So, You’re an Heir under a Will or Trust-What Does that Mean and What Rights Do You Have?
Sooner or later many people find that they are going to inherit money or assets from a relative or friend’s trust or estate and that is usually a bittersweet discovery. They have lost a loved one or a good friend but are also going to receive an asset, usually tax free, that can make a huge difference in one’s life. It is a gift of love from someone who often was an important part of life and that gift is often a very emotional event.
And then the weeks, then months pass, and the asset somehow is not transferred and seems mired in various court or tax issues that delay the actual transfer. What was a gift from a friend or loved one becomes a matter requiring complex documentation, many meetings, letters or discussions, costs for attorneys and accountants, executors, trustees and even filing fees for courts. It may seem that the executor or trustee or legal and accounting professionals are grasping what they can from this gift of love. For many heirs, frustration and often anger mounts. We hear it all the time.
What began as a gift ends up as a complicated and, at times, an apparent expensive exercise of bureaucratic inefficiency. Often the heirs have goals and plans for the inheritance that are delayed or made impossible as the probate process slogs along. The executor or trustee seems disinclined to move it along with efficiency yet seems to want his or her fees promptly. Tensions rise.
The purpose of this article is to explain to the heir of an estate or beneficiary of a trust the rights the heirs have and what are reasonable expectations for the timing and cost of the distribution.
Probate versus Trust Administration:
Other articles on this site describe in detail both the probate process and the administration of a revocable intervivos Trust that occurs after the death of the settlor. Those articles should be read for the actual process, but a quick summary is as follows:
Probate: This is the public legal process by which a decedent’s property is distributed to the specified heirs under court supervision. An executor (if there is a Will) or administrator (if they die without a Will) is appointed by the court and that executor/administrator has the obligation to account for all assets, pay all creditors, pay all taxes, and, with court approval, make a formal accounting and then pay the remainder to the specified heirs. If there is a Will, the Will will specify the heirs. If there is no Will, the law will specify who inherits what. The executor or administrator receives a fee for his or her services, usually specified in a schedule published by the court and is allowed extraordinary fees if particular services are required, such as commencing litigation or selling real property. The executor or administer has a fiduciary duty to the heirs and is personally liable for failure to perform.
The process is a public one with documents filed with the court and available in the court records. Normally, an accounting is filed within a year and the probate is closed with the court approving the final accounting and distribution one to two years after the probate begins. If taxes are due the probate will remain open for at least a year since there are tax advantages in that approach. Estate taxes are only due of the assets are substantial (over five million if a single person, over eleven million for a couple) but income tax returns may have to be filed for the estate.
Attorneys are usually hired by the executor or administrator to handle the various legal filings and an accountant as well to help with the accounting and tax returns. The attorney’s fees are also set by court schedules with extraordinary fees available if there is litigation or complex business aspects to the estate. Accountants are usually paid their normal hourly fees.
Trust Administration: If one has a trust, normally there is no public probate process and the terms of the trust appoints the trustee or trustees, describes their duties, describes what fees they are entitled to, and provides for distribution of assets either outright or in trust both during the life of the creator of the Trust (the “Settlor”) and after the death of the Settlor. Trust administration is often faster than probate, but taxes still must be paid, and attorneys and accountants are usually retained by the trustee. Trustees have fiduciary duties to the beneficiaries of the trust and while there is no probate filed, the court is available to enforce the terms of the trust.
Again, for details review the appropriate article on this site.
Basic Rights of Heirs:
Heirs are entitled to receive their inheritance. That is axiomatic. But as with so much at law, there are myriad related rights that heirs have so as to protect themselves. The most basic right is that they are owed a fiduciary duty from the executor, administrator or trustee, and that is the highest duty known to law. The fiduciary must take appropriate steps to protect the heirs and carry out the obligations imposed upon the fiduciary.
An heir is commonly thought of as someone who receives money or property from a person who has died. In legal terms, heirs are the next of kin and are the people who would normally benefit if the person died without leaving a will (died “intestate.”) The succession of intestate heirs is based on direct descendants, such as children or grandchildren. Other relatives, such as sisters and brothers, or aunts, uncles, nieces, nephews, and cousins, are called collateral heirs.
If there is a written will, it specifies who will inherit and it often is not the people that would normally inherit intestate. A trust has “beneficiaries” rather than heirs, but they are treated the same as heirs in a will with their rights and inheritance being spelled out in the trust instrument.
