The Penalties for Looting an Estate

There are significant penalties for looting an estate. The court can discharge the executor and replace them with someone else, force them to return the money and take away their commissions. There can also be criminal a penalty, but most estate theft allegations do not escalate to criminal prosecution.

Civil Penalties for Looting an Estate

Surcharge. Beneficiaries will ask the court to surcharge the executor who they are claiming took more than they are entitled to. If the executor is one of the beneficiaries, then the court can surcharge the executor’s share of the estate, giving some or all of the executor’s share to the other beneficiaries.

Turnover. Beneficiaries can bring a proceeding for Discovery and Turnover. If the court grants the turnover, then it will force the executor to return property that he wrongfully transferred.

Discharge of executor. If the person caught looting the estate is the executor or administrator, the judge of the Surrogate’s Court can discharge them from their position, taking away their power to manage the estate. The judge can discharge and remove the executor “by reason of his having wasted or improperly applied the assets of the estate.”^[1] The court can appoint someone else as the executor instead, typically one of the beneficiaries who brought the proceeding to remove the misbehaving executor.

Attorneys’ fees. Executors use estate funds for their defense. If the court finds that the executor improperly took funds from the estate, the court can order the executor to reimburse the estate for their attorneys’ fees. In some rare cases, the court can even order the executor to pay the beneficiaries’ attorneys’ fees.

Waiver of commission. An executor is entitled to a commission for their services. The amount of the commission is about three percent of the value of the estate. As a penalty for looting the estate, the court can take away the executor’s right to receive the commission.

Criminal Penalties for Looting an Estate

It is not common for an executor of an estate to be criminally prosecuted, but it does happen. An executor or anyone else improperly taking money from an estate can be subject to criminal prosecution for theft from the estate, even if they are one of the beneficiaries. Taking more than you are entitled to by law can be interpreted as looting the other beneficiaries of the estate. Everyone has their side of the story, and it could be that the beneficiaries’ allegations of theft are unfounded. But if the District Attorney’s office decides to bring charges, then the potential penalties can be significant.

The alleged thief’s side of the story. Executors or others who are accused of looting have their own side of the story. They say that they are paying for estate expenses, taking their legal fees, taking their share as a beneficiary, or comingling funds by mistake. Whether the executor is caught looting and is now making an excuse or the executor did have a valid reason to transfer estate property to themselves is up to the court to decide, unless the executor makes a plea agreement with the District Attorney’s office.

The Penal Law. The estate is the owner of the property. When an executor is looting the estate, he commits larceny. New York’s Penal Law (the Criminal Law) states that “A person steals property and commits larceny when, with intent to deprive another of property or to appropriate the same to himself or to a third person, he wrongfully takes, obtains or withholds such property from an owner thereof.” ^[2] New York Penal Law continues to say that “Larceny includes a wrongful taking, obtaining or withholding of another’s property, with the intent prescribed in subdivision one of this section, committed … by conduct heretofore defined or known as common law larceny by trespassory taking, common-law larceny by trick, embezzlement, or obtaining property by false pretenses.” ^[3]

Sentencing guidelines. New York Penal Law 155 describes the sentencing guidelines for someone looting an estate. The sentence depends on the amount that the executor loots. An executor convicted of larceny can incur a sentence of up to twenty-five years in prison.

Amount Stolen	Type of Grand Larceny	Section of Penal Code	Felony Class	Penalty
In excess of $1,000 but not more than $3,000	Fourth Degree	PL 155.30(1)	Class E Felony	up to 4 years in prison
In excess of $3,000 but not greater than $50,000	Third Degree	PL 155.35	Class D Felony	up to 7 years in prison
In excess of $50,000 but is not more than $1 million	Second Degree	PL 155.40(1)	Class C Felony	up to 15 years in prison
In excess of $1 million	First Degree	PL 155.42	Class B Felony	up to 25 years in prison

Restitution. The court can force the executor to return the property to the estate and pay restitution to the beneficiaries.

Although we talk about an executor, the same rules apply to an administrator and a trustee, as well as a preliminary executor, administrator d.b.n., administrator c.t.a.d.b.n., administrator c.t.a., ancillary executor, ancillary administrator, and ancillary administrator c.t.a. ^[4] Executors are not the only ones who can be accused of looting the estate. Anyone who has access to funds of the estate could potentially be a thief, such as the attorney, real esate broker, financial advisor, caretakers and others.

Penalty by type of looting

Looting an estate can involve undue influence, fraud, forgery or conversion. Undue influence is not a crime and the penalty is only civil. Fraud, forgery and conversion are crimes and the penalty can be civil as well as criminal. The penalty will constitute larceny and the felony class and sentencing will be as discussed in the previous section.

