If an executor is appointed to administer a probate estate in Texas, can they be disqualified from serving if they had a joint checking account with the decedent during the decedent’s lifetime?
This is a common fact pattern. It is common to set up joint bank accounts as part of an estate plan, so that the assets pass outside of probate. This has the benefit of making the transfer easier. It is often thought that this can also avoid probate disputes, like will contests, which is often not the case. These lifetime transfers can still typically be challenged in the probate process.
Getting back to the question of whether an executor can be removed for having a joint account with the decedent, the answer is not always clear. The court addresses this in In re Collins, 638 S.W.3d 814 (Tex. App.– Tyler 2021) which involved this very fact pattern.
Facts & Procedural History
This case involved a probate dispute and an executor who was removed from being the executor.
The grandson applied to probate his grandmother’s will. The will left the entire estate to the grandson. The will named another person as the independent executor. The executor completed the probate by filing the inventory, etc.
It was the inventory that was part of the problem. It reflected approx. $4K of cash in the checking account. The bank statements suggested that there was over $800K of cash in the checking account, which was transferred to the executor.
The heir asserted that the checking account was a joint account and each party owned the cash in proportion to their contributions to the account. The executor asserted that the account was a pay-on-death account and he was named as the joint owner. The appeals court opinion notes that the account was a pay-on-death account:
“Multiple-Party Account With Right of Survivorship” is initialed. The account terms and conditions state that “[o]n the death of a party, the party’s ownership of the account passes to the surviving parties.” The account did not have a payable on death designation. The terms and conditions also provide that with respect to a multiple-party account with right of survivorship, “[t]he parties to the account own the account in proportion to the parties’ net contributions to the account[,]” and the bank “may pay any sum in the account to a party at any time.”
The executor challenged whether the heir had standing; the heir filed a motion to remove the executor. The probate court denied the executor’s standing claim and granted the motion to remove the executor.
Removing an Executor
Once an executor is appointed by the court, one has to file an application or motion with the court to have them removed. The Texas Estates Code sets out the grounds for having an executor removed.
The grounds for removal with notice include the executor:
(1) neglecting to qualify in the manner and time required by law (i.e., failing to post bond, submit the oath, etc.);
(2) failing to return, before the 91st day after the date the independent executor qualifies, either an inventory of the estate property and a list of claims that have come to the independent executor’s knowledge or an affidavit in lieu of the inventory, appraisement, and list of claims, unless that deadline is extended by court order; or
(3) failing to timely file the affidavit or certificate required by Section 308.004.
The Texas Estates Code also provides for grounds for removal without notice, which includes the same three items above and when:
(1) the independent executor fails to make an accounting which is required by law to be made;
(2) the independent executor is proved to have been guilty of gross misconduct or gross mismanagement in the performance of the independent executor’s duties;
(3) the independent executor becomes an incapacitated person, or is sentenced to the penitentiary, or from any other cause becomes legally incapacitated from properly performing the independent executor’s fiduciary duties; or
(4) the independent executor becomes incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.
The dispute in this case involved the last item. The question is whether the executor who has a multiple-party account with the decedent has a material conflict of interest due to that account.
The Conflict of Interest
On appeal, the heir argued that the probate court properly removed the executor because he would not pursue any claim the decedent’s estate might have against him, and that the executor was guilty of “gross misconduct and/or gross mismanagement” concerning the multiple-party account.
Because the multiple-party account was not an estate asset, the appeals court concluded that there was no evidence of gross misconduct or mismanagement as the executor and this was not evidence of being able to perform his fiduciary duties as executor. In short, the multiple-party account that was payable on death to the executor did not create a conflict of interest. Based on this, the court reversed the probate court’s order removing the executor.
What was missing from the evidence in this case was any evidence that there was a conflict of interest. For example, if the decedent had diminished capacity or was under undue influence at the time of establishing the checking account, the outcome may have been different. These issues were not likely present in this case as the checking account was established in 1995, the will was executed in 2003, and the grandmother died in 2018. This might not preclude the same concepts from applying to transfers made into the account just before death.
This case shows that the mere ownership of a multi-party account with the decedent by itself does not create a conflict of interest for an executor. There needs to be something more, such as a lack of capacity or undue influence on the account. This case also shows the need to fully develop the facts to really understand whether the account and transfers were in fact lawful.
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