Executor Must Repay Legal Fees to Estate

A Charlottesville Circuit Court orders decedent’s long-time attorney who is also his executor to reimburse the estate by $10,320 to cover old legal fees the at­torney billed to decedent and separate attorney’s fees paid for legal advice the executor sought regarding an unsecured loan made from the estate and the old le­gal bills.

The issues before the court relate to attorney’s fees the executor incurred for services and advice provided him as exec­utor, paid for out of the estate, which the commissioner has deemed improper and not for the benefit of the estate but of the executor, and which he ordered refunded to the estate.

These fees fall into three categories: fees for advice related to the commission­er’s questioning the amount of time and effort spent by the executor in rehabili­tating property to be sold; fees incurred in relation to the commissioner’s object­ing to an unsecured loan made by the ex­ecutor to himself as trustee for another trust; fees for advice relating to the com­missioner’s challenging the payment of old legal bills decedent had incurred with the executor in his personal capacity.

In a response to the commissioner, the executor asserted that from 2004 until decedent’s death in 2011, he provided estate planning services to decedent. On June 10, 2011, he simply paid invoices for past legal services. He argues they were continuing services and the statute of limitations had not run because the un­dertaking had not terminated. He also ar­gues the executor had the right to make loans under the Prudent Investor Rule, but does not specifically argue that unse­cured loans fall under the Rule.

Court’s questions

In reviewing the relevant case law, the pertinent questions in this case are: whether the attorney’s fees were reason­ably necessary to further the interests of, or for the benefit of, the estate and bene­ficiaries, or just (or at least primarily) for the benefit of the executor, and whether the executor was acting in good faith and prudently when he retained additional legal services.

It is important to note that all of the cases cited, and that I have come across, involve a suit or formal challenge being brought by a beneficiary, co-trustee or other such party, rather than a mere ad­ministrative inquiry by a commissioner of accounts or some similar official. Thisdistinction is not necessarily dispositive, but is significant.

It is the court’s view that the com­missioner was correct in questioning all three of the items. Although the commis­sioner makes a legitimate claim that the expenses put into the rehabilitation and preparing of the property for marketing were excessive, the court finds there is a basis in the evidence adduced to conclude the executor was acting in good faith in trying to get the property sold. The court will not require reimbursement of any le­gal fees attributable to responding to the inquiry about the efforts and expenses made in an attempt to market the prop­erty.

However, as to the other two matters – the challenging of the making of the unsecured loan to another trust, and the payment of old legal bills – I do not find the same. It is my view that the execu­tor’s retaining of counsel as to those two matters was not necessary to the admin­istration of the estate – both were past events – and was primarily, if not solely, for the benefit and protection of himself. The loan should have been secured by collateral or surety; that seems not to be disputed. The fact that the loan did not result in any financial loss was not an af­firmation that the executor was right or without fault. While the executor asserts that matter was resolved in his favor, the residuary beneficiary’s letter reflects its agreement with the commissioner that the loan was improper and unjustified as made. Finally, I do not find the payment of old legal debts was proper in the way it was done, and I do not believe that the attorney’s fees relating to this should be borne by the estate.

I will require the executor to refund to the estate any attorney’s fees paid from the trust attributable to any advice sought or received regarding the unse­cured loan and the old legal bills. I will not require reimbursement of any attor­ney’s fees attributable to the rehabilita­tion of the property for sale. To the extent such fees are delineated, they shall be so refunded. To the extent they are not de­lineated, but are listed in the aggregate, I will require two-thirds to be refunded. The total to be repaid to the estate is $10,320.

Estate of Denommé (Moore) No. CWF 11-40, April 7, 2016; Charlottesville Cir. Ct.; Gregory M. Johnson for executor; Ed­ward H. Bain Jr., Comm’r of Accounts. VLW 016-8-049, 7 pp.