Both state and federal law impose duties upon executors and trustees, “fiduciaries”, in fulfilling their duties. In certain instances, a fiduciary can be held personally liable for an improper distribution to a beneficiary if tax and other creditor liabilities are not first satisfied. In the recent case of the Estate of Melvin Sacks, the Internal Revenue Service issued a Notice of Fiduciary Liability to the executor for $422,694 asserting such liability in 2013. The Internal Revenue Service relied on laws which create liability when (1) the executor distributed estate assets when the estate was insolvent or the distribution rendered the estate insolvent and (2) the executor had notice of the claim of the United States.
When the case was finally decided earlier in 2016, the executor Scott Singer avoided personal liability based in part upon his assertion that the contribution rights from certain beneficiaries were property of the estate.
The Singer case highlights the potential liability for fiduciaries. Further, it underscores the need for fiduciaries to have competent legal advice in the process of administration of estates and trusts. Finally, the fiduciary must verify that all known liabilities are satisfied before distributions are made to beneficiaries.