Lindsey Munyer, Partner at Keystone Law Group, discusses the six most important rights of estate beneficiaries. Read the complete article below for more details. Click the YouTube “Subscribe” button to be notified when new videos are published.
What Is an Estate Beneficiary?
An estate beneficiary is someone who stands to inherit a decedent’s assets; they are generally designated in a decedent’s will.
When someone dies without a will (i.e., they die intestate), their assets will pass to their heirs by way of intestate succession — which dictates the order of priority in which heirs will inherit. Heirs are close family members of the decedent (e.g., surviving spouse and children) who have an interest in the decedent’s intestate estate.
Inheriting from a trust? Read our article on trust beneficiary rights.
Understanding the Probate Process
To understand the rights of an estate beneficiary, one has to understand which assets an estate includes. When a decedent passes away, the decedent’s “estate” comprises all the assets the decedent included in their will and any other assets the decedent owned, excluding property in the decedent’s trust or assets that have designated beneficiaries.
Estate assets generally pass through the a formal court-supervised process called probate. Without the probate process, the personal representative of the decedent’s estate (i.e., the executor/administrator) generally will not be able to transfer estate assets to the beneficiaries.
Who is the executor? They typically are nominated in the decedent’s will to preside over the decedent’s estate during probate. Before they can step into their role, however, the court will have to formally appoint them. Most of the time, the court goes along with the decedent’s choice of executor unless it has reason to believe the nominee is unfit to serve, the nominee refuses their appointment, or their appointment is successfully disputed by interested parties. The administrator/executor is responsible for gathering the decedent’s assets, paying their creditors and accounting for their assets, among other things.
Because probate can not only delay distributions to estate beneficiaries but be expensive and time-consuming, many people seek out ways to avoid it. Probate is also expensive and burdensome for the courts, so the California Legislature has created mechanisms by which probate could potentially be expedited or avoided entirely.
For instance, if an estate is worth less than $184,500, a small estate affidavit could potentially be used to altogether avoid probate. Likewise, if a portion of a decedent’s estate is supposed to pass to the decedent’s surviving spouse, a spousal property petition could potentially be used to directly transfer the property to their surviving spouse without a formal probate.
A trust and estate administration lawyer can help estate beneficiaries seeking to avoid probate determine whether doing so is possible.
As a Beneficiary of a Will, What Are My Beneficiary Rights?
As an estate beneficiary, you are guaranteed certain rights. Understanding your beneficiary rights is a crucial first step to ensuring you receive the inheritance to which you’re entitled. The last thing you want to do is sit idly by while administration takes place. Instead, be proactive by learning your beneficiary rights and enforcing them at every stage of the administration process.
If an executor of the estate has informed you that you have been named as an estate beneficiary, you are probably wondering: As a beneficiary of a will, what are my rights? Do I have a right to see a copy of the will? Do I have a right to information about the estate from the executor? Do I have a right to remove the executor if their actions are improper or unethical?
The answer to all of these questions generally is yes. Estate beneficiaries have important rights to not only protect against inheritance theft but also to ensure the estate is not financially harmed by the personal representative, interested party or someone else. By knowing their inheritance rights, beneficiaries will be able to take the appropriate action to stop misconduct if estate assets are under threat.
The most important rights of estate beneficiaries include:
- The right to receive the assets that were left to them in a timely manner
- The right to receive information about estate administration (e.g., estate accountings)
- The right to request to suspend or remove an executor or administrator
- The right for an executor or administrator to act in their best interests
Estate beneficiaries should remember that executors and administrators are fiduciaries. In other words, they are required to act in the estate beneficiaries’ best interests at all times.
For instance, executors and administrators are subject to a duty of impartiality, which means they cannot favor certain beneficiaries over others. Executors and administrators are likewise subject to an absolute duty of loyalty; their personal interests should never be placed above those of the estate beneficiaries.
Another important facet of administrator/executor duties is keeping estate beneficiaries reasonably informed. In other words, the personal representative should provide beneficiaries with the information they need to enforce their beneficiary rights. Suppose the executor is not communicating with beneficiaries, or the executor is refusing to provide accountings. This may be considered executor misconduct, since the beneficiaries would likely not have any way of finding our about the personal representative’s decisions, the decedent’s debts or what assets they are entitled to from the estate.