Undue Influence means coercing someone to make a will or transfer property. The penalty for undue influence typically does not rise to the level of criminal prosecution for looting an estate, so the penalty can only be civil.

Fraud can occur in two ways: (a) fraud by way of execution; or (b) fraud by inducement. In fraud by execution, the decedent does not know that the document he is signing is his will. In fraud by inducement, a beneficiary makes substantial misrepresentations to the testator, making the testator change the disposition of his property in a manner different than he would have, if not for that statement. To assert fraud, a false statement must knowingly be made, and the false statement caused the creation of that will or its provision. Fraud, if proven, can be considered a crime and would be subject to a criminal penalty.

Forgery in an estate occurs when someone decides that they want to receive monetary benefit or control of another person’s assets without the permission of the person who owns the assets. Acts of forgery may be committed by strangers, family members, a caregiver or a fiduciary and may involve forging someone’s name on a check, real estate transfer deed, will, power of attorney or other legal instruments. In fact, many times the crime is committed by a close family member out of fear of loss of inheritance or greed because they want a larger share of the inheritance than their loved one has decided to give them. Forgery would be subject to both a civil and criminal penalty.

Conversion is physically looting property of the estate. For example, transferring money from the estate’s account or taking property from the residence of the decedent. Conversion would be subject to both a civil and criminal penalty.

How an Executor Can Avoid Penalties

Do not take more funds that you are entitled to. It can be tempting for an executor to take some extra cookies from the cookie jar. You have access to estate funds and the power to take some funds out. You don’t see anyone looking over your shoulder. But that sense of safety is false. Banks and courts have systems in place to detect fraud. Beneficiaries can get suspicious and hire an estate attorney or report the suspect to the police and hire an estate attorney to get the inheritance that they are entitled to.

Avoid self-dealing. The executor cannot transfer estate property to himself because the property belongs to someone else unless he pays the full price for it. As explained above, doing so can be interpreted as looting and can lead to an array of legal woes. A smart executor would want to avoid transferring estate assets to himself, even if paying fair and market value. If beneficiaries are getting more money than they would have, if not for the executor buying them out, the executor should explain it to the beneficiaries. For example, the executor can explain the savings on transaction costs, such as not having to pay a broker. There must be a feeling that the executor fulfilled his responsibilities to the beneficiaries.

Communicate with the beneficiaries. The executor should communicate with the beneficiaries, be transparent about the money he is taking from the estate, explain the reasoning behind it and try to get on the same page with the beneficiaries.

Do not commingle funds. The executor should place all estate funds into an estate account and not into his personal account. New York Consolidated Laws, Estates, Powers and Trusts Law – EPT § 11-1.6 states that “Every fiduciary shall keep property received as fiduciary separate from his individual property.  He shall not invest or deposit such property with any corporation or other person doing business under the banking law, or with any other person or institution, in his own name, but all transactions by him affecting such property shall be in his name as fiduciary.” ^[4] Surrogate’s Court Procedure Act – SCP § 719 states that the court can take away a person’s power to manage the estate “where he mingles the funds of the estate with his own or deposits them with any person, association or corporation authorized to do business under the banking law in an account other than as fiduciary.”^[5]

Do not use estate funds for personal expenses. The executor can only use estate funds to pay the legitimate expenses of the estate, taxes and legal fees.

Do not distribute any property without getting signed releases from beneficiaries. Once the executor collects the assets of the estate and pays out its debts, it’s time for the executor or administrator of a New York estate to disburse the funds to the beneficiaries. But before the executor does that, it is important to get a written release from the beneficiaries. The release states that the beneficiaries are satisfied with what they are getting and are never going to sue the executor. The best release comes with an informal accounting, which provides a summary of what property went into the estates, what the expenses were, and what is the share of inheritance for each beneficiary.

Having your New York estate lawyer get a release from beneficiaries is especially crucial when the executor is one of the beneficiaries. For example, if the executor is transferring a share of the decedent’s business, house, or other property to themselves, the executor should obtain a written release from the beneficiaries, or at least get them to approve it in writing, to avoid the possibility of the authorized transfer being misconstrued as self-dealing or commingling of funds.

Whether you are a beneficiary and you are claiming that the executor is looting the estate or if you are an executor and you insist that the transfer of money or property was proper, you can speak with New York estate attorney Albert Goodwin, Esq. at (212) 233-1233.

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[1] SCP § 711 – Suspension, modification or revocation of letters or removal for disqualification or misconduct

[2] NY EPTL § 11-1.1

[3] NY EPTL § 11-1.1

[4] NY EPTL § 11-1.6

[5] SCP § 719 – In what cases letters may be suspended, modified or revoked, or a lifetime trustee removed or his powers suspended or modified, without process

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