Self-Dealing Executrix Breached Her Fiduciary Duties

IMO the Estate of Helen L. Rose, Folio F01052012HLR-K (July 9, 2019)

       In this case, in the context of exceptions to a first and final accounting for an estate, the Court recommended a finding that the executrix breached her fiduciary duties to the estate by engaging in self-dealing in selling assets of the estate to herself.  Finally, as a result of this self-dealing, the Master recommended significant fee shifting.

       Following the decedent’s death in 2012, pursuant to the decedent’s Last Will and Testament, the executrix attempted to sell certain real property located in Smyrna.   The property was originally listed at $129,000, and was identified in the estate’s inventory as having a value of $120,000. Due to a variety of issues, however, it never sold.  Ultimately, the executrix sold the property to herself for only $80,000.

       The Master reasoned that the executrix had engaged in self-dealing.  Under Delaware law, such a transaction is voidable unless the executrix can show (1) the fairness of the transaction and (2) the consent of the other beneficiaries.  The executrix here could demonstrate neither.  Due to the extremely reduced sale price,  the transaction was not fair,.  And only one of the other six beneficiaries even knew about the transaction, and therefore consent could not be demonstrated.

       The Master granted relief as follows:  for Patricia to refund the estate $48,000, or to have the sale of the property voided.

       The Master also considered the question of who should pay the attorneys’ fees for each side.  Because the Master was recommending a finding that the executrix self-dealt, she was not entitled to reimbursement from the estate—rather, she would be required to pay her own fees.  And, the Master recommended that she be required to pay the exceptants’ fees, given the benefit they had produced to the estate.

       This case illustrates the importance of executors and executrixes to cautiously exercise their rights in acquiring property—whether real or otherwise—from the estate without first considering their fiduciary duties to all of the beneficiaries under the testamentary documents.