Surcharge Actions

In recent weeks and months, several Texas newspapers and governmental agencies have focused attention on cases where a guardian or an administrator has stolen or misused money belonging to an estate or guardianship. In some fraud cases, these abuses have been quite significant and cost the estates over $100,000.00.

With instances like these, lawmakers are asking the question, “What remedy does a family have when an executor or guardian steals from the estate?”

In all cases where either 1) a guardian of the estate or 2) a dependent administrator in a probate case is appointed and in some cases where an Independent Administrator is appointed, the Court is required to make them post a bond to ensure their performance as either the guardian or administrator. (Note: you can find a discussion of the bond requirements in probate and guardianship cases elsewhere on this site.)

The bond is essentially an insurance policy that the executor or guardian must post in order to serve as the executor or guardian. Under the terms of the bond arrangement, the executor or guardian must pay a bond premium, and in exchange for that annual premium, the bond company agrees to ensure the estate for the amount of the bond, which is determined by the Probate Court.

Example: Greg is appointed as the Guardian of Dina’s estate, and the Court orders Greg to post a bond in the amount of $100,000.00. Greg contacts a bond company, who charges Greg $150.00 per year for ensuring his performance as the Guardian.

If an administrator or guardian steals or misuses money belonging to the estate or guardianship, any person interested in the estate or guardianship can file a lawsuit known as a “Surcharge Action.” The Surcharge is a suit against both the wrong-doing administrator or guardian and against the bond company that agreed to bond that administrator or guardian.

In such cases, if the court finds that the administrator or guardian has committed wrongful acts, stolen money, or misused funds of the estate, then the bond company is required to reimburse the estate for those amounts, up to the total amount of the bond. In the example above, if Greg were found to have stolen $115,000.00 from Dina’s estate, then Greg’s bond company would be required to reimburse $100,000.00 to the estate (after a new guardian had been appointed). Dina’s family or friends could attempt to collect the remaining $15,000.00 directly from Greg to fully reimburse Dina’s estate for all that it had lost.

Although the vast majority of administrators and guardians perform their duties with the utmost integrity, the Surcharge Action provides a remedy for those few cases where an administrator or guardian either intentionally steals from the estate or so grossly mismanages the estate that the court finds them liable.

In any case where you have concerns that the administrator or guardian might potentially steal assets from an estate or guardianship, you should ensure that the court has set an appropriately high bond amount. While you may not readily discover any theft or malfeasance, you can at a minimum preserve a bond requirement that will allow for recovery in the future if a problem is discovered.

Ford + Bergner LLP has worked on several cases where administrators or guardians were alleged to have stolen from the estates. These cases can be complicated, and they require the expertise of attorneys who deal in these areas routinely. Call us at 713-352-0937 or send an email to speak with an experienced estate litigation attorney. We would be glad to assist you if you have a case involving these issues.