Yes. Executors can withhold money from a beneficiary in certain circumstances, if withholding complies with applicable legal standards and fiduciary duties. Because executors are fiduciaries, executors must always act in the best interests of the estate and its beneficiaries and are bound by probate court orders and applicable laws governing estate administration. Failing to comply with such obligations exposes executors to numerous forms of potential liability for wrongful withholding.
Executor’s Fiduciary Duties
Executors share a fiduciary relationship with all parties interested in an estate, including the estate’s beneficiaries. (Estate of Sanders (1985) 40 Cal.3d 607, 616.) This means the law requires executors to act with utmost good faith and to avoid taking unfair advantage of beneficiaries. (Id.) The law prohibits executors from favoring one beneficiary over another or taking an unfair advantage of beneficiaries. (Estate of Hammer (1993) 19 Cal.App.4th 1621, 1637.) Further, executors must disclose all relevant facts and protect the beneficiaries’ legal rights and must distribute estate assets as directed by the probate court. (Id.)
Circumstances Under Which Executors May Withhold Funds
Generally, executors may legally withhold funds from beneficiaries if there is a legitimate reason for withholding and doing so is in compliance with the will, applicable law and the executor’s fiduciary duties.
As a rule, executors may withhold funds as necessary to cover administrative expenses, pay estate debts, or resolve claims against the estate. (In re Bennett’s Estate (1939) 13 Cal.2d 354.) For example, in In re Dow’s Estate, the court upheld the executor’s withholding of assets worth approximately $50,000.00 to address charges due or becoming due, such as potential taxable capital gain on corporate stock. ((1959) 167 Cal.App.2d 707.)
Executors may also withhold funds if disputes between or misconduct involving beneficiaries is ongoing, such as unresolved challenges to the will’s validity.
Other Permissible Actions
An executor’s duties may vary depending on the types of assets in an estate. For instance, when a will mentions real estate, executors are responsible for overseeing the property as part of administering the estate. Accordingly, executors have the authority to seek possession of real estate property, which may require evicting a beneficiary to protect the estate or fulfill their duties. In Marquez-Luque v. Marquez, the court recognized the ability of estate administrators to seek eviction of a resident from estate property through an unlawful detainer, specifically noting the remedy was proper because it would have available to the property owner while alive. ((1987) 192 Cal.App.3d 1513, 1518.) Eviction actions are, however, subject to the probate court’s control and approval, meaning executors must ensure to abide by all applicable laws and duties when seeking to evict a beneficiary.
The ability to sell property when necessary for the estate’s benefit or as directed by will is inherent in an executor’s authority to manage and transfer real estate within their duty to preserve and protect estate assets. (In re Estate of Martin (1999) 72 Cal.App.4th 1438.) Here, executors must avoid conflicts of interest in real estate transactions, meaning they cannot purchase estate property for personal gain; beneficiaries can void such transactions. (Id.)
Improper Withholding & Other Acts
Withholding funds on improper grounds expose executors to various degrees of potential liability. For instance, imposing unauthorized conditions on beneficiaries and distributions constitutes a breach of fiduciary duty. (Spencer v. Crocker First Nat. Bank of San Francisco (1948) 86 Cal.App.2d 397.)
Further, the law does not allow executors to freely change the will’s terms and distributions or remove beneficiaries. An executor may only create obligations against an estate if the decedent’s will or statute expressly authorize such obligations. (Moss v. Boyle (1941) 44 Cal.App.2d 410.) This principle outrightly restricts the executor’s ability to act beyond the scope of authority granted to them by the will, governing legal documents, or statutory law and protects the role and rights of beneficiaries throughout estate administration. Any attempt to change the will’s terms, distributions, or beneficiaries must be made with court approval.
Remedies for Improper Withholding
Beneficiaries can petition the court for removal of an executor who engages in waste, fraud, mismanagement, or breaches of fiduciary duties. Specifically, grounds for removal of an executor include actions that advance the executor’s self-interest at the estate’s expense, actions that create conflicts of interest or actions that fail to protect the rights of beneficiaries. (Estate of Effron (1981) 117 Cal.App.3d 915.)
When examining the facts, the probate court must decide whether the circumstances warrant the removal of an executor. (Estate of Effron, supra, 117 Cal.App.3d at p. 930.) Probate law primarily governs remedies for wrongful withholding.
Surcharge for Breach of Fiduciary Duty
An executor who breaches their fiduciary duties may be surcharged for losses caused to the estate. Surcharge is a court order that requires a fiduciary to repay money to the estate due to their misconduct, mismanagement, or breach of fiduciary duties. Beneficiaries file a petition to the court seeking surcharge upon discovering the executor’s improper conduct. (Estate of Kampen (2011) 201 Cal.App.4th 971.) Executors must pay the surcharge from their personal assets, not the estate’s.
Removal, Penalties & Accountings
Under California Civil Code § 8502, courts can remove a personal representative upon various grounds, including waste, embezzlement, fraud, misconduct, or breaches of a fiduciary duty. (Civ. Code, § 8800.) In wrongful withholding cases, courts may impose penalties or charge interest on the amounts wrongfully withheld by an executor. (Civ. Code, § 8800 (c).) Further, probate courts can order executors to render a full accounting of the estate and restore wrongfully withheld assets. (Prob. Code, § 8873.) The court may punish disobedience by an executor as contempt. (Id.)
Limitations on Beneficiaries’ Demands
Importantly, beneficiaries cannot unilaterally demand executors act unless the demand aligns with the interests of the court and other stakeholders in the estate’s administration. Executors are not required to comply with beneficiary demands that conflict with their fiduciary duties or expose the estate to liability.
What is an Example?
“Shawn” and his sister “Julie” inherited their mother’s Southern California home each as a 50% co-owner. Their mother’s will named Shawn executor of the estate, so, Shawn moved into the house, refused to sell it, and started renting part of it out on AirBnb.
Shawn kept all the rental income without telling Julie. Shawn also withheld estate funds, failed to provide Julie with financial records, and ignored court orders to distribute assets. Julie, desperate for her share, had no choice but to act.
Julie filed a partition action to force the sale of the property, a probate petition to remove Shawn as executor and compel distribution of estate assets, and a surcharge request, asking the court to hold Shawn personally liable for all damages and legal fees.
After reviewing the evidence, the court found Shawn acted in bad faith as both executor and co-owner. Ultimately, the judge ordered a partition by sale and Julie received her full 50% share of the proceeds plus attorney fees because Shawn’s bad faith forced the lawsuit. In probate court, the judge removed Shawn as executor of the estate and surcharged Shawn for the misused rental income and delays. Shawn’s surcharge liability was deducted from his share of the sale proceeds and a neutral third-party replaced him as executor.
Conclusion
If property ownership is a point of contention, partition may be a solution. At Underwood Law, our partition attorneys can help you navigate your partition action efficiently and with care. We are here to help.
