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Charities Take Note: Executors Can be Financially Liable for Delays in Payment of Bequests

February 20, 2023
Charities: Executors Can be Liable for Delays in Payment of Bequests

Nearly every charity has experienced the agony of the delayed distribution.  It’s coming in May. I mean October. Certainly soon after Christmas, maybe by the next lunar eclipse.  To be fair, sometimes these delays are unavoidable, even with an efficient executor.  Reasons largely beyond the executor’s control can include uncooperative beneficiaries, garbled financial records, unresponsive banks, and Lord-knows-what-else.

But sometimes the problem is the executor’s own action or inaction and, where a charity has been seriously disadvantaged due to that behavior, it is worth thinking about seeking compensation.  Frankly, the effort is unsuccessful more often than not.  Yet when it succeeds, it is truly justice in action.  And succeed it did in a recent case decided by the Supreme Court of Nebraska.

When the Executor is Held Liable: The Estate of Akerson Case

The case is In Re Estate of Akerson, 309 Neb. 470 (2021).  Akerson died and left a large estate, including a few significant charitable bequests.  One of those was an $875,000 gift to “Hamilton Manor,” an elder care facility operated by the local county government and managed by an appointed board of directors.

Shortly before Akerson’s death, the county agreed to a phased transition of Hamilton Manor’s activities to a for-profit company.  The transition had not occurred by the time Akerson died but did take effect about a year later.

The executor – Ronald Akerson, the decedent’s nephew – initially raised no objection to the charitable bequest, but later began to press an argument that the gift had lapsed because of the closure of Hamilton Manor.  A lower Nebraska court agreed with him and issued an order that the Hamilton bequest be paid as part of the residuary estate, half of which was to go to . . . you guessed correctly . . . Ronald!

The Supreme Court appeal ensued.  Nebraska’s highest court reversed, finding that well-settled principles of state law established that since Hamilton Manor was operating on the day of Akerson’s death, the gift vested on that date.  Further construing the will, the court determined that Akerson had a broad intention to fund nursing and elder care in Hamilton County and that there was no impediment to the fulfillment of the decedent’s wishes even with the closure of the named facility.

The Supreme Court did not go so far as to find that Ronald had violated his legal duties, but it clearly viewed his late-filed “petition for construction” as bordering on the frivolous.  The fact that Ronald himself would have received a windfall from the allegedly lapsed bequest did not escape the court’s notice.

So Hamilton Manor/County received its $875,000, but it got it more than two years late, thanks to the litigious Ronald.  We assume that Hamilton filed a claim for prejudgment interest – such a filing would have been the norm – and the Nebraska court ordered Ronald to make such payment, and from his personal assets and not those of the estate. 

Prejudgment interest in Nebraska at the time was 12 percent per annum.  Don’t reach for the calculator.  We’ll tell you.  The executor owed more than a quarter of a million dollars to the beneficiary.  In this case, seeking a big payday for himself backfired spectacularly on Ronald.

Key Takeaways of the Akerson Case

The lesson here:  if a charity has been seriously aggrieved by the action or inaction of an executor, it should consult with counsel to assess whether it would be prudent to seek compensation.  Even better is a practice of early intervention:  if it appears that an executor is not doing his/her job, it is wise to make efforts to correct the problem before estate assets are irretrievably lost.

Serious executor misfeasance or malfeasance is thankfully relatively rare.  CCK certainly does not advocate making a mountain out of every molehill.  Most executors are good, honest people performing an onerous and difficult task, often for the first and only time in their lives.  But where the objectionable conduct poses a significant threat to a substantial bequest, it is prudent to take action.  This will frequently, almost always, require the intervention of counsel.  Nonetheless, most charities feel that they owe it to their deceased donors to take necessary measures to protect generous testamentary gifts.

CCK COMMENT:  While there is no indemnification issue addressed in the Akerson opinion, it is instructive to consider a “what-if.”  Suppose Hamilton – or any of the other charities that were gifted by Ms. Akerson – had signed a document promising to indemnify the executor  “FOR ANY AND ALL CLAIMS MADE AGAINST HIM IN CONNECTION WITH THE ESTATE.”  With that document in hand, Ronald would have had an argument that the charities should repay him for the use of his personal funds.

Some astute readers may be thinking as follows: “But a court would certainly not have required Hamilton, or any other charity, to make payment to Ronald.”  Maybe so, but when a charity receives a bequest, does it really want to sign on to an expensive lawsuit, even one that it is likely to win?  Isn’t it better to negotiate and push back against onerous and overreaching provisions in receipts and releases before things go south?

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