Claims against Personal Representative Must be Raised during Probate Proceedings

June 14, 2022 | Kitt Tovar Jensen

The case is Rand v. Sec. Nat’l Corp., No. 21-0227 (Iowa Sup. Ct. May 6, 2022).

On May 6, 2022, the Iowa Supreme Court held that all claims involving administration of an estate must be asserted during the probate proceedings. A beneficiary of a will disputed the fees awarded to the personal representative of the estate. After the probate court reduced the fees awarded, the beneficiary initiated a separate lawsuit seeking damages. Because all estate administration disputes must first be raised during the probate proceedings, the Court affirmed the grant of summary judgment in favor of the personal representative.

Background

Roger Rand passed away with an estate valued at approximately $19.7 million. The will nominated Security National Bank (Bank) as the personal representative of the estate. The Bank hired the law firm which had drafted Roger’s will to serve as attorneys for the estate. The Bank then provided all five beneficiaries with a fee schedule for the administration of the estate:

The fees are based on the appraised value of the assets of the estate reported for inheritance tax purposes whether taxable or not. The appraised value is taken as of the date of death. The fees are computed as follows:

6% of the first $1,000.00

4% of the next $4,000.00

2% of the remaining value

See Iowa Code § 633.197 (setting the maximum compensation for personal representatives of an estate.) The fee schedule also provided information on compensation for extraordinary services.

After six months, both the bank and the law firm applied for the maximum amount of fees allowed for a total of $789,564 or $394,782 each. The law firm requested an additional $137,792 for extraordinary services provided. One of the beneficiaries, Roger’s son, objected to the fees. The beneficiary claimed that the Bank engaged in misrepresentation by failing to disclose that the fee schedule only set the maximum compensation allowed under Iowa law. He also claimed that the Bank breached its fiduciary duty by effectively denying the beneficiaries an opportunity to “replace the Personal Representative early on with another that would live up to its fiduciary duties for a reasonable fee.”

After a hearing, the probate court, although noting that the Bank had “a significant and unusual amount of work,” held that the fees sought were “inflated or include[d] a large amount of unnecessary work.” As a result, the probate court reduced the fees by nearly half, approving $160,000 to the Bank and $205,000 to the law firm. It also reduced the law firm’s fees for extraordinary services to $110,568. Neither party appealed.

However, the beneficiary filed a separate lawsuit against the Bank asserting claims for breach of fiduciary duty and misrepresentation. He sought emotional distress damages, punitive damages and attorney fees. The Bank moved for summary judgment. The district court granted the Bank’s motion after determining that the beneficiary should have brought these claims in probate court.

Probate Court Jurisdiction

The probate court has special jurisdiction to resolve disputes over matters related to the administration of an estate including fiduciary misconduct. Iowa Code §§ 633.10(1), .162. By vesting power with the probate court, the Legislature provided a remedy to resolve estate disputes efficiently. Youngblut v. Youngblut, 945 N.W.2d 25, 37 (Iowa 2020). Accordingly, issues related to the probate of an estate should initially be resolved in probate court.

Here, the beneficiary’s claims arose out of the Bank’s tenure as the estate’s personal representative. The probate court is able to provide relief when a breach of fiduciary duty occurs. Iowa Code §§ 633.155, .160. Therefore, issues regarding fiduciary conduct should be resolved in the probate proceeding.

The Supreme Court noted the practical issues of allowing claims against a personal representative to be brought outside of probate court. A testator has the right to choose the executor of her estate. Iowa Code § 633.294(1). The beneficiary argued that if he had known that Iowa Code § 633.197 set the maximum compensation of a personal representative, he could have found a different personal representative with more competitive pricing. However, a personal representative can only be removed in certain circumstances such as the lack of qualification. The Court rejected the beneficiary’s argument finding it to be too speculative of what may have occurred if the beneficiary had petitioned to remove the Bank at the start of the probate proceedings

Additionally, the beneficiary had previously raised the breach of fiduciary duty claim and was able to obtain relief through reduced fees. The Court concluded that the beneficiary should have sought any additional relief during the probate proceeding. Accordingly, the Iowa Supreme Court affirmed the grant of summary judgment in favor of the Bank.