An administrator can be removed if he violates his fiduciary duty to the estate and its beneficiaries. As person with the legal power to manage someone else’s property, an administrator is a fiduciary. This is a special role that comes with many responsibilities. The administrator is responsible for proper management of the estate, and does not have the right to get a benefit at the expense of the estate’s beneficiaries. Unfortunately, some administrators don’t perform their fiduciary duties and need to be removed from their position.
Acting an administrator is a big responsibility, and one needs to be careful not to do the wrong thing. Removing an administrator on the grounds of misconduct can happen when they
- Steal from the estate
- Fail to follow the terms of the estate
- 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 funeral expenses
- Fail to file an estate tax return if required, fail to pay estate taxes and back income taxes
- Fail to notify the court of change of address
- Mismanage an estate business or sell it below market value, whether to himself or to someone else
- Take over the estate’s business for the administrator’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
In an administrator removal proceeding, the beneficiaries ask the court to appoint a different administrator. If the court finds fault with the administrator, he or she will be removed and possibly forced to make restitution for improper gains. If the administrator is removed, the court may replace them with the person who applied for their removal, a closer relative, or someone from the court’s list of administrator who offer their services to the public.
An administrator is appointed by the court. The administrator cannot fail to carry out the intestacy law and cannot act in bad faith, fail to represent the best interests of the beneficiaries at all times during the existence of the estate. And most importantly, the administrator cannot steal from the estate. If an administrator fails to follow those rules, the court can remove the administrator.
There are all sorts of other contractual or legal matters that may require an administrator’s attention. For instance, if the testator owned commercial property and had tenants, the administrator 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. An administrator can be removed for failing to properly value assets and complete contractual obligation.
Stealing from the estate. There are significant penalties for stealing from an estate. The court can discharge the administrator 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 administrator is entitled to. It can be tempting for an administrator 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 administrator 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 administrator 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 administrator buying them out, the administrator should explain it to the beneficiaries. For example, the administrator can explain the savings on transaction costs, such as not having to pay a broker. There must be a feeling that the administrator fulfilled his responsibilities to the beneficiaries.
Failure to Communicate with the beneficiaries. The administrator 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 administrator cannot fail to communicate.
Commingling funds. The administrator should place all estate funds into an estate account and not into his personal account. New York Consolidated Laws, Estates, Powers and Estates 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 administrator 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 administrator collects the assets of the estate and pays out its debts, it’s time for the administrator or administrator of a New York estate to disburse the funds to the beneficiaries. But before the administrator 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 administrator. 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 administrator is entitled to receive compensation for his or her services in accordance with the law. When a spouse or a family member acts as administrator, 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 administrator cannot take compensation that is in excess of what they are allowed to take by law.
An administrator is held a higher standard of behavior and is expected to act in an honest, fair and ethical manner. An administrator cannot breach their fiduciary duty. They could be held legally liable for any losses suffered by the estate or beneficiaries. An administrator 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 administrator committed any crimes such as embezzlement of estate assets.
An administrator can be removed and sanctioned for a number of reasons, 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.
At the Law Offices of Albert Goodwin, we handled many administrator removal proceedings. You can call us at (212) 233-1233 and request a consultation to discuss your case.