For the purposes of this article, we shall use the term “heir” to mean intestate heirs, beneficiaries of a trust, or persons named to receive assets in a will. The key is that under the instrument or law, they are entitled to inherit assets from the estate or trust.
The courts have specified in more detail the rights heirs normally have.
Timely Transfers and Information:
A person who receives property or a share of an estate under a will or trust has certain rights as soon as the will is probated, or the Settlor dies. Probate is designed to protect the rights of will beneficiaries. A trust beneficiary has the right to receive the share entitled in a timely manner and to receive written notice of the all substantive trust proceedings.
A wise executor or trustee will provide ongoing reports to heirs and beneficiaries and, if the estate will take years to settle, will ask the court to allow preliminary distributions to the heirs. The fiduciary should promptly answer questions from the heirs as to status and the assets in the estate. Once the probate process has completed payment to creditors and taxes due as well as the accounting, distributions to heirs should promptly follow. While the trust document normally describes the process required of the trustee, the beneficiaries are also entitled to information as to assets, state of administration, and prompt payment of sums due them under the trusts.
A beneficiary may ask the executor for an account of what actions the executor has performed for the estate. Any such report should be in writing, and the executor or trustee should be expected to provide supporting papers, such as receipts or canceled checks for payments, proof of asset transfers and statements from any estate bank accounts. The supporting papers must conform to the information the executor or trustee provides.
Executor or Trustee Compensation Approval:
Beneficiaries have the right to object to the level of compensation an executor or trustee requests for services but assuming those requests are within the guidelines set by the court or trust instrument, such objections are unlikely to be approved by the court. Note that many executors do not wish to be paid since often it is a relative who acts as executor and they may waive compensation either due to family connections or because such compensation is taxable, and they may rather just inherit their share. In trusts, the compensation is normally set in the terms of the trust but if the terms are generic “reasonable” or “appropriate,” then the court is available to review and, again, conforming to the court schedule is usually required.
Fairness to Beneficiaries and Heirs:
The will or trust beneficiaries are entitled to an executor or trustee who performs duties fully and honestly and without favoritism. An executor must not act in a way that harms the estate or favors one beneficiary over another, behave in a dishonest or illegal manner or fail to abide by the legal obligations.
An heir may petition the court if he or she believes the executor or trustee has failed to perform duties properly but note that the burden of proof is on the petitioner. Courts give executors and trustees discretion as to many decisions and will not normally replace business judgment of the executor or trustee with the court’s own. But self-dealing or using trust resources for improper purposes is something courts will not allow. Remedies can be extreme, including personal liability of the fiduciary, removal of the fiduciary, etc.
Heirs can seek relief from the court via use of a petition during the pendency of the estate, or later, a complaint for breach of fiduciary duty if the wrongdoing is discovered after the estate is closed. Such a process can be expensive and prior to filing a petition or suit, careful analysis of the potential causes of action should be conducted by competent legal counsel in the venue of the estate. A trustee is subject to court review if a beneficiary claims wrongdoing and that can occur during the time of the trust or thereafter, subject to the statute of limitations.
Each heir is owed a fiduciary duty by the executor or trustee. Each heir is owed an accounting and information as to actions occurring in the estate or trust and each heir is owed prompt distribution of his or her inheritance. But the heir must act to protect his or her interest and that may mean filing a petition in a court of law seeking relief.
It is important for heirs to understand that the estate process is designed to make sure all creditors are paid, all taxes are paid, and that the myriad obligations and rights that the deceased person has are protected and honored. This does take time and does take effort on the part of the trustee and/or executor. It is not an easy task and if the decedent owned a business or operated a company, the task becomes more complex and imposes upon a fiduciary a significant burden.
Further, something often happens when one knows one is to inherit money from a deceased loved one. The delays and annoying details become emotionally trying. This writer knew of one grizzled veteran of business, who had operated many companies in intense environments and engaged in a dozen court cases without undue emotion, literally break into tears when told that the trust process would require an extra year due to ongoing litigation. He was as surprised as I was at his reaction and explained later that he had to go into therapy to understand why the delay was such an emotional experience for him. His therapist explained to him that his father had broken his promises to him again and again, often causing emotional and financial turmoil in his life when in college and graduate school, and he had internalized the trauma until the delay in his father’s inheritance seemed to resurrect it. “The old man is still getting to me…and he’s dead!” my friend laughed.
But while such emotional overreaction must be guarded against, the heir must also realize that he or she does have rights and some fiduciaries do violate or neglect duties and if so, should be compelled to adhere to what is a solemn obligation. Such powers do exist for heirs if they need them.