Mohseni v. Hartman, 363 S.W.3d. 652 (Tex. App.—Houston [1st Dist.] 2011, no pet.).

Estate Administration

Creditors

Duty of Personal Representative to Unsecured Creditor

 

Unsecured Creditor sued Independent Executor (IE) for breach of fiduciary duty, negligence, fraud, and conversion. The creditor claimed that IE’s misconduct caused the estate to lack sufficient funds to pay his claim. The trial court granted IE summary judgment ruling that an independent executor owes no legal duty to an unsecured creditor of the estate. The creditor appealed.

The appellate court affirmed holding “that an independent executor does not owe a general legal duty of care to the unsecured creditor of an estate in the management of the estate’s assets.” The court explained that the executor’s duty runs to the beneficiaries of the estate. It is the beneficiaries who have title to the property under Probate Code § 37 subject to the payment of debts. The executor thus holds the property in trust for the benefit of the title holders, not the creditors. The court made the analogy that a creditor cannot bring an action against living debtors who cannot pay their debts because they mismanage property.

The court also discussed how public policy supports the court’s holding. To create “such a duty would undermine independent administrations and conflict with the executor’s duty to administer the estate for the benefit of the heirs and legatees * * *. Also, it could conflict with the executor’s statutory duties to other classes of creditors. * * * The creditor’s remedy is to seek a judgment against the executor in her capacity as the estate administrator and seek execution against the estate[’s] assets.”

Moral: An independent executor’s duties run toward the heirs and beneficiaries, not unsecured creditors who seek to deprive them of the property to which they are otherwise entitled.



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