The trend of increasing estates and trusts claims has continued in early 2021. Claim numbers from the first quarter of the year show that this practice area is currently the largest source of claims for Lawyers Mutual (generating more claims than real estate, personal injury or family law).
This article will review some of the most common estate administration errors we encounter so attorneys can be on the lookout for and avoid these issues. (Common estate planning issues were previously covered in our February 2021 issue.)
Representing a Fiduciary
When serving as counsel for an estate, it is crucial that all parties understand the nature of your representation, and most importantly, who you do and do not represent. As estate counsel, you represent the estate itself and the personal representative in his or her official capacity. Your duty is to see that the estate is properly administered and to assist the personal representative in fulfilling her fiduciary obligations. You do not represent the individual interests of the personal representative or any beneficiary. This should be clearly spelled out in an engagement letter at the start of the representation. If you are asked to give advice regarding an individual’s interests, you must decline and refer that person to separate counsel to avoid creating a conflict of interest.
We sometimes hear from attorneys who find themselves in the difficult position of representing an estate where the personal representative is breaching fiduciary obligations. This may involve egregious conduct like stealing from the estate, or it may be that the personal representative is unable or unwilling to take actions necessary to complete the administration. The North Carolina State Bar has provided guidance for addressing this situation in 2002 FEO 3. The attorney should advise the personal representative to immediately resolve the issue creating the conflict, and if this does not happen, recommend that he or she resign so that a neutral party can be appointed. If the breach of fiduciary duty continues, the attorney may notify the clerk and petition for removal. “In any case, [the] Attorney should seek to withdraw from the representation rather than assist or ignore [the personal representative’s] pursuit of her personal interests to the detriment of the estate.”
We regularly see claims arising from incorrect distributions to estate beneficiaries. This often occurs in intestate estate administrations where the decedent has a complicated family tree with multiple generations. In these situations, it is important to carefully review N.C. Gen. Stat. § 29-16 and confirm the proper distribution. We have seen several instances where distributions to nieces and nephews were made per stirpes instead of per capita as required by statute. This results in overpayment to some heirs and underpayment to others. If the overpaid heirs are unwilling or unable to return the money, the lawyer may be responsible for the shortfall.
When making an estate distribution, we recommend obtaining a signed Receipt, Release and Refunding Agreement from anyone receiving funds. This provides additional protection and opportunities for recovery in the event of an error.
Failure to Preserve Spousal Rights
The North Carolina elective share statute requires a surviving spouse to file a petition and mail or deliver a copy of that petition to the personal representative of the decedent’s estate within six months after the issuance of letters testamentary or letters of administration. N.C. Gen. Stat. § 30-3.4(a), (b). An application for spousal allowance under N.C. Gen. Stat. § 30-15 must be made in writing, signed by the surviving spouse, within one year after the death of the deceased spouse. If these spousal rights are not claimed within the required timeframes, they are waived.
Personal Notice to Creditors
It is well-established that estate administrators must publish notice to creditors once a week for four consecutive weeks and act in good faith to give personal notice to known or reasonably ascertainable creditors. N.C. Gen. Stat. § 28A-14-1. It is less clear who is a “known or reasonably ascertainable creditor.” While North Carolina statutes do not provide a definition, other states have defined a reasonably ascertainable creditor as a creditor that regularly submits billing to the decedent or the decedent’s estate and to whose billings the personal representative has access.
Delays in Filing Accountings or Closing an Estate
As in other practice areas, perceived delays or lack of attention can lead to grievances and malpractice claims by beneficiaries who are frustrated that the estate administration seems to be dragging on. With courthouse shutdowns and other challenges over the past year, attorneys have encountered unavoidable delays that have slowed and stalled their cases. Even under these difficult circumstances, communication remains the best risk management tool to prevent claims. It is important to provide periodic updates (even if nothing is happening) and realistic timelines for distributing and closing the estate.
About the Author
Laura Loyek is a claims attorney with Lawyers Mutual, focusing in the areas of real estate, litigation, appellate law, and bankruptcy. Prior to joining Lawyers Mutual in 2009, Laura practiced for six years in the areas of complex commercial litigation and land use/zoning. Laura received her J.D. from Harvard Law School and her undergraduate degree from Wake Forest University. She is an active member of the North Carolina Association of Women Attorneys and the Real Property Section of the North Carolina Bar Association.