The derivative lawsuit: A little-used weapon against estates

When you step back and think about it, the administration of an estate carries with it the potential to provoke disagreement between the estate and its heirs.   The personal representative (formerly known under prior law as the execturor) has the responsibility of gathering the assets of the estate and dealing with any creditors who file suit against the estate within the one-year period after the decedent’s death.   The PR is also given the automatic right to bring claims or file suit on behalf of the estate against anyone who the PR believes caused injury or otherwise owes money to the decedent or the estate.

Over the years I’ve come across numerous instances in which a PR should have brought a claim or lawsuit against a third party but chose not to do so, usually because the PR had a relationship with the potential defendant.   This quite frequently occurs where the decedent changed his or her will in the weeks or months prior to death as a result of the work of an attorney who was manipulated into preparing the will by someone close to the decedent who benefitted from the change in disposition of the decedent’s assets that was reflected in the new will.   In many instances the attorney representing the estate knows the attorney who prepared the new will, or may in fact be the same attorney who prepared the will, and the estate should consider suing that attorney for malpractice.

Fortunately there is a tool that is available to heirs—and even creditors—of an estate to enforce the rights of a Massachusetts estate against third parties who damaged the decedent or the estate; it is called a “derivative” lawsuit.     Chapter 230, Section 5 of Massachusetts General Laws provides that it “shall be unnecessary to remove an executor or administrator” of an estate in order to have the estate bring a claim or lawsuit against a third person. Rather, an “heir, legatee or creditor” may bring such claim or action “in like circumstances and in like manner as a person beneficially interested in a trust fund may bring an action to enforce a claim in favor of such fund…”

If you are an heir or creditor of the estate and wish to bring a lawsuit on behalf of the estate against a third party, there are two prerequisites to bringing suit—though they are very easy to satisfy:

1. You need to make a written demand on the PR to bring suit on behalf of the estate.   That demand is best written by an attorney and should set forth in precise terms the basis for the contemplated lawsuit.   It should be sent by certified mail or delivered by constable so that there can be do dispute later on that it was actually delivered to the PR, and the PR should be given a reasonable amount of time respond or decline to file suit.

2.   The complaint itself must be “verified” by the person bringing suit.   “Verification” simply means that the person must sign a statement at the end of the complaint that states that she or she certifies under the pains and penalties of perjury that the allegations of the complaint are true and correct

In a derivative case the plaintiff is entitled to an award of attorney’s fees if he or she prevails at trial.   This provides an incentive to bring such cases.   If you end up hiring an attorney on a contingency fee agreement to handle the case, fear not—the court may still award attorney’s fees based roughly on the amount of time devoted by the attorney to the case, multiplied by the attorney’s customary hourly rate.

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