An executor or personal representative manages an estate. They attend hearings in probate court and carry out the last wishes of the deceased person. Those obligations come with a degree of personal risk.
If they make mistakes during estate administration, personal representatives could face lawsuits from outside parties with an interest in the estate or even the beneficiaries or heirs of the estate. What are the most common sources of financial exposure for personal representatives?
1. Unpaid debts
Communication with creditors is important during estate administration. Personal representatives must send direct notice to known creditors and publish notice for unknown creditors. They typically need to pay all debts before distributing assets to beneficiaries. Mistakes when providing creditor notice or issuing payments can lead to financial liability.
2. Unfiled tax returns
Personal representatives often file the final tax return for the deceased person. They may also need to determine if estate taxes are due and file an estate income tax return if they sell estate assets. Failing to file returns or cover tax debts can lead to financial liability for the personal representative.
3. The sale of undervalued assets
When personal representatives must sell or liquidate estate resources, they typically need to ensure that they obtain a fair market value for those resources. That is especially true in scenarios where they sell the estate property to someone they know personally or they purchased the assets from the estate. Interested parties could file a lawsuit seeking compensation for the difference between the true value of estate resources and the amount accepted by a personal representative who undervalued them.
Other forms of misconduct, such as embezzlement, could also lead to financial liability during estate administration. Having experienced legal guidance while administering an estate can reduce the likelihood of mistakes that create financial liability for the personal representative.