Beneficiary Must Pay Estate $106,712.38 Overpaid to Him by Corporate Executor

Wells Fargo Bank v. Burger, No. 13-1729, 2014 Iowa App. LEXIS 654 (Iowa Ct. App. Jun. 25, 2014)

 

Overview

The Iowa Court of Appeals recently found that an estate beneficiary who was overpaid by the corporate executor of his mother’s estate was liable to repay the estate $106,712.38.

Facts of the Case

The decedent died in 2008, survived by four children. She and her husband (who predeceased her) had executed revocable living trusts to govern the distribution of their property at death. During the decedent’s lifetime, her son, who was the defendant in the instant action, purchased her farmland, giving promissory notes to her trust in exchange. When the decedent died, the probate court appointed a banking corporation as the executor of her estate and the trustee of her trust.

During the probate proceedings, two of the decedent’s children filed a lawsuit challenging changes the decedent made to her last will and testament.  The beneficiaries entered into a settlement under which the defendant was required to pay money to the protesting children. The settlement also required the defendant to pay the promissory notes off early so that the estate could be liquidated. The executor attempted to administer the estate according to the executor’s interpretation of the settlement.  The executor made interim distributions and filed a final report, seeking discharge in 2011.

One of the sons objected to the final report, alleging that (1) the executor improperly included the defendant as a beneficiary of the proceeds received from the defendant under his note payoffs; (2) the executor failed to collect interest from the defendant on the notes from the time the beneficiaries settled their litigation until transfer of the funds securing the notes; and (3) the executor over-allocated a capital gain tax credit to the defendant. The executor stood by the calculations and distributions, and the defendant opposed the objections, stating that he would pay the estate the $27,715 he and the executor believed was required by the settlement after the probate court approved the report.

The probate court did not approve the report, but instead ordered the executor to reduce the distributions to the defendant. The probate court stated that it could not order the defendant to refund the overpayments made to him because he was not a defendant in the probate action.  The Iowa Court of Appeals affirmed the probate court’s order, and the case was returned to the probate court.

On remand, the executor filed an action against the defendant, seeking to recover the $106,712.38 owed by him to the estate under the probate court’s recalculations. The probate court entered summary judgment in favor of the estate, and the defendant appealed.

On review, the Iowa Court of Appeals affirmed. The court ruled that issue preclusion prevented the courts from reconsidering whether and in what amount the defendant was overpaid by the estate. That matter was decided by the first probate court action and was affirmed by the court. As such, the estate was entitled to recover the calculated overpayment from the defendant, and the parties could not now relitigate that issue. 

The defendant argued that the executor should bear the responsibility of the reimbursement because it was negligent in administering the estate. The court stated, however, that an estate is not normally responsible for the negligent acts of its executor toward a third person. If the defendant wanted to seek contribution or indemnity from the executor, he would have to file an action against the executor.  However, the defendant did not bring the executor into the present action as a third- party defendant. Because the executor was not a party to the claim, the defendant had no justiciable action.

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

RSS​ Facebook Twitter