September 16, 2015
Authored by: Luke Lantta
It’s not often that a personal representative asks a court to remove her. It’s probably less often that a trial court refuses to remove a personal representative who asks to be removed. But, that was the situation before the Court of Appeals of Wisconsin in Rapp v. Weller. The appellate court, however, ultimately decided that the personal representative should be removed for an unmanageable conflict of interest. What was the conflict of interest?
The personal representative had conflicts stemming from her fiduciary duties to the estate she represented and her personal interest as an heir of that same estate. Laura Rapp had been appointed as personal representative for her brother Laurence Berg’s estate. She participated in a mediation and signed a settlement agreement on the estate’s behalf. The agreement required Rapp’s and Laurence Berg’s father, James Berg, to pay monies to Laurence Berg’s estate, which was then to be divided and paid to two other individuals with provisions for payments to the IRS and Wisconsin Department of Revenue. One of the individuals to whom payment from the estate was to be made sought approval of the settlement agreement, but Rapp – on behalf of the Laurence Berg estate – opposed it. James Berg, who participated in the mediation and signed the settlement agreement, then died. Rapp agreed to be appointed as personal representative of the James Berg estate in Texas. And therein the conflicts arose. An order was entered enforcing the settlement agreement and a circuit court ordered Rapp, as personal representative of the Laurence Berg estate, to collect the monies from the James Berg estate for which Rapp was also the personal representative.
Rapp asked to resign as personal representative of Laurence Berg’s estate. The request was denied by the court. The appellate court reversed. The conflict that arose for Rapp was not manageable through some other means like appointment of a special administrator. Rapp had a conflict between her fiduciary duties to the James Berg estate and her personal interests as an heir of that same estate.
Of course, serving as executor of an estate of which that person is also a beneficiary is not typically an impermissible conflict of interest by itself. If so, parents would hardly ever be able to name their children as executors. This type of conflict, however, can lurk in the background for many family members who accept a fiduciary role in an estate of which they are also a beneficiary. Sometimes these conflicts are unavoidable and only come up during the administration of the estate. In this case, however, it would seem that the conflict was foreseeable. That was one of the reasons the circuit court refused to allow Rapp to resign – she accepted the conflict when she agreed to be appointed as the administrator of the James Berg estate. The better course when a potential conflict is out there is probably to decline the appointment in the first place.