Dishonesty and Improvidence as Grounds for Disqualification of a Fiduciary

August 14, 2015

A recent decision of the Richmond County Surrogate’s Court addressed a frequently litigated issue in Surrogate’s Court litigation – – whether the proposed or nominated fiduciary should be disqualified from serving in a fiduciary capacity on the grounds of “dishonesty” or “improvidence.” In the Estate of George Mathai a familiar dynamic was in play – – there was a dispute between the decedent’s children from a prior marriage and the decedent’s surviving spouse. The decedent’s two children from a prior marriage objected to the appointment of their step-mother as Administrator of the decedent’s estate. They claimed that she was unfit to serve as fiduciary on the grounds of dishonesty, hostility, and improvidence.

At the outset, the court noted that the decedent’s surviving spouse was first in the order of statutory priority to serve as Administrator under SCPA §1001(a). However, the statute gives parties interested in a decedent’s estate the opportunity to object to the appointment of a fiduciary, where the fiduciary “does not possess the qualifications required of a fiduciary by reason of substance abuse, dishonesty, improvidence, want of understanding, or…is otherwise unfit for the execution of the office.”

With the decedent’s children objecting to the appointment of their step-mother, the question became what, in this context, do the statutory terms “dishonesty,” and “improvidence” mean?

Addressing “dishonesty,” the Surrogate explained that in order to prove that a potential fiduciary is dishonest “it must be shown that the person has a tendency or ‘habit of mind’ toward wrongful action.”   An act of isolated wrongdoing is not enough to disqualify a fiduciary from serving on the basis of “dishonesty.” It must be shown that there was dishonesty in money matters to such an extent that it would lead to a reasonable apprehension that the estate would not be safe.

Addressing “improvidence” the court quoted earlier decisions where it was observed that “the quality of being improvident does not necessarily involve moral turpitude,” and that defined improvident acts as those that “would be likely to render the estate unsafe and liable to be lost or diminished.” The court further explained that misappropriation or mishandling of the decedent’s property falls within the meaning of improvidence.

In the Estate of George Mathai, the decedent’s children could not meet their burden of showing dishonesty or improvidence to disqualify their step-mother. Additionally, while they claimed that their step-mother should not be appointed on the grounds of hostility, the court dismissed their objection, repeating the rule that mere hostility between the fiduciary and the beneficiaries is not grounds for disqualification; hostility will only serve as a basis for disqualification where it jeopardizes the proper administration of the estate.

In this regard, it is worth noting that courts are mindful of beneficiaries or distributees seeking to impose their preference of fiduciary contrary to the testator’s choice of fiduciary (or contrary to the statutory order of priority) through their own misconduct. In this regard, beneficiaries are not permitted to bootstrap their own unreasonableness, hostility, and misconduct into a claim for disqualification or removal on the grounds of friction and hostility. As the New York County Surrogate’s Court has pointed out:

Courts are also loathe to indulge a beneficiary’s wish to dictate, at will or at whim, who the fiduciary should or will be. After all, where there is a clash between beneficiary and fiduciary, it is the latter who faces the potential for liability; it may be presumed therefore that the prospect of a surcharge will chasten the fiduciary to try to do right on an issue as to which the beneficiary him/herself is free to be wrong. As a corollary, a beneficiary should not be allowed to bootstrap his or her way to a new fiduciary by intentionally antagonizing the current fiduciary.