What to do when the Executor is Acting Fraudulently

An executor acting fraudulently can lead to losses to the estate, and ultimately, losses in terms of distribution to the beneficiaries. Examples of an executor acting fraudulently are:

• Misappropriating estate assets
• Lying about estate assets
• Failing to include estate assets in the inventory
• Overstating or falsifying liabilities
• Selling assets below market value to the executor’s family member, friend, or company the executor has an interest in.

Although above are examples of executor fraud, it is not an exhaustive list. When you suspect your executor to be acting fraudulently, it is important to seek the advice and legal representation of an attorney, who can help you navigate this situation. The more that time passes that an executor is acting fraudulently, the more the estate assets are dissipated unless you act quickly. For this reason, getting the services of an attorney will be more beneficial in preserving the estