Advance Payment of Executor’s Commissions without Court Order

Advance Payment of Executor’s Commissions without Court Order


It has long been well settled law that commissions are not ordinarily payable until the Court issues a Decree settling the fiduciary’s account (see, SCPA 2307 (1), 2308 (1) and 2309(1); Matter of Worthington 141 N.Y. 9 [1894]; Matter of Moro, 10 Misc. 3d 1075A, 814 N.Y. S.2d 891 (2006); see generally, Warren’s Heaton on Surrogate’s Court Practice, Section 103.06). The taking of commissions prior to a fiduciary’s settlement of the account has long been statutorily prohibited without securing court approval under SCPA 2310 or SCPA 2311 (see, Matter of Hildreth, 274 App.Div. 611 [1949], aff’d 301 N.Y. 705 [1950])
 
Nevertheless, while the law is well settled in this area, the practice continues and fiduciaries continue to pay themselves commissions in advance of their accounting without court approval. See, for example, the recent case of Matter of the Estate of Sylvia Kreiger, 6/4/2009 N.Y.L.J. 40, col. 3. In the Kreiger case, Surrogate Glen surcharged the executor in the amount of $2,000, the approximate amount of interest that the court determined that the payments would likely have earned, had they been retained in the Estate. It is well established that a fiduciary that takes an advance payment of commissions without court order may be surcharged (see, Matter of Crippen, 32 Misc. 2d 1019, 224 N.Y.S.2d 116 (New York County Sur. Ct. 1961)).
 
Some Surrogates have ordinarily assumed there was no wrongdoing in making the advance payment of commissions and have limited the surcharge to statutory interest pursuant to CPLR 5004 of 9% on the amount taken without court order, from the date of payment until the decree (see, Matter of Moro, supra). Other Surrogates have found that commissions taken in advance without court order may under certain circumstances be approved nunc pro tunc by the beneficiaries, or if no one objects to the taking of such commissions, the court may waive such interest surcharge (see, Matter of Schmitt, 65 Misc. 2d 1021 (Nassau County Sur Ct 1971); Matter of Kronovet, NYLJ Feb. 9, 2004 at 22 col 5; Turano and Radigan, N.Y. Estate Administration § 15:05).
 
If a beneficiary consents to the advance payment of commissions, he cannot later seek a surcharge or the return of these commissions or the interest thereon (see, Matter of Weinman, NYLJ Nov. 19, 1998 at 34 col.6, aff’d 261 A.D.2d 147 (1st Dept. 1999)). But the parties should be warned that on occasion the issue of consent of beneficiaries to the Executor’s unauthorized payment of their commissions may be the subject of a hearing or trial (see, Matter of Kalikow, NYLJ July 3, 2008 at 30 col.3 Sur. Ct., Nassau County)
 
 Certain other Surrogates have taken the position, such as then Surrogate Prudenti, that to protect the rule and deter advances without court orders, such advances cannot be excused except in extraordinary circumstances (see Matter of Gesswein, NYLJ May 28, 1998 at 31, col 4). 
 
It must be emphasized that an executor may lawfully pay commissions to himself only in the following circumstances:
 
1.                 By applying to the court for an advance payment, either on notice to all the beneficiaries under SCPA 2310, or ex parte pursuant to SCPA 2311 for tax reasons;
 
2.                 By obtaining informed Receipts and Releases from all the interested parties. When a party is under a disability, such Releases cannot be obtained and payment of commissions must await a judicial decree approving the account;
 
3.                 Upon the judicial settlement of the executor’s account. (see, Matter of Butta, 185 Misc.2d 689 (2000))
 
Nevertheless, with the law being so well settled, fiduciaries persist in continuing to take advance commissions without court order. Counsel for fiduciaries should, in reviewing with their clients a checklist of their duties and their obligations, be sure to emphasize that the taking of commissions without court order and the advance payment of same, are not permitted and will result in a surcharge. While no court has found that such a payment was willful and should result in surcharge beyond the loss of interest and income lost to the Estate by virtue of the advance, there may occur a case in the future where the court may feel that an additional surcharge beyond the interest is warranted.