A risk distribution involves the personal representative of an estate distributing real or personal property without confirmation of the account by Orphans’ Court. 20 Pa.C.S. § 3532(a). The risk involves potential claims that may remain against the estate and property within it. The personal representative distributes estate property when estate debts may remain. She may have to pay the outstanding debt in this situation.
The Main Role of a Personal Representative
The personal representative gathers estate assets and then should pay off any debts that remain. If assets are transferred from the estate before debts are paid, the personal representative takes a risk that the debts and expenses of the estate may not be paid. The personal representative faces possible liability and may have to pay these personally. In particular, the person who is serves in this fiduciary capacity cannot ignore 20 Pa.C.S. 3392, which classifies payments that the estate may have to pay. It also provides the order in which charges and claims must be paid.
The personal representative must understand these classifications and make payments on claims with the highest priority before moving to the next highest class. However, he cannot decide to distribute property and ignore the duty to pay debts and expenses of the estate.
Personal Representative & Protection from Claimants
Focusing on estates of individuals who died on or after December 16, 1992, the personal representative could be making a risk distribution despite statutory notice of the claim not being timely provided if the personal representative knows of the claim. There are ways to protect oneself from personal liability. The personal representative must make a written demand on the claimant for written notice of the claim.
The claimant must respond by the later of 60 days after the demand or one year after the first complete advertisement of the grant of letters. When the later of the dates passes, the personal representative can make a distribution without being held liable for repayment of the claimant. See 20 Pa.C.S. § 3532 (b.1).
This can seem complex, which is why the personal representative should not rush through the administration of the estate. After all, if a risk distribution is made and someone brings a legitimate claim, then the personal representative will be responsible for taking care of the debt that the estate would have paid.
Specific Protections To Use With Risk Distributions
Personal representatives must be careful and look to protect themselves from liability whenever a risk distribution is being made. This can be done through acting prudently.
There are various steps that can be taken whenever a risk distribution is being contemplated. The following paragraphs review some of the possibilities that the personal representative can use for protection from liability when avoiding the time and cost of account confirmation at an audit is an objective of the personal representative.
The Estate Settlement Agreement
Parties in interest, who would receive property from the estate either through a Will or via intestacy law, may be required to execute an “estate settlement agreement” for the personal representative. This agreement contains the pertinent facts about the decedent’s death as well as information about the grant of letters. A copy of the Will, if any, would be attached. Generally, it should have a statement that the signing parties agree with the distributions made and any yet to be made.
Additionally, the personal representative should provide with a copy of an informal account, which does not have to be filed, with the agreement. There would be language in the agreement that the parties approve of the account. The personal representative needs to include all of these statements and obtain the necessary signatures before making any risk distribution.
Other Tools: Receipt & Release ; Refunding Agreement
The personal representative also would be wise to obtain a receipt, release, and refunding agreement from anyone who is receiving a risk distribution. Basically, these are used to acknowledge the receipt of any assets while releasing the personal representative of liability for any acts or omissions during the estate’s administration and asset distribution. An important and vital clause for the personal representative to include involves the recipients agreeing to return any funds or property if legitimate claims are found to exist after these distributions.
When the personal representative seeks receipts, releases, and refunding agreements as a form of insurance before making any risk distribution, she or he can look to incorporate them into the estate settlement agreement or may have them executed as separate (although related) documents. Also, receipts, releases, and refunding agreements can be filed with the clerk at Orphans’ Court, although this does not indicate approval of these documents by the Court. 20 Pa.C.S. § 3532(c). Also, copies of these filings and the estate settlement agreement should be retained by the personal representative, the estate’s attorney, and each recipient.
“Satisfaction of Award” Should Not Be Overlooked
In addition to getting a release for each risk distribution that is made, the personal representative should obtain a “satisfaction of award” from anyone who is to receive a risk distribution. This directs the clerk of the Orphans’ Court to mark as “satisfied” any award subsequent to the distribution.
An Example of Why These Documents Really Do Matter
All of these documents are important for the personal representative. For example, a receipt and release amounts to an indemnity contract between the personal representative and the individual receiving the risk distribution. This permits the personal representative to file a petition against anyone who refuses to provide indemnification, since 20 Pa.C.S. § 3532(c) provides the Orphans’ Court with continuing jurisdiction regarding these documents.
In this situation, if no payment is forthcoming within 20 days from notice of the initial petition, then the personal representative is permitted to file a Petition for Enforcement of the Order to Pay with the Court. A personal representative may not want to have to take what may seem to be a heavy-handed approach. However, being that a risk distribution is involved, a person acting in this capacity who ignores these precautions can lose his or her own funds while others, who should be responsible for the debt after accepting the distributions, are untouched by the risk that became reality.
The personal representative must remember that any protection that is available must be used when dealing with potential risk distributions. Handling an estate is difficult, and anyone who is willing to take this responsibility should look to be shielded from liability not tied to intentional wrongdoing.