During a recent deposition of an executor, I asked the executor, a bank trust officer, whether the bank had evaluated the defined contribution plan in which the deceased had participated. The trust officer replied that the funds in deceased’s account had been distributed pursuant to the beneficiary form for the account. When I repeated my original request, the trust officer became upset and his attorney objected to my question, the old “ask and answered’ objection, saying the trust officer had answered my question.
I explained that my question had nothing to do with the distribution of the deceased’s pension account, but rather with whether the executor had evaluated the defined contribution plan in terms of compliance with ERISA’s requirements. The attorney quickly responded that the bank had no duty to perform such an evaluation.
But does an executor and other fiduciaries have such a duty? I would suggest that in certain circumstances the LaRue decision does create a duty upon certain attorneys and other fiduciaries to evaluate a pension plan’s compliance with ERISA. LaRue recognized the right of an individual participant in a plan to sue the plan for losses sustained in an account due to imprudent acts or other wrongdoing.
Legally, the right to sue constitutes a “chose in action, ” a property right and an asset of the individual involved. An executor has a legal duty to collect all of the deceased’s property/assets and properly distribute them in accordance with the law. Given the fact that various ERISA experts have opined that most 404(c) pension plans are not in compliance with the applicable ERISA requirements, the question of whether an executor or other fiduciaries have a duty to evaluate a pension plan with regard to LaRue rights is a legitimate question, not only in terms of losses suffered, but also in terms of possible breaches of the plan’s fiduciary duties due to non-compliance with ERISA, e.g, excessive fees, conflicts of interest.
In discussing this theory with other attorneys, some have claimed that exploring such an action would unnecessarily delay the administration of the estate. That simply is not true. An executor could quickly administer the estate’s assets on hand and simply leave the estate open pending the resolution of the potential LaRue claims. The executor or other fiduciary would simply need to conduct a cost-benefit analysis to evaluate the merits of pursuing a LaRue claim. Given the potential recovery in a LaRue claim it can be argued that the prudent course of action would be for the executor or other fiduciary, at a minimum, to conduct the cost-benefit analysis and meet with the heirs to discuss the situation.
This situation came up shortly after the LaRue decision was handed down. One of the services that I perform is a forensic prudence analysis of investment portfolios and pension plans. A fellow attorney, noting the wide-spread belief that most 404(c) pension plans are not compliant with ERISA, asked me to perform a forensic analysis of a plan for an estate for which he was serving as executor. As a result of my analysis, the attorney and the heirs decided to file a LaRue claim. The case survived a summary judgement, based largely on the “chose in action”/property right issues previously discussed, and is waiting to be tried or settled.
As a wealth preservation attorney, I focus on both proactive strategies to preserve and protect asset and reactive strategies to recover wealth loss due to improper activity, fraud and similar misconduct. Issues such as potential LaRue claims are what I refer to as “hidden” assets, assets that may only be recognized by thinking “outside the box.” They are valid assets which may not be recognized by attorneys and other fiduciaries due to a lack of understanding of or experience with a particular type of assets. LaRue is a perfect example of this, as many simply the decision as an ERISA decision without recognizing the “chose in action”/ property right issues created by the decision.
Forensic analysis of portfolios and/or pension plans can also be useful in connection with other types of litigation. While divorce cases are usually more time sensitive than probate cases, attorneys involved in cases involving high net worth clients may want to consider performing a forensic analysis to determine the potential recovery that may result from pursuing such an asset. Divorce attorneys that I have worked with have reported that a forensic analysis helped them negotiate a better settlement for their clients, both in terms of the potential asset and the leverage provided by the analysis with respect to a possible LaRue claim.
Many professionals that I have spoken with on this issue have stated that they do not know how to evaluate the value of a “chose in action.” My response is that the first issue should be to determine whether there are improprieties justifying liability to support the “chose in action.” If so, then the process of evaluating the potential value of the “chose in action” should be undertaken.
There are numerous factors which may come into play with regard to evaluating the value of a “chose in action.” While the process necessarily involves consideration of both objective and subjective analysis, the goal should always be to avoid “throwing good money after bad.” Each case necessarily depends on its individual set of facts.
The purpose of this post has been to alert attorneys and other fiduciaries, as well as their clients, of the potential “chose in action”/property right issues that LaRue has created and the need to consider same in order to properly gather and administer all of a deceased’s property in order to ensure that the estate is properly administered, that the heirs receive all of the assets due to them, and that professionals involved in administering the estate avoid unnecessary liability exposure.
This article is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional advisor should be sought.
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