Naming a child as independent executor of your estate seems like a natural choice. This is what many people do with their estate plan. You trust that child to handle your affairs after death. You believe that child will treat their siblings fairly and follow your wishes. But what happens when that child takes actions before your death that benefit them at the expense of other children?
Suppose a parent opens a bank account listing one child as joint owner with right of survivorship. The other children claim this was a mistake or that the parent was misled. After the parent dies, the child who is joint owner on the account closes it and keeps all the funds. The parent’s will names that same child as independent executor. The other children file a motion to remove the executor, arguing the executor has a material conflict of interest because the executor will never sue themselves to recover the disputed funds for the estate.
Does this scenario justify removing the executor under Texas law? More specifically, can actions taken before appointment as executor—involving accounts that pass outside the estate—create a material conflict of interest sufficient to warrant removal?
In re Estate of Turpin, No. 04-22-00484-CV, 2023 WL 4558119 (Tex. App.—San Antonio July 19, 2023, no pet.) (mem. op.) provides an opportunity to consider this issue.
Facts & Procedural History
Mary and Glenn were married from February 1961 until Mary’s death on January 11, 2021. Glenn died six days after his wife on January 17. Mary and Glenn had two daughters—Glenda (referred to here as “Friesenhahn”) and Mary Louise (referred to here as “May”).
In 2011, Mary and Glenn executed wills leaving their estates first to each other and then to their daughters in equal shares. These wills named Friesenhahn as alternate independent executrix. On December 2, 2020, Mary executed a new will giving her estate to her two daughters to hold in trust for Glenn’s benefit. This will gave Friesenhahn and May as joint trustees full authority to carry into effect Mary’s intentions concerning Glenn’s care for the remainder of his life. Upon Glenn’s death, the estate would pass to Friesenhahn and May in equal shares. The will named Friesenhahn and May as joint independent executrixes.
Also on December 2, 2020, Mary and Glenn executed powers of attorney naming their daughters as joint attorneys-in-fact. The powers of attorney gave Friesenhahn and May all listed powers, including the power to act on behalf of their parents on banking and other financial institution transactions.
Prior to Glenn’s death, various bank accounts held by Mary and Glenn were liquidated. Approximately $332,284.83 from those accounts was deposited into a new account at Security State Bank & Trust (“SSB&T”) opened on December 18, 2020. Mary and Friesenhahn each signed the SSB&T agreement as “account owner.” The checking account was a “multiple-party account with right of survivorship.” No one was named as a payable-on-death beneficiary.
The SSB&T account agreement indicated both Mary and Friesenhahn checked the box next to a provision stating that parties to the account own the account in proportion to the parties’ net contributions to the account. The provision further stated that on the death of a party, the party’s ownership of the account passes to the surviving parties. A December 31, 2020, SSB&T account statement showed four deposits totaling $332,284.83. The deposits came from accounts held at FirstMark Credit Union, South Trust Bank, and Wells Fargo.
On April 19, 2021, Glenn’s 2011 will was admitted to probate. Friesenhahn was appointed independent executrix. On August 20, 2021, approximately eight months after the SSB&T account was opened and almost four months after Friesenhahn was appointed independent executrix, May filed a motion to remove Friesenhahn as independent executrix. May later filed suit against Friesenhahn alleging various causes of action, including breach of fiduciary duty, constructive fraud, breach of contract, undue influence, and unjust enrichment. These claims were all premised on the allegations regarding the SSB&T account.
On December 17, 2021, Friesenhahn filed an Inventory, Appraisement, and List of Claims. The inventory listed under “Cash in Banks” only Mary’s Wells Fargo IRA in the amount of $2,671.01. No other cash assets were listed. Following a multi-day hearing on the motion to remove, the trial court signed an order removing Friesenhahn as independent executrix pending the contest. The court also signed an order appointing a temporary administrator pending the contest. Friesenhahn appealed.
What Does Sec. 404.0035 Say About Removing an Independent Executor?
Section 404.0035 of the Texas Estates Code provides that an independent executor may be removed when “the independent executor becomes incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.” The executor-removal provision gives interested parties a means of challenging questionable actions so that the estate will not suffer at the hands of a self-dealing, incapacitated, or incompetent executor.
To remove an executor, the law does not require a showing of damage—just improper action or compelling circumstances that would fall within the rubric of the statute. The party seeking to have an independent executor removed has the burden of establishing a violation of the statute. Once a violation of one of the statutory grounds has been proven, the trial court has discretion to decide whether the violation warrants removal.
The Estates Code does not define “material conflict of interest.” The term “material” has been defined as “having real importance or great consequences” or “of such a nature that knowledge of the item would affect a person’s decision-making process; significant; essential.” An executor of an estate is a fiduciary of the estate’s property and has a duty to protect the beneficiaries’ interest by fair dealing in good faith with fidelity and integrity. In addition, an executor’s personal interests may not conflict with their fiduciary obligations to the estate.
The “material conflict of interest” ground for removal was not added to the predecessor statute until 2011. Few cases have interpreted this subsection. Most cases addressing conflicts of interest in the executor removal context have analyzed whether the conflict constituted “gross misconduct or gross mismanagement” under a different statutory provision.
How Have Courts Addressed Executor Conflicts of Interest?
In Kappus v. Kappus, 284 S.W.3d 831 (Tex. 2009), one beneficiary claimed that by being a co-owner of an estate asset, the executor had a conflict of interest. When the executor attempted to sell certain land and split the proceeds evenly despite the estate being owed more than half the proceeds, the beneficiary argued that potential conflict became an actual conflict that harmed the estate. Although the Probate Code section in effect at the time did not specifically include “conflict of interest” in those express terms, the beneficiary argued such a conflict could justify removal.
