I am the current PR for my deceased mother's estate. The previous PR was found to have diverted income from real estate properties to her personal bank account, thus she resigned. The accountant and lawyer that I hired advised that when they did the taxes for the estate they would issue the previous PR a K-1 for the amount of money she took, since the estate did not have the income and should not have to pay taxes on it.
In a Probate Court hearing her lawyer claimed that she did not have to pay back the money that was stolen because we issued a K-1. His claim was that we acknowledged the money as income to her and it no longer belonged to the estate. Does the estate have the right to be paid back for the income that was diverted?