Tuesday, June 19, 2012

From BryanCaveFiduciaryLitigation.com

Some personal representatives take the position that they’ll either distribute all or none of the estate. Other personal representatives are willing to make a partial distribution of estate assets only if each beneficiary gets an equal partial distribution. Both situations can be maddening to a beneficiary who just wants to receive something from an estate rather than watch it sit in probate for years until there’s some liquidity.

Often, the personal representative’s justification for not making a partial distribution is illiquidity of estate assets. Where real property is involved, the current real estate market compounds the problem of illiquid estate assets. So, what’s a personal representative to do? A recent opinion out of Missouri gives personal representatives in that state some guidance.

In Estate of Sullivan, the Missouri appellate court had a number of issues before it on appeal. We’re focused on the partial distribution part of the decision. The quick overview of the factual background is that an heir had executed two promissory notes in favor of the decedent. After the decedent’s death, that heir sought to have the value of the notes subtracted from his distributed share upon final settlement of the decedent’s estate.

The probate court ordered that the outstanding balance on the notes be charged against the heir’s distributed share upon final settlement of the decedent’s estate. The personal representative claimed that the probate court shouldn’t have ordered the partial distribution because the other two estate heirs had to wait for the sale of the decedent’s farm to receive their share of the estate. The appellate court agreed with the probate court.

Under Missouri law, after a certain amount of time, a distributee can seek a partial distribution if the court believes that other distributees and claimants are not prejudiced thereby. In its judgment granting partial distribution, the probate court specifically noted that the size of the estate was such that the estate would not be prejudiced by the distribution of the notes.

At the time, the estate had only $23,000 in liquid assets, but the estimated value of the decedent’s real estate was $685,000. The outstanding notes amounted to $42,000. While the estate couldn’t make equal distributions to the other two heirs and these two heirs had to wait for some unspecified time until the farm was sold to recover their share of the estate, the size of the estate was sufficient enough to preclude harm from the non-cash partial distribution of the notes.

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