The Supreme Court stated the appeal concerned “whether an independent executor’s alleged conflict of interest—here, a good-faith dispute over the executor’s percentage ownership of estate assets—requires his removal as a matter of law.” The Court noted that the statute listed several grounds for removing an executor but “conflict of interest” (either actual or potential) was not among them. The Court refused to engraft such a test onto the statute. Nevertheless, the Court considered whether a potential conflict of interest constitutes gross misconduct or gross mismanagement.
The Court held that a “good-faith disagreement over the executor’s ownership share in the estate is not enough, standing alone, to require removal.” The statute speaks of affirmative malfeasance. An executor’s mere assertion of a claim to estate property, or difference of opinion over the value of such property, does not warrant removal. A potential conflict does not equal actual misconduct.
The Court recognized “there may be scenarios where an executor’s conflict of interest is so absolute as to constitute what the statute terms ‘gross misconduct or gross mismanagement.'” The Court then listed factors a trial court should consider when deciding whether an executor’s conflict amounts to gross misconduct or gross mismanagement. These factors include the size of the estate, the degree of actual harm to the estate, the executor’s good faith in asserting a claim for estate property, the testator’s knowledge of the conflict, and the executor’s disclosure of the conflict.
The Court noted that creditors of the deceased can be granted letters of administration under Texas law. Such creditors, by their very nature, have a conflict of interest by virtue of a claim against estate assets. Similarly, it is common for testators in Texas to name spouses or business partners or their children as independent executors. If courts declared a per se removal rule for conflict of interest whenever spouse-executors have a shared interest in community property and issues arise over the separate or community character of estate assets, the surviving spouse could be ousted.
The Court noted that once a beneficiary objects to an executor’s proposed valuation and distribution of property, the executor’s defense would constitute a conflict of interest under such a theory. Such a rule, besides having no statutory anchor, would undermine the ability of Texas testators to name their own independent executor. It would also weaken the ability of an executor free of judicial supervision to effect the distribution of an estate with a minimum of cost and delay. It would impose this extra-statutory restriction even if the testator was fully aware of the potential conflict when the executor was chosen.
What Happens When Pre-Appointment Actions Involve Non-Testamentary Accounts?
The grounds to remove an independent executor post-appointment are different from those to disqualify an executor pre-appointment. Section 304.003 contains a “catch-all standard” of “a person whom the court finds unsuitable” that confers broad trial court discretion. In contrast, Section 404.0035 lists seven specific grounds for removal—none quite as expansive as unsuitability.
In Matter of Estate of Collins, 638 S.W.3d 814 (Tex. App.—Tyler 2021, no pet.), a beneficiary alleged the executor in his individual capacity had misappropriated funds from a joint bank account the executor owned with the decedent. The beneficiary contended the executor withdrew substantially more than his net contributions to the account. The beneficiary alleged the executor withdrew funds from this joint account after the decedent had suffered a major stroke and deposited those funds into a separate checking account solely in the executor’s name. The beneficiary claimed the executor contributed only $36,500 to the joint account, so over $750,000 taken from the account legally belonged only to the decedent.
On appeal, the beneficiary asserted the trial court properly removed the executor because the executor would not pursue any claim the decedent’s estate might have against him and because the executor was guilty of gross misconduct or gross mismanagement. The executor contended the decedent opened the multi-party account with right of survivorship with him. Under the account’s terms, upon the death of a party, the deceased party’s ownership of the account passed to the surviving party. The executor argued that although the beneficiary was named as the beneficiary of the joint account, the account was not designated as a payable-on-death account. According to the executor, the joint account was non-testamentary and not subject to being probated.
The court noted that ownership of funds held in a multiple-party account after the death of a party is determined by statute. Under Estates Code Section 113.151, sums remaining on deposit on the death of a party to a joint account belong to the surviving party or parties against the estate of the deceased party if the interest of the deceased party is made to survive to the surviving party or parties by a written agreement signed by the party who dies. The Estates Code provides that transfers resulting from this section are effective by reason of the account contracts involved and are not to be considered testamentary transfers or subject to the testamentary provisions of the code.
The court held that all of the beneficiary’s contentions involved the multiple-party account with right of survivorship. The signature card and terms and conditions of the account indicated that the account was created as a multiple-party account with right of survivorship and that upon the death of one party, the deceased party’s ownership of the account would pass to the other party. The court concluded that under the Texas Estates Code, the account was non-testamentary and the funds passed to the executor pursuant to the account contract.
Furthermore, because the account was non-testamentary and the executor and the decedent had equal rights to the funds in the account during the decedent’s lifetime, there was no evidence that the executor either engaged in gross misconduct or gross mismanagement in the performance of his duties as executor or was incapable of properly performing his fiduciary duties due to a material conflict of interest. The court concluded the beneficiary failed to meet his burden of establishing a violation of the statute. The trial court therefore abused its discretion by removing the executor.
The Takeaway
Actions taken before appointment as independent executor generally do not provide grounds for removal under the material conflict of interest provision of Section 404.0035(b)(4) of the Texas Estates Code. When an executor’s alleged wrongdoing involves a non-testamentary account that passes outside the estate pursuant to an account contract with right of survivorship, there is no evidence the executor is incapable of properly performing fiduciary duties as executor. The fact that an executor will not sue themselves to recover funds from a joint account does not constitute a material conflict of interest justifying removal when those funds passed to the executor by operation of law rather than through the estate. Texas courts will not create a per se removal rule for conflict of interest when testators commonly name children as executors with full knowledge that those children may have received assets outside the estate through joint accounts or other non-testamentary transfers. The Turpin case makes clear that the party seeking removal bears the burden of establishing that the executor became incapable of properly performing fiduciary duties due to a material conflict of interest—not merely that the executor has some interest in property that might conflict with estate interests.
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