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What Happens When a Family Member Compromises My Estate Plan?

Selecting a personal representative or executor for your estate is often the most important estate planning decision you will make. In most cases a spouse or family member is named as executor. But there may be situations in which you may wish to consider someone from outside the family, such as a professional fiduciary, to oversee the distribution of your assets after your death.

Daughter Ordered to Return Funds Illegally Diverted from Father’s Estate

For example, there may be times when you do not trust a family member to deal honestly and equitably with other family members. A recent case from here in California offers a useful illustration. This case involves an estate asset that was located nearly 20 years after the estate was opened. The deceased was a man with three children. He did not name any of the children as executor, but rather appointed an outside person to the role.

The man died in 1991. In 2010, each of the decedent’s children received a letter from a company indicating that it had “located” a missing asset belonging to her father. The company wanted a commission in exchange for revealing the identity and location of the asset. The children initially rejected this offer, but eventually one of the decedent’s daughters claimed she “convinced” the company to reveal the asset to her. It was a fund worth approximately $60,000.

By law, the fund belonged to the executor of the estate, who would then be responsible for distributing the proceeds equally among the three children. Instead, the daughter had the custodian of the fund wire the entire balance directly to her. She then declined to turn the funds over to the executor or share the proceeds with her siblings.

To complicate things further, shortly after receiving the funds, the daughter filed for bankruptcy protection. The bankruptcy case was closed with a discharge of all outstanding debts in October 2012. A few months later, the other two siblings sued their sister in California probate court, seeking their respective one-third share of the funds.

The daughter argued her siblings’ claims violated her bankruptcy discharge, which enjoined enforcement of any pre-bankruptcy debts. The siblings then asked the bankruptcy court to reopen the case. The court did so and went on to rule, in a May 2016 order, that the daughter had to pay her siblings the money. Federal bankruptcy law does not allow a debtor to discharge debts incurred due to “willful or malicious injury” to others. Here, the bankruptcy court found the daughter intentionally “converted” assets from her father’s estate for her own personal use, with the intent of injuring her siblings, who were lawful beneficiaries under their father’s will.

Need Estate Planning Help?

Unfortunately, there are many cases in which unscrupulous family members may try and take advantage of one another when fighting over an inheritance. This only emphasizes the importance of proper estate planning. Contact the Law Office of Scott C. Soady today if you need to speak with an experienced California estate planning lawyer who can assist you with preparing a will or trust.

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