When you agree to act as personal representative of a decedent’s estate, do you take on any potential personal liability? Generally not, but you should make sure everyone knows that you are acting as a fiduciary. A recent Arizona case illustrates the risk if you do not.
Estate’s property is sold
When Gary Barnes (not his real name) died, he owned a home in the Phoenix area. A probate proceeding was initiated, and two women (we’ll call them Mary and Susan) were named as personal representatives.
Arizona, like a number of other states, uses the term “personal representative” in place of the old-fashioned “executor”. The powers and duties are the same; the term is just updated. Mary and Susan were thus put in charge of collecting Gary’s assets, paying his bills and settling his estate.
One thing Mary and Susan did was to list Gary’s home for sale. They received an offer from a prospective buyer; the offer listed Gary as the seller. Mary and Susan signed the sales agreement, where the form indicated, as “sellers”. They did not list their role as personal representatives.
Before the real estate closing, the buyer sent a letter to the escrow officer listing deficiencies in the house. He asserted that the sellers had failed to cure the problems indicated. Still, he made the final payment to purchase the house.
At the real estate closing, Mary and Susan signed the transfer documents as personal representatives of Gary’s estate. Their authority was clearly indicated, including the estate’s probate court file number.
The estate closes, and problems develop
Although the reason is not clear from reading the later appellate court decision, it took five years before the probate case was concluded. In 2012, Mary and Susan filed their final closing documents with the probate court. As Arizona probate law provides, a year later Gary’s estate was deemed to have been completed.
Sixteen months after the final probate documents had been filed, the home buyer filed a petition to reopen the probate proceeding. He argued that he still had unresolved claims against the estate. Those claims arose, he argued, from the failure to resolve his assertion that various items in the house were transferred in non-working order. The probate court denied his request to reopen the estate; the buyer appealed, and the Arizona Court of Appeals affirmed the denial. The probate proceeding was done, and the buyer’s claims (if any) were too late to be addressed.
Meanwhile, the buyer also sued the estate — and also Mary and Susan. The lawsuit named Mary and Susan as personal representatives of the estate, but also in their individual capacities. How could they be liable individually? The lawsuit claimed that they were acting as individuals when they signed the sales agreement without disclosing their status as personal representatives.
The trial judge considered the timing issues and dismissed the buyer’s lawsuit. It was too late to file any claim in the probate, reasoned the judge. Besides, that issue was ultimately resolved (against the buyer) by the Court of Appeals — with regard to the probate, anyway.
Claim against the personal representatives
The buyer appealed. He argued that, even though he could not make a claim against the estate, the personal representatives had personal liability for their actions. Because they filed to identify themselves as personal representatives on the purchase contract, he reasoned, they could be sued personally.
The Arizona Court of Appeals agreed with the home buyer, at least in part. The appellate judges ruled that the buyer’s lawsuit was properly dismissed — except as to the personal liability claims against Mary and Susan.
Arizona probate law is clear. The personal representative of a probate estate does not have personal liability — provided that the relationship is identified. If Mary and Susan had signed the purchase contract as personal representatives, the lawsuit against them personally would also have been dismissed.
It was not enough, according to the Court of Appeals, that the contract identified the seller as Gary, and that someone other than Gary was signing on his behalf. The probate statutes require that the relationship must be clearly spelled out.
How might Mary and Susan have accomplished this? Each could have signed her own name, followed by “as personal representative of the estate of Gary, deceased” on the signature line. That, in fact, was approximately how their signatures on the deed read.
But didn’t the buyer have notice of the fact of a probate proceeding (and Mary and Susan’s roles) when he received his deed, which they signed as personal representatives? Yes — but that was after the contract was entered into.
The Court of Appeals reversed the dismissal of the buyer’s claims against Mary and and Susan. The case was remanded to the trial court for further proceedings. After remand, the trial court was instructed to dismiss any claim the buyer made, or attempted to make, against the estate or against Mary and Susan as personal representatives of the estate. But any claims he might have against them individually will have to be resolved by settlement, trial — or dismissal on other grounds. Gordon v. Estate of Brooks, May 30, 2017.
Would the same principle apply to conservators, trustees, guardians and other fiduciaries? Probably, though the statute on which the Brooks case relied is specifically a probate statute. Still, it is clear that the better course is to make sure your fiduciary capacity is clearly indicated any time you sign a document. That should help minimize the likelihood of personal liability.