Can Executors Keep Secrets From Beneficiaries?

Gray Reed
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Gray Reed

Following the untimely death last year of his father Big Daddy Bux due to COVID-19, brother Hustler Bux was appointed independent executor of Big Daddy’s Will. When Hustler asked for a judicial discharge, sister Kathy “Kitten” – who had cared for both parents and still lived in the family home – objected complaining that Hustler failed to disclose important facts related to the estate. Kitten’s mistrust was intensified by altercations between them at the family home, and then confirmed by Hustler’s late inventory and accounting revealing his uneven distribution of Big Daddy’s $5 million estate. Without telling Kitten, Hustler (i) deeded the family home to Kitten and deducted his determination of its value from her share, (ii) deeded a ranch in Goliad to himself and their two brothers – but not her, (iii) reserved $150,000 of estate funds to cover his attorneys’ fees to defend any lawsuit. Kitten asked for explanations. Hustler refused. Even worse, Hustler intimated that, by just asking for the estate information, Kitten violated the will’s “no-contest” clause. Can Hustler refuse to tell Kitten about Big Daddy’s estate and his assets? What’s a “no-contest clause?” What is a judicial discharge?

Refusal to Reveal Information – Breach of Fiduciary Duty to Disclose

Hustler’s oath to the court when he was appointed executor of Big Daddy’s will sealed the fiduciary duty he owes to all beneficiaries of Big Daddy’s estate, including Kitten. Until properly distributed under Big Daddy’s directions in his will, Hustler acts as trustee of the estate’s property for the benefit of all the beneficiaries under Big Daddy’s will. Acting as a trustee, Hustler owes – to the owners of the property that he is overseeing – a duty fully to disclose all material facts of which he is aware that might affect the beneficiaries’ rights. Hustler – and all other executors – also owe each of their estate beneficiaries a high duty of good faith, fair dealing, honest performance, and strict accountability.” All of these are embodied in the executor’s oath of office.

No-Contest Clause

Intending to avoid the family beneficiaries fighting over what they got upon Big Daddy’s demise, his will included a “no-contest” clause. Responding to Kitten’s request for an inventory and an accounting, Hustler’s lawyer threatened that she risked losing her inheritance under the will’s no-contest clause.  A no-contest” clause is a provision in a will that would cause the forfeiture of anything in favor of a person who contests the will unless a court determines that (i) there was just case for bringing the claim and (ii) the claim was brought in good faith.

Judicial Discharge

About this time, Hustler filed a Motion for Judicial Discharge under the Texas Estates Code. Kitten objected and Hustler finally delivered an inventory and accounting showing that Kitten had not received the same amount as her brothers.  A “Judicial Discharge of Independent Executor” seeks to discharge Hustler, as the independent executor, from any liability involving matters relating to his administration of Big Daddy’s estate – that have been fully and fairly disclosed. Because the finally-produced inventory and accounting disclosed that all beneficiaries had not been treated equally and that Hustler had improperly withheld funds, Hustler would not only be denied a discharge, he would in all probability also be required to make Kitten “whole” and to reimburse her for her attorney’s fees. When an independent executor takes the oath and qualifies in that capacity, he or she assumes all duties of a fiduciary as a matter of law.

The Real Case: In re Stewart Supported Kitten on Appeal

The real “Kitten” in the San Antonio court of appeals case was Jennifer Stewart. She prevailed over her executor brother Wayne Stewart. It was only due to Jennifer’s efforts that she received an equal distribution of the estate by Wayne’s own accounting; further, it was only due to her efforts that Wayne returned $48,000 to the estate for the benefit of the residual beneficiaries. Further, by pursuing her objection to Wayne’s judicial discharge to verdict, Jennifer obtained a judgment requiring Wayne to return $150,000 in funds he “reserved” (that is, paid to his attorneys) and was denied the judicial discharge he sought. The San Antonio Court of Appeals upheld the verdict of the trial court which awarded Jennifer her reasonable and necessary attorney’s fees and costs.

Tilting the Scales in Your Favor

If you are a Texas executor, communicate, communicate, communicate – let everyone know what’s going on. Disclose all the assets, the income, the expenses and the values – just like it was shared ownership in a business. Treat all the beneficiaries fairly and take care to undertake your fiduciary duties in good faith, by fair dealing, and by full disclosure.

If you are the beneficiary of a will in Texas, know that you have certain rights. Encourage your executor to communicate early and completely all reasonably necessary information that you should get to understand what is going on. You are entitled to it.

Both the executor and the beneficiaries are tasked with working through and administering the estate in line with the decedent’s directives or Texas law, and for all of the estate’s beneficiaries – even if you don’t get along so much.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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