Potential Conflict of Interest Insufficient to Disqualify Nominated Fiduciary
April 03, 2013
“A testator’s choice of executor should be given great deference” (see Matter of Palma, 40 AD3d 1157, 1158 [3d Dept 2007]). This rule is fundamental to the practice of trusts and estates law, yet is often challenged by those who want to disqualify or remove the testator’s nominee -with or without valid basis.
A court will generally issue letters to the nominee who is deemed eligible to serve as a fiduciary pursuant to SCPA §707, unless an interested party makes legitimate objections to the appointment as set forth in SCPA §709. Once letters do issue, removal is a very serious proposition, but it can be achieved if the fiduciary’s conduct falls within the realm of SCPA §711 – including but not limited to wasting or imprudently investing estate assets, acting dishonestly, refusing to obey a court order, or failing to have the necessary qualifications because of “substance abuse, dishonesty, improvidence, want of understanding,” or is “otherwise unfit to serve” (see SCPA §711). Courts may also take the more drastic measure of removing a fiduciary without process under certain circumstances, such as failing to account or refusing to supply information about estate assets despite court orders to do so, being convicted of a felony or judicially declared incompetent, or commingling estate funds with his or her own (see SCPA §719). In all events, however, courts tend to exercise their powers to remove fiduciaries somewhat sparingly.
It is against this backdrop that Matter of Russo, 100 AD3d 1547 (4th Dept 2012), should be considered. There, objections to probate were filed alleging that the petitioner, to whom preliminary letters had already issued, should be disqualified from serving as executor due to a purported conflict of interest “in connection with decedent’s interest in Tread City Tire, Inc. (“TCT”) and decedent’s classic car collection.”
Regarding TCT, it was alleged that a conflict of interest arose from the decedent’s purported ownership interest in the entity, where petitioner also happened to be a salesperson. With respect to the decedent’s classic car collection, it seems that the purported conflict was asserted because one of the cars was bequeathed to the petitioner – but the Court did not elaborate much on this latter allegation.
Petitioner moved for summary judgment seeking dismissal of the objections, arguing that no conflict existed. In support of the motion, petitioner provided corporate tax returns for TCT along with a third party affidavit, to prove that the decedent had no ownership interest in the entity; rather, it was fully owned by a third party, and the decedent merely managed the business.
Moreover, with respect to the allegations of conflict in connection with the classic car collection, petitioner established that while one car was specifically bequeathed to him, he obtained two appraisals for each car, and two of the cars were sold at prices higher than the appraised price. In addition, petitioner demonstrated that the remaining classic cars were placed in a consignment program with objectant’s consent.
Citing the well-established law giving deference to a testator’s choice of fiduciary absent evidence of his or her actual misconduct, the court granted the petitioner’s summary judgment motion, dismissing the objections to his serving as executor. The court opined that objectant had failed to raise any issue of fact as to whether there had been any actual misconduct, explaining that the objectant did not make even one specific allegation of conflict or misconduct.
Accordingly, in view of the great deference given to the testator’s selected fiduciary, this case serves to reiterate the longstanding rule that actual misconduct is the key to the disqualification of a fiduciary; potential misconduct is not enough. Nonetheless, it should be noted that this is not an ultimate roadblock for a beneficiary who has legitimate concerns about the fiduciary’s ability to serve. Indeed, if the fiduciary subsequently displays one or more of the characteristics set forth in SCPA §711 or SCPA §719 as explained above, then he may be removed for cause during the course of his stewardship.