If executors or administrators are not diligent in carrying out the aforementioned duties, estate beneficiaries should reach out to an estate lawyer, who can utilize the courts to compel the executor or administrator to provide beneficiaries information about administration, as well as accountings. Iff the problem is beyond fixing, your lawyer can request for the court to have the executor or administrator removed and potentially surcharged.
Even though estate beneficiaries have broad rights, it is important for them to remember that executors and administrators are not necessarily required to involve beneficiaries in every decision they make. If estate beneficiaries want to have a say in estate-related decisions, it is essential for them to play an active role in administration and stay apprised of what is happening at every step of the process.
Can a Beneficiary Sue the Executor?
An estate beneficiary has a right to sue the executor or administrator if they are not competently doing their job or are engaged in fiduciary misconduct. If an estate beneficiary suspects the executor or administrator breached their duties – regardless of whether they did so intentionally or inadvertently – there are steps they can take to protect both their beneficiary rights and the estate.
What constitutes a breach of fiduciary duty? It can consist of anything from the executor negligently managing estate assets, to intentionally misappropriating estate property. The legal remedies available to estate beneficiaries will depend on the gravity and nature of the misconduct, and the extent to which the misconduct caused financial harm to the estate.
If sufficient evidence exists to suggest the personal representative breached their duties, estate beneficiaries generally can proceed with suing the executor of the estate with help from a probate attorney.
Reasons to Sue an Executor
As previously mentioned, estate beneficiaries must have a valid reason for suing an executor of an estate.
Examples of valid reasons for suing an executor of an estate include:
- Executor failed to provide accountings to estate beneficiaries
- Executor displayed favoritism toward certain estate beneficiaries
- Executor misappropriated estate assets for personal gain
- Executor mismanaged estate assets
- Executor failed to pay taxes on the estate
- Executor endangered estate assets by making risky investments
- Executor conflicts of interest resulted in executor placing personal interests above the collective interests of the estate beneficiaries
If any of the aforementioned scenarios exist, estate beneficiaries should get in touch with a probate lawyer right away in order to have the executor removed and replaced, and possibly even surcharged.
Beneficiary Rights in Will Contests
Sometimes, it’s the will that is violating estate beneficiary rights. When this happens, estate beneficiaries may have standing to bring something known as a will contest to try to have the document invalidated.
For instance, if a decedent tries to dispose of their surviving spouse’s separate property (i.e., property the spouse owned prior to getting married, inherited or received as a gift during marriage) in their will, the spouse could bring a will contest to invalidate the portion of the will relating to the property at issue since the decedent did not have the right to dispose of it.
Some of the most common scenarios occurring in the context of will contests has to do with beneficiaries challenging the validity of the document on the basis elder financial abuse, fraud, undue influence or lack of capacity (i.e., the decedent had lacked the requisite competence to make a will when they did). In such a case, the interested parties that suspect the abuse can bring a will contest to try to have the will voided.
If you are an estate beneficiary whose inheritance is at stake because of a will contest brought by another beneficiary, an heir or the executor, it is crucial you participate, or you could lose your seat at the negotiating table and quite possibly your inheritance. It cannot be stressed enough how important it is to not be a freeloader or bystander beneficiary.
A will dispute lawyer can not only help you contest a will and win, but they can defend a will contest as well if someone is challenging your right to an inheritance.
Beneficiary Rights in Property Disputes
Estate beneficiaries, just like executors and administrators, are entitled to bring an action if they believe the decedent’s property has been damaged or unlawfully taken.
Examples of contexts in which estate-related property disputes can occur include:
- Third party scammed the decedent, resulting in a loss of estate assets
- Family members of the decedent stole personal property from the decedent’s home when the decedent had been alive without the decedent knowing
- Executor or administrator misappropriated assets belonging to the estate
- Assets are being held by the decedent’s trust, even though evidence shows the decedent intended them to be distributed via their estate
If a property dispute isn’t against an executor or administrator, it is usually the executor or administrator who will be responsible for bringing an action against the party they believe to have caused harm to the estate (although estate beneficiaries can participate in the dispute or bring the lawsuit themselves if the executor or administrator is refusing to do so).
