Navigating Conflicts of Interest for Personal Representatives and Executors Who Are Also Beneficiaries
andrew • August 21, 2022
It is not uncommon for the personal representative of an estate (also known as an executor in some states) to also be a beneficiary of the estate that they are tasked with administering. Most wills appoint a spouse or adult child to serve as personal representative and those same parties are often primary beneficiaries under the will that they will be administering. Generally, such an arrangement can work, but the potential for conflicts of interest is immediately apparent.
A personal representative’s job is to execute the deceased person’s wishes as articulated in their will. This, among other things, involves collecting and distributing assets to the will’s beneficiaries. It is almost impossible for a will to be explicit about every decision that a personal representative will have to make and there is generally some discretion in how property is divided, allocated, or managed.
A personal representative’s job is to execute the deceased person’s wishes as articulated in their will. This, among other things, involves collecting and distributing assets to the will’s beneficiaries. It is almost impossible for a will to be explicit about every decision that a personal representative will have to make and there is generally some discretion in how property is divided, allocated, or managed.
Equal isn't always fair
Imagine a situation where a will says, “half my property shall pass to child 1, with the other half going to child 2.” Well, which property exactly should go child 1 and which should go to child 2? Does child 1 get the house? Does child 2 get the sportscar? What if child 1 is the personal representative of the estate and gets to make that decision? A personal representative is a fiduciary to all of the estate’s beneficiaries, but how then can they guarantee that their own personal interests as a beneficiary are not influencing their decisions as to who gets the house and who gets the sportscar?
Even if the personal representative can mentally isolate their interest as a beneficiary from their duty as personal representative, it is unlikely that a disgruntled family member will see it that way when they don’t get the property they want. Disgruntled family members plus the appearance of a conflict of interest is a recipe for a messy estate administration. These disgruntled family members could seek removal of the personal representative and ask for additional punishment based on either real or perceived improper dealings.
Even if the personal representative can mentally isolate their interest as a beneficiary from their duty as personal representative, it is unlikely that a disgruntled family member will see it that way when they don’t get the property they want. Disgruntled family members plus the appearance of a conflict of interest is a recipe for a messy estate administration. These disgruntled family members could seek removal of the personal representative and ask for additional punishment based on either real or perceived improper dealings.
Traps for the unwary
A potential conflict of interest exists for personal representatives who are also beneficiaries when they sell assets to themselves from the estate, buy assets from themselves with money from the estate, hire their company to perform estate services, charge excessive fees, sell property that co-beneficiaries want to keep, refuse to sell property that co-beneficiaries wish to sell, make loans or gifts to themselves from the estate, or make investments that benefit them as a beneficiary but not the other beneficiaries. The personal representative may not even be aware of the conflict of interest when performing some of these tasks, but simply administering the estate in what they believe is a convenient manner. These actions could nonetheless give rise to claims of self-dealing or impropriety from other beneficiaries.
One person, competing interests
Due to the ambiguity of what exactly could be construed as a conflict of interest, it is always a good idea to consult an estate administration attorney to help you navigate the process as personal representative. In fact, if you are both the personal representative and a beneficiary, you might consider hiring separate attorneys to represent you in each of your roles: one for you as a personal representative and one for you as a beneficiary. This is because any attorney you hire to help you as personal representative will have that very same duty to all beneficiaries of the estate, which may be directly opposed to your separate interest as a beneficiary. This is especially true in situations where a beneficiary, who is also the Personal Representative, is contesting part of the will.
Oftentimes, the solution to resolving conflicts of interest in estate administration is full disclosure and getting all beneficiaries to sign off on actions. That does not, however, resolve the problem for a lawyer who is tasked with representing a Personal Representative who is also a beneficiary under the will. In representing a client, a lawyer is required to “exercise independent professional judgment and render candid advice” to its clients ( American Bar Association Rule 2.1 .) Can a lawyer truly exercise independent professional judgment when its two clients are in direct opposition to each other?
If an attorney simultaneously represents two clients (or one client with two distinct roles) whose interests are adverse, the attorney could be sued for malpractice, disqualified by the court, disbarred, or face additional punishments from State Bar associations and courts. The lawyer’s unethical representation could also cause problems for the clients themselves when the lawyer’s representation casts doubt on the administration of the entire estate. This can even result in a probate court’s decree being reopened, or greatly delay administration of the estate as the parties argue about whether the personal representative should be removed.
Oftentimes, the solution to resolving conflicts of interest in estate administration is full disclosure and getting all beneficiaries to sign off on actions. That does not, however, resolve the problem for a lawyer who is tasked with representing a Personal Representative who is also a beneficiary under the will. In representing a client, a lawyer is required to “exercise independent professional judgment and render candid advice” to its clients ( American Bar Association Rule 2.1 .) Can a lawyer truly exercise independent professional judgment when its two clients are in direct opposition to each other?
If an attorney simultaneously represents two clients (or one client with two distinct roles) whose interests are adverse, the attorney could be sued for malpractice, disqualified by the court, disbarred, or face additional punishments from State Bar associations and courts. The lawyer’s unethical representation could also cause problems for the clients themselves when the lawyer’s representation casts doubt on the administration of the entire estate. This can even result in a probate court’s decree being reopened, or greatly delay administration of the estate as the parties argue about whether the personal representative should be removed.
In an ideal world, every beneficiary serving as personal representative would obtain separate counsel to independently represent them in each of their two roles. Most people do not do this because of the expense and hassle of being represented two different attorneys, especially if those attorneys end up giving you conflicting advice. The apparent cost savings of obtaining an attorney to represent you in both roles, however, can be more than offset by the myriad risks that such dual representation carries.
What Next?
If you have been appointed to administer someone else's estate, you can:
- Give us a call at 720-821-7604 to schedule a "Discovery Session" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
- Visit our estate administration page to learn more about how correctly administering an estate can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
- Learn more by reading our blog or watching our videos .
Wondering if you can use a deceased parent’s debit card to pay their final bills? Learn why doing so can cause legal trouble and how proper estate planning helps.
Think writing a will keeps your estate out of court? Learn why a will does not avoid probate in Colorado and how proper planning protects your family’s legacy.
Learn what documents you need for medical incapacity in Colorado, including medical powers of attorney and living wills. Contact The McKenzie Law Firm, LLC today.
Learn how to choose a successor trustee for your Colorado estate plan. Discover key tips to protect your family and manage assets smoothly in the Denver metro area.
Discover why a residuary clause in a will is essential to protect unlisted assets like homes and retirement accounts from probate court in Colorado.
Discover the essential powers of a successor trustee in Colorado, from managing investments to covering healthcare costs, and how to protect your family's assets.
Wondering what "per stirpes" means in a will or trust? Learn how this legal term divides your estate by family branches to protect your loved ones in Colorado.
Wondering which assets must go through probate in Colorado? Learn how real estate, bank accounts, and investments are handled and how to protect your family.
Discover what per stirpes means in estate planning and how this simple choice protects your children and grandchildren. Learn more from The McKenzie Law Firm.
Discover the difference between per capita and per stirpes in estate planning to ensure your family inheritance is distributed according to your true intentions.