‘I came across a letter from my father’s bank showing a wire transfer of $195,000 from the buyer’
“Is it normal for part of the proceeds to be transferred directly to my father before the heirs receive their shares?” (Photo subject is a model.)
Dear Quentin,
My mother passed away while serving as the executor of her parents’ estate. After her death, my father became the administrator and put their house on the market. We eventually found a buyer – our neighbor, who had known my father for many years. Over the years, this neighbor had expressed interest in purchasing the house whenever we were ready to sell.
I later learned that I am one of the heirs and will be entitled to 18% of the sale proceeds. The house was reported as sold for $800,000, but I came across a letter from my father’s bank showing a wire transfer of $195,000 from the buyer, labeled “property purchase.” The money went into his account! Is it normal for part of the proceeds to be transferred directly to my father before the heirs receive their shares?Should I be concerned about how the sale is being handled?
Puzzled in Delaware
You can email The Moneyist with any financial and ethical questions at [email protected]. The Moneyist regrets he cannot reply to questions individually.
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Your father should have put the money from the sale of this property into an account held in trust or an escrow account, and not into his personal bank account.
Dear Grandson,
Something is rotten in the state of Delaware.
Was that $195,000 meant as a down payment? Executors have a fiduciary duty to the heirs. That means they have a legal obligation to act in the best interest of the heirs, and not in their own best interest. They should act with care rather than recklessness and due diligence rather than impulsivity, avoid any conflict of interest, keep meticulous records of all financial and legal proceedings and keep the beneficiaries informed at all times. None of the above appears to have been done in this instance.
Executors may also be held personally liable for failing to carry out their duties in a fair, honest and efficient manner. At a minimum, they should act in good faith and with honesty and integrity. In this case, your father should follow the instructions of the will or trust, assuming there were instructions, as you say. He should also seek the best market price for this house, which does not involve selling it to the nearest person at a privately agreed-upon sum, which could leave room for bribery.
What’s more, your father should have put the money from the sale of this property into an account held in trust or an escrow account, and not into his personal bank account. The reason for this is simple. This is not his money! It belongs to your grandparents’ estate until it is dispersed to the heirs per the terms of the will or trust. Ask your father for detailed accounts related to the sale, and alert the attorney who was responsible for representing the estate in this transaction.
Using an estate account
“Opening an estate account is an important step when managing inherited property,” says HomeLight, a real-estate technology company based in San Francisco. “This dedicated bank account will be used to handle all financial transactions related to the estate, including proceeds from the property sale. An estate account helps ensure transparency and keeps personal finances separate from estate funds, which can make it easier to track expenses and distribute proceeds among heirs.”
“Before listing the property, it’s important to assess its condition and current market value,” HomeLight adds. “One option to determine the home’s value is to contact an experienced real-estate agent who can provide a comparative market analysis. This is a detailed report that uses data from nearby recently sold homes to give you an accurate selling price.” In addition, your father, as executor, should have hired a home appraiser and arranged a home inspection to make sure the house was valued correctly.
Current and fair market value
And now for the ugly truth: You may, if you don’t get satisfaction, be faced with the uncomfortable decision of whether to take legal action against your father for a variety of potential or alleged misdeeds related to this house sale, which may go beyond depositing money into his own personal account. A less adversarial and less costly approach would be reaching a private resolution using a mediator once you have all the information in hand.
The bottom line for anyone considering executor duties: Being an executor is often a thankless job. The upside is that they have the right to pay themselves for the time and services they provide. But if they fail in their duties, they can be held liable for their actions. Some wills outline a fee, while some states recommend fees at 5% of the estate if it’s valued at less than $100,000, 4% of the estate if it’s between $100,000 and $200,000, and 3% if it’s valued at between $200,000 and $1 million.
It’s no picnic being an executor of an estate. The executor’s responsibilities are extensive when dealing with the sale of a property – including maintenance of the real estate, paying the mortgage, making sure squatters don’t occupy the property, clearing out and distributing furniture and other items to heirs, and staying current on insurance and real-estate taxes. Your father may have merely done the best he could under the circumstances, while making some major, if rookie, errors.
In this situation, nothing about this transaction appears normal.
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-Quentin Fottrell
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