Choosing an executor or trustee is a critical aspect of every estate plan. Executors and trustees have broad authority and are charged with gathering the decedent’s assets, discharging debts and paying taxes due on the decedent’s estate. Because the executor and trustee have broad authority, and are tasked with a variety of responsibilities and obligations, naming an executor or trustee who can handle these issues is extremely important. Failure to properly address these issues can have a profound impact on an estate, as demonstrated by the case Specht and Hoffheimer, co-fiduciaries for the Estate of Escher v. U.S.
The facts of this case are surprisingly straightforward. Virginia Escher died in December 2008 at the age of 92, and the court’s opinion reports her estate was worth $12,506,462. Ms. Escher named her cousin as her Executrix, and the Executrix hired Ms. Escher’s attorney to represent the Executrix with regard to the Estate. It was later discovered that the attorney was battling brain cancer at the time.
The Executrix was appointed in February 2009. The attorney timely informed the Executrix that the Estate’s Federal Estate Tax return needed to be filed by September 30, 2009. The Executrix later admitted that this was an important deadline, and was aware there would be consequences if the deadline was missed. However, the Executrix admitted that she was not concerned if the Estate met applicable deadlines.
Despite receiving delinquency notices from the State of Ohio and complaints from acquaintances about the attorney, the Executrix continued to work with the attorney and failed to take action on the taxes. It was not until November 10, 2010 that the Executrix hired a new attorney. The Estate Tax Return was not filed until January 2011.
Because of the late filing, the IRS assessed $1,198,261.38 in penalties and interest. The Estate recently appealed this assessment to Federal District Court, where the Estate lost. It is now appealing to the Sixth Circuit.
Executor and trustees who fail or refuse to discharge their responsibilities can have a substantial negative effect on an estate or trust. The Estate of Escher underscores the importance of selecting executors and trustees who are capable of discharging their responsibilities in a timely and competent manner.