Estate beneficiaries who do bring an action against another beneficiary, heir, personal representative or third party can seek to have the alleged offender pay for the property or return it, and potentially seek punitive damages if the harm to property was substantial.
In instances where a trust is in possession of property belonging to the estate, something known as an 850 petition can be filed to try to bring the property back into the estate, although this petition will generally be filed by the executor or administrator.
When there is a dispute over estate property, it is best for beneficiaries to consult with a probate lawyer, who can devise a plan to recover the property.
Beneficiary Rights in Beneficiary Designation Disputes
Certain assets, such as life insurance policies and retirement and bank accounts, can pass to designated beneficiaries, if any were named, outside the formal probate process.
The benefit of assets with beneficiary designations is that the designated beneficiary can access them as soon as the owner of the asset dies. The downside is that the transfer of property is not subject to court supervision. Disputes can occur when one of a payable-on-death or transfer-on-death asset is also included in a decedent’s will or trust, or when the designated beneficiary is being contested.
Beneficiary designation disputes can be challenging to litigate since beneficiaries usually take control of the asset at issue not long after the asset owner dies. However, if it could be proven, for example, that a designated beneficiary on a bank account unduly influenced the decedent into designating them as the beneficiary, it may be possible to invalidate the beneficiary designation. Likewise, if it could be proven that a decedent had intended for an asset with a beneficiary designation to actually pass via their estate or trust, invalidating the beneficiary designation may be possible.
Estate beneficiaries are entitled to bring an action to invalidate a beneficiary designation. For the best chance at a favorable outcome, a beneficiary lawyer should be hired to enforce their beneficiary rights.
Beneficiary Rights to Estate Accountings
Estate beneficiaries have a right to not only receive accountings from executors and administrators, but to inspect and challenge those accountings as well. If an executor or administrator fails to provide accountings, estate beneficiaries are entitled to use the courts to compel the executor or administrator to provide them.
Estates can be complex, and as a result, so can estate accountings, which is why it’s crucial for estate beneficiaries to thoroughly examine accountings for both errors and red flags (i.e., signs of financial misconduct or mismanagement of estate assets). If errors or red flags are discovered upon inspection, estate beneficiaries are entitled to challenge the accountings in court.
Suppose it comes to light that an executor or administrator caused financial harm to the estate. Estate beneficiaries would be entitled to not only petition the court to have the executor or administrator removed, but they could try to have them surcharged as well.
To ensure favorable results, it is best to involve an estate litigation lawyer both when inspecting accountings and challenging them.
Are Distributions from an Estate Taxable to a Beneficiary?
One of the most common questions on the minds of estate beneficiaries is whether the distributions they receive from an estate are taxable. The good news is that estate distributions to beneficiaries are generally not taxed. Any taxes that do need to be paid in relation to the estate are usually taken care of by the executor or administrator during administration prior to making any distributions.
The majority of estate beneficiaries can rest assured that they will receive their distributions from a decedent’s estate in full. The distributions will not be considered income, and therefore, will not be taxed. Certain rare exceptions do exist to this rule, which we’ll cover in the next section.
Rare Exceptions
If an estate is earning income or dividends (e.g., if an estate is the designated beneficiary on a retirement account), and the executor or administrator fails to pay taxes on that income before making distributions to estate beneficiaries, it could become the responsibility of estate beneficiaries to pay tax on that income.
Sometimes, the executor or administrator will intentionally leave estate beneficiaries to pay the income tax, since the estate beneficiary would fall under a lower tax bracket than the estate as whole. This method could potentially garner beneficiaries a more substantial inheritance.
Call us to learn how we can help enforce your estate beneficiary rights.
Keystone’s probate lawyers work with estate beneficiaries every day to consult with them about their rights and help enforce them. As an estate beneficiary, you should be playing an active role in administration to ensure you receive your rightful inheritance.
The good news is that you don’t have to go about the process alone. Our beneficiary lawyers are available to help enforce your rights through every stage of the administration process. Schedule a free consultation with us today!
