Judge: business deals with estate funds amount to self-dealing

On Behalf of | Jan 4, 2013 | Heirs & Beneficiaries |

As Twin Cities readers may know, the executor of a probate estate typically has broad latitude to manage estate assets in furtherance of the testator’s wishes. Sometimes, however, those in charge of estate administration forget that an executor owes a fiduciary duty to all the beneficiaries of the estate. As one recent court ruling illustrates, the failure to live up to fiduciary responsibilities need not be motivated by greed or personal gain to amount to unlawful self-dealing and bad faith.

The recent court judgment comes after three years of litigation involving the estate of the matriarch of a successful real estate family. The matriarch’s granddaughter filed suit against her father and two uncles claiming that misuse of funds during the estate administration process adversely affected the interests of other beneficiaries, including six of the granddaughter’s cousins.

In a December 10 ruling, the presiding judge concluded that the father and uncles had transferred money out of the estate for purposes that afforded no benefit to the other beneficiaries. One such transaction involved the imposition of a lien against estate-owned real estate in order to fund a family business deal. The judge found that the lien had reduced the value of an estate asset while the beneficiaries would see no profit from the use of loan funds.

Even though the judge found no evidence that the transactions were motivated by any underhanded purpose, she nonetheless characterized the defendants’ actions as self-dealing that amounted to bad faith and a breach of fiduciary duty. The judge ordered the father and uncles to pay the granddaughter $884,000 in reimbursement along with unspecified attorney fees.

Source: Willamette Week, “Judge Finds Schlesinger Brothers Engaged in Self-Dealing,” Nigel Jaquiss, Dec. 20, 2012