Acting an executor is a big responsibility, and one needs to be careful not to do the wrong thing. Here is a summary of what an executor cannot do:
- Steal from the estate
- Fail to follow the terms of the will
- Mismanage estate assets including bank accounts, stock, bonds, retirement accounts, pensions
- Fail to take inventory of assets, including personal and real property
- Be negligent or careless in investing assets
- Sell personal and real property below market price
- Fail or refuse to distribute assets
- Fail to pay creditors
- Fail to pay estate claims
- Fail to pay funeral expenses
- Fail to file an estate tax return if required, fail to pay estate taxes and back income taxes
- Mismanage a testator’s business or sell it below market value, whether to himself or to someone else
- Take over the testator’s business for the executor’s own gain
- Commingle estate funds with his own funds
- Keep estate funds in a personal account (you need an estate account)
- Ignore beneficiaries
- Fail to communicate with beneficiaries
- Keep beneficiaries misinformed about estate and financial matters
- Favor one beneficiary over another
- Fail to wind up and settle an estate
- Refuse to distribute assets to the beneficiaries
An executor is named by a testator (the person who made the will) at the time a will is made. After the death of the testator, the executor is confirmed by the probate court. The executor cannot fail to carry out the wishes and intent of the testator and cannot act in bad faith, fail to represent the best interests of the beneficiaries at all times during the probate administration of the estate and fail to wind up close an estate. An executor cannot fail to initiate the filing of a Probate proceeding with the probate court by filing the original will and death certificate with the court and is responsible for obtaining and filing any other necessary documentation that the court may require. An executor cannot fail to carry out their duties. And most importantly, the executor cannot steal from the estate.
There are all sorts of other contractual or legal matters that may require an executor’s attention. For instance, if the testator owned commercial property and had tenants, the executor may have to collect rents, work with a property management company or hire one depending on the size of the building and the number of tenants. What an executor cannot do is fail to work with attorneys and accountants in order to make sure assets are properly valued and contractual obligations are completed.
Stealing from the estate. There are significant penalties for stealing from 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.
Taking more funds than the executor is 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.
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 stealing 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.
Failure to 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. The executor cannot fail to communicate.
Commingling 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 cannot 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.” 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.”
Using estate funds for personal expenses. The executor can only use estate funds to pay the legitimate expenses of the estate, taxes and legal fees.
Distributing 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 estate, what the expenses were, and what is the share of inheritance for each beneficiary.
An executor is entitled to receive compensation for his or her services in accordance with the law. When a spouse or a family member acts as executor, many times they do not take compensation for their services, especially when they are also a beneficiary receiving a distribution of assets under the will. An executor cannot take compensation that is in excess of what they are allowed to take by law.
An executor is held a higher standard of behavior and is expected to act in an honest, fair and ethical manner. An executor cannot breach their fiduciary duty. They could be held legally liable for any losses suffered by the estate or beneficiaries. An executor can be removed by the beneficiaries for breach of fiduciary duty and could be subject to restitution of any financial losses to the estate and beneficiaries, as well as face criminal charges if the executor committed any crimes such as embezzlement of estate assets.
Because there are many things that an executor cannot do, some family members decide they do not want to take on the job and end up resigning and hiring an attorney or another personal representative to replace them and administer the estate.
If you wish to speak to hire a New York estate attorney to assist you with your duties as executor, call the Law Offices of Albert Goodwin at (212) 233-1233 or (718) 509-9774.