Forbes article by Ashlea Ebeling
Here’s a tale of caution about being an executor, the person you appoint in a will to oversee your estate after your death.
The cast includes a 73-year-old high-school-educated homemaker named executor of a nonagenarian cousin’s will, an attorney who was battling brain cancer, seven distant relatives and three charities all due a piece of a $12.5 million estate, and an Internal Revenue Service bill for $1.2 million in penalties and interest for failure to file an estate tax return and pay taxes on time levied on the estate.
In an appeal to the U.S. Court of Appeals for the Sixth Circuit filed in February, the executor is trying to recover the $1.2 million. The question at hand: was her failure to file the return and pay the tax on time due to reasonable cause and not willful neglect?
The details might make you think twice about who you appoint as executor of your will—or whether you agree to take on the role for a friend or relative. “What’s the lesson? Even if you have an expert, you have to pay attention to the matters at hand,” says Jon Hoffheimer, a lawyer who the court appointed to administer the estate as a co-fiduciary with the executor, Janice Specht, after it became clear that she wasn’t up to the task. (He’s a co-appellant.)
In practice, most people appoint family members or friends as executor, and they hire an estate lawyer to do the work, such as making prompt tax and probate filings. But it’s the executor who bears the ultimate responsibility to make sure it’s done—on time.
The deceased, Virginia Escher, a 92-year-old widow of a UPS worker, lived a simple middle class lifestyle in Cincinnati, Ohio despite having a small fortune, the bulk of which was in UPS stock. “They were hardworking people; they never spent a nickel,” says Vincent Salinas, a lawyer who represented the estate.
Escher appointed her cousin, Specht, as executor, six months before her death in a simple three-page will drawn up by an estate lawyer, Mary Backsman. When Escher died, Specht returned to Backsman, who indicated that she would take care of everything. Specht, then 73, had never served as an executor (even when her husband died), held no stock and had never been in an attorney’s office.
Backsman, a lawyer with 50 years of experience, was privately struggling with brain cancer and failed to follow through on the work. Meanwhile, Specht got probate notices that deadlines were being missed, even a warning call from another family about Backsman. When Specht questioned Backsman, Backsman assured Specht that she had filed for an extension. (The deadline to file an estate tax return and pay tax is nine months after death; extensions are granted routinely.)
A year after the return and tax were due, Specht fired Backsman and hired Salinas who got the estate work done in a couple of months. But that was just a piece of the saga. A push by distant relatives to remove Specht as executor led to the appointment of Hoffheimer as co-fiduciary. Another fight was over how to allocate the tax liability. And the estate filed a malpractice action against Backsman and Specht that was settled out of court. That settlement allowed Specht to pursue a refund of the penalties and interest imposed by the IRS in U.S. District Court.
The District Court judge ruled against Specht, seemingly reluctantly, noting that “the factual circumstances are both complex and sad,” and stating that reliance on counsel cannot constitute reasonable cause for the late filing and payment of taxes. Interestingly, he noted that the state of Ohio—which imposes its own state estate tax—refunded the late filing and payment penalties for Ohio estate taxes without the estate filing a refund suit. (Ohio is one of 19 states and the District of Columbia that impose a state level death tax.)
Specht and her lawyers aren’t commenting because of the pending appeal. However, their position is clear from their opposition to the motion to dismiss the case at the district court level. The U.S. Supreme Court, in U.S. v. Boyle, drew a bright line rule for tax refunds, placing the burden of compliance on individual fiduciaries (executors and trustees), and a hostile body of tax refund case law followed. But “Boyle has never been applied to a set of facts as extreme or unique as these, and should not be,” Specht’s lawyers argue. “Mrs. Specht’s complete (and completely understandable) trust and total unfamiliarity with the process, when combined with Ms. Backsman’s concealment and misfeasance, caused the late filing and payment of estate taxes.”
So what if you’re an executor? The will spells out your basic duties. Read it. In addition, Salinas says it’s his practice to prepare a list of duties—including tax filings and due dates—and have the executor sign it, acknowledging the responsibilities.