Types of personal representatives
There are two types of personal representatives who oversee the winding up of the decedent’s estate: (1) an executor is the person named in the decedent’s will, and (2) an administrator is appointed by the court to administer the estate of someone who died intestate.
Appointment and qualification
To be eligible for appointment as a personal representative, a person must have the capacity to contract. Most states have an order of priority for appointment of the personal representative. For example, under the UPC, the order is:
- the person named in the will as executor;
- the surviving spouse (if beneficiary under the will);
- any other beneficiary under the will;
- the surviving spouse (even if not a beneficiary under the will or if the decedent died intestate);
- any other heir; and
- if 45 days have passed since the decedent’s death, any creditor.
See, e.g, UPC § 3-203. Although the executor is named in the will, the person must still be evaluated and receive appointment from the probate court. The appointment is not necessarily automatic. The person can be disqualified if he or she does not pass the court’s muster. Plus, certain family members may object to the decedent’s choice of executors.
Once the approval is made, the executor will receive letters testamentary (or letters of administration for an administrator), which give the personal representative the authority to act on behalf of the decedent.
To protect the interests of the beneficiaries, most states require the personal representative to obtain a fiduciary bond (typically for double the value of personal property in the estate) unless the will contains a provision that waives this requirement.
The personal representative is entitled to compensation for performing his or her duties; however, the rate is statutory (based on the size of the estate), unless the will states otherwise. See, e.g., Cal. Prob. Code §§ 10800-10803; N.Y. Surr. Ct. Proc. Act § 2307.
Despite a provision for compensation, a personal representative may waive his or her right to compensation and serve for free.
A waiver is commonly made by the surviving spouse or other family member. Foregoing compensation is usually done for tax savings because the income earned by the personal representative is taxed to him or her as personal income. Of course, if no compensation is paid, the estate cannot take a deduction for this cost. The lack of deduction may not be relevant for the estate if it is not liable for estate taxes anyway.
EXAMPLE: Brett dies leaving a will that bequeaths his entire estate to his brother, Edwin, and names him as the executor. In Brett’s state, Edwin would be statutorily entitled to $10,000 in commission for his services. To avoid increasing his personal taxable income by $10,000, he should waive his right to compensation, especially since he will receive the money anyway as the estate’s sole beneficiary.
Eventually, the personal representative’s appointment ends. This usually occurs once the administration of the estate is over. In addition, the appointment could end prematurely if the personal representative dies, becomes disabled, is guilty of misconduct or lacks the qualities required of the person. In particular, failure to perform the duties required is grounds for removal. See, e.g., In re Estate of Frey, 693 A.2d 1349 (Pa. 1997).
If the personal representative tires of the duties associated with administering the estate, the person cannot simply resign. Rather, the court must accept the resignation before the person is free to relinquish the reigns to a different (“successor”) personal representative.
Generally, the personal representative’s powers and duties are limited to those required to manage and preserve the decedent’s assets during the period of administration. These duties include:
- Inventorying and collecting the assets of the estate (except nonprobate assets);
- Managing the assets during administration;
- Paying creditors’ claims;
- Distributing assets to the designated beneficiaries.
Unless specifically authorized, either by the court or the will, the personal representative ordinarily has no duty or authority to carry on a business owned by the decedent. If he does so without express authority, the personal representative is personally liable for any losses and personally accountable to pay back any profits from that business. See, e.g., In re Kurkowski’s Estate, 409 A.2d 357 (Pa. 1979).
Coupled with the personal representative’s authority is the need to conform to the fiduciary duties and standards of conduct that apply to fiduciaries generally, such as:
- Standard of care, skill and prudence—the personal representative must observe the same general standard of care accorded to trustees in dealing with the decedent’s assets. Speculative or risky investment propositions are definitely outside the realm of prudent management of assets.
- Duty of loyalty (no self dealing)—foremost, the personal representative has a duty to put the estate’s interests before his own. Accordingly, the personal representative should refrain from transacting personal business with the estate, thereby avoiding a conflict of interest.
As is true with any fiduciary, a personal representative is liable for any losses resulting from actions taken in bad faith, mismanagement, or breach of fiduciary duty (including the duty not to self-deal).
EXAMPLE: Jamie was named the executor in his mother’s (Evelyn’s) will. Evelyn picked Jamie because he was the oldest child and had studied accounting in college. Evelyn usually kept her money in very conservative investments, much to the dismay of Jamie. Thus, after Jamie received his letters testamentary, he decided to temporarily move some of Evelyn’s funds into a couple of technology stocks in an attempt to bolster the estate. Rather, within three months, the account had lost 50% of its value. When it was time to distribute the assets to the other beneficiaries, his two siblings, they were livid at the loss. Clearly, Jamie breached the requisite standard of care associated with managing his mother’s assets. Accordingly, Jamie will be personally liable to his siblings for the losses he sustained in the risky investment.
Revocation of authority
Subsequent to the issuance of letters of appointment of the personal representative, the court still has the authority to revoke them if they should not have been granted in the first place. Common grounds include:
- the supposed decedent is not dead;
- a will is found naming an executor after an administrator is appointed;
- a later will is found;
- decedent was not domiciled in the state (or did not have real property there) where the letters were granted;
- another person had priority for appointment; or
- there was lack of qualification at the time of appointment.
EXAMPLE: Carl Young was 21-years-old when he was sent to Iraq as part of his military service. Six weeks after he arrived, there was a car bomb that killed 50 soldiers. Initially, he was reported as one of the soldiers killed. Since he was single, his mother, Shannon, back in Washington requested appointment as administrator of his estate, since he did not have a will. Shortly thereafter, she was granted letters of administration. While she was in the process of marshalling Carl’s assets, she learned that he was actually alive. He had been badly injured in the blast and could not immediately notify his family that he was okay. After learning of this new development, the probate court revoked the letters of administration.
Personal liability for torts
At common law and in most states today, a personal representative is personally liable for any torts committed by him or his agents in the course of administering the estate. Yet, he may be eligible for reimbursement by the estate for any such liability if: (1) he was not personally at fault, and (2) there was no breach of duty of care by him in incurring the liability (e.g., the tort was committed by an agent or employee selected with reasonable care). To avoid this result, it would be wise for the personal representative to take out liability insurance and charge the premium to the estate.
Personal liability on contracts
Most states also hold the personal representative personally liable on any contract entered into on behalf of the estate unless the contract relieves him from liability. Yet, he may be eligible for reimbursement from the estate for any such obligation if the contract: (1) was within his powers, and (2) was entered into in the course of proper administration of the estate.
EXAMPLE: Darrell was the executor of his brother, Joel’s estate. To shield himself from personal liability on a contract he had to enter into for the estate, he added the following stipulation: “This contract is given by Darrell Humphries, as the executor of the estate of Joel Humphries; it constitutes a promise to pay only to the extent that the assets of the estate are sufficient for such purpose and it is expressly agreed that any judgment will only be satisfied out of the assets of the estate and not out of Darrell Humphries’ individual assets.”
Compare this to signing the contract merely: “Darrell Humphries, executor.” The latter method of signing the contract does not eliminate personal liability for Darrel, while the former does.