September 14, 2011
Authored by: Luke Lantta
In the event that a corporate fiduciary must repay executor’s fees or trustee’s fees, reimburse an estate or trust the fiduciary’s attorney’s fees, or pay a damages award, it usually has the resources available to make such a payment. An individual fiduciary, on the other hand, often does not. An individual fiduciary may bleed the trust or estate dry through litigation and leave nothing behind at its conclusion for the winning party to recover. Therefore, even if a wronged beneficiary or heir is successful in a lawsuit against an individual fiduciary, the winning party may find him or herself with a piece of paper confirming the victory but not much else.
Fortunately, there are some effective trial techniques available to avoid that scenario – one of which was on display in In re Garibay [2011 WL 3795253 (unpublished)]. On appeal the Kansas Court of Appeals affirmed a trial court’s creative solution to this problem.Esther Davis was originally appointed as the executor of Ruben Garibay’s estate. Davis was also a beneficiary under the will. Chole Ayala, another beneficiary under the will, had concerns about how Davis was administering Garibay’s estate.
Ayala’s concerns proved correct. Davis was ultimately replaced by a successor executor, and the successor’s accounting showed that Davis had been making expenditures that were not in the estate’s interest. After an evidentiary hearing, the trial court determined that Davis’ share of the estate should be surcharged $34,344.51 for improper expenditures made while Davis was executor. The good news for Ayala was that she won. The bad news was that the amount of the surcharge entered against Davis exceeded her interest in the estate.
To help remedy this problem, the court awarded certain real estate owned by Garibay solely to Ayala in spite of language in the will suggesting that there should be an equal division of the property between Davis and Ayala. Davis appealed claiming that the award did “not carry out the provisions of the will.” The key was that the operative provision in the will merely suggested – but did not require – an equal division of the property.
The language in Garibay’s will was unique, which permitted the trial court’s remedy. Garibay’s will provided that “should I own any real estate at the time of my death, it shall be included in the gifts to Esther L. Davis and my cousin, Chole Ayala, unless they direct my Executor to convert said real estate to cash.”
The Kansas Court of Appeals determined that two factors permitted the trial court to award the real property solely to Ayala. First, the will did not “unambiguously state exactly how the real estate is to be transferred to beneficiaries.” By stating that the real property “shall be included in the gifts” to the two beneficiaries, the provision did not require that the property be transferred to Davis and Ayala as joint owners. Second, the trial court’s surcharge against Davis exceeded the value of her share of the estate.
The unique language in the will regarding the real estate is probably the only reason this remedy worked. In most cases, the testamentary language regarding disposition of real property will be explicit and likely prevent the remedy used by the trial court here. Nevertheless, where the language in a will is as flexible as Garibay’s will, it provides an additional avenue for holding an irresponsible executor to account.