough issues with the least possible discomfort. We know techniques to attempt to achieve your wishes in a way designed to reduce the possibilities of conflict once you are gone. A will kit, computer program, or even a law office that approach wills on a mass production basis will not give you the same personalized service.
If you need advice on a contested passing of accounts, our litigation team has significant experience and knowledge to assist you in keeping costs within reason for the complexity of the dispute.
If you have a complex estate, or are beneficiary of a complex estate, give Weilers LLP a call and see if we are the right lawyers for you.