An executor can sell specifically devised personal property in Texas if doing so is not a breach of fiduciary duty, against the interests of the estate, or contrary to the terms of the will. A March 31, 2020 opinion, Sklar v. Sklar, addressed the sale of specifically devised personal property by independent co-executors of a Texas estate and determined that the sale was not a breach of fiduciary duty.
The Facts of The Case: Sklar v. Sklar
Barbara Sklar named two of her four children, John and Pamela, as independent co-executors. In her will Barbara granted the co-executors the following powers:
I authorize and empower my said Co-Executors to sell, dispose of, deliver and convey any portion of my Estate, real or personal, at public and private sale for any price, on any terms and in any manner that may seem best for them for the purpose of paying any of my debts, partitioning assets or any other purpose, giving due regard for the bequests that I have made herein.
This clause prompted litigation spurred by daughter Peggy. In her will, Barbara specifically devised to Peggy her Nissan Murano and the funds in her Vanguard Energy Fund. After being appointed as an independent co-executor, John sold the Nissan and the Energy Fund shares without consulting or notifying Peggy.
The Nissan was sold to CarMax after John twice received offers from CarMax for the same amount of $7,500. Peggy was sent a check for $7,500.
The Energy Fund shares were sold for $32,729.70 and John offered the proceeds to Peggy. Peggy filed suit demanding the actual shares. So, John bought the shares back with an additional amount to reflect the gains in the value of the Energy Fund as well as interim dividends. The shares were then transferred into a Vanguard Account that Peggy had created.
Peggy alleged in her lawsuit that the co-executors breached their fiduciary duties by selling items of personal property specifically bequeathed to Peggy without consulting or notifying her, and sold the Nissan for less than it was worth.
John testified that the estate:
[D]id not have enough money to pay its debts, including administration expenses. Nevertheless, according to John, every effort was made to ensure Peggy received what she was entitled to under the will; indeed, he stated that she was the only person to have received anything under the will except for personal possessions to the detriment of everyone else. He explained that he and Pamela decided to sell the Energy Fund shares in part because the value of the shares had risen over the 11 months prior to the sale and they thought it was in Peggy’s best interest to sell the shares and lock in the gains.
The Texas probate court held that the authority to sell contained in the will was valid against a specific bequest and that the co-executors sold the Energy Fund shares and the Nissan after ample consideration was given to each and after determining that the transactions were fair and reasonable and in the best interests of the estate.
The court further determined that the co-executors complied with the terms of the will, were not required to inform Peggy or obtain her consent prior to selling the assets, and did not breach their fiduciary duties by at one point requesting a release before delivering the proceeds from the Energy Fund shares.
Is It A Breach of Fiduciary Duty For A Texas Executor To Sell Specifically Devised Property?
Not as a matter of law. To recover on a breach of fiduciary duty claim, a plaintiff must prove that (1) a fiduciary relationship existed between the plaintiff and the defendant, (2) the defendant breached his or her fiduciary duty to the plaintiff, and (3) the defendant’s breach resulted in an injury to the plaintiff or a benefit to the defendant.
Since John and Pamela were the executors of the estate, they owed fiduciary duties to Pamela, a beneficiary.
Pamela alleges that John and Pamela breached their fiduciary duties by failing to communicate with her or obtain her consent before selling the Nissan and shares of Energy Fund stock, and that John used false pretenses to entice Peggy into leaving the Nissan with him.
No Damages = No Recovery On Breach of Fiduciary Duty Claim
The appeals court determined that, even assuming that the executors breached their fiduciary duty to Peggy, Peggy failed to conclusively demonstrate that she was injured as a result of the breach.
Generally, fair market value is the proper measure of damages for the loss of personal property.
Here, the Nissan was sold to CarMax for $7,500, which is the amount Peggy received for the Nissan. An appraiser testified that the fair market value and actual cash value of the Nissan at the time it was sold to CarMax was $7,500. Peggy argued that the executors breached their fiduciary duty because the Nissan was resold for $16,599. However, the appraiser cited the cost of repair, the buyer’s credit score, and carrying costs that accounted for that price.
Peggy failed to demonstrate that she was entitled to judgment on her breach of fiduciary duty claim as a matter of law.
Did the Executors Have The Authority To Sell Specifically Devised Property?
Yes, because under the terms of the will, the co-executors had the authority to sell specifically devised property.
After the bench trial, in which the question of whether John and Pamela had given “due regard” to the bequests was hotly contested, the trial court stated in its conclusions of law that:
[T]he intent of the testator is clear that the Independent Co-Executors, after giving due consideration to the bequests of any kind and nature made in the Will, had the right to sell any property of the Estate on any terms and in any manner that seemed best for them and that they deemed proper.
The trial court further found and concluded that John and Pamela had indeed given “due consideration” and “ample consideration” to the bequests. The court further noted the reasons that the two assets at issue had been sold: the Energy Fund shares because John thought it was in the best interest of the estate and Peggy to secure gains and avoid market fluctuations and the Nissan because John and Pamela believed it was prudent and in the best interest of the estate and Peggy to sell the car “[a]fter . . . weighing factors such as age, condition, repairs, storage, insurance and other costs.”
Far from modifying the will by ignoring the “due regard” language, the trial court found that John and Pamela gave due regard to the bequests.
In sum, because selling the property was in the best interest of the estate, after giving due regard to bequests of the property under the will, selling the property was not a breach of the co-executors’ fiduciary duties.
The dissent in this case argued that there was no evidence that the co-executors gave due regard to the specific bequests to Peggy. In particular, the dissent took issue with the lack of notice to Peggy that the Texas co-executor was going to sell the Nissan, property specifically devised to Peggy, stating:
The Co-Executors had fiduciary duties to fully disclose to Peggy all material facts known to them that might affect Peggy’s rights, such as the Co-Executors’ decision to proceed with a sale of the car or the mutual fund. The Due-Regard Clause reinforces this duty by encouraging communication. Executors who communicate with beneficiaries about plans to dispose of specifically bequeathed items get the chance to gather important data for decision-making. With better information, they become better equipped to make decisions in compliance with their fiduciary duties and the will’s provisions. Executors who do not seek relevant, readily-available information that would inform their decision-making and judgment should explain why they failed to do so.
Best practice in this case would have been for the Texas co-executors to communicate clearly and openly with the beneficiary before sale of the property. However, with limited resources, the co-executors made a determination that to sell the property was in the best interests of the Texas estate and the beneficiary. Ultimately, the beneficiary was not damaged, having received the full value of her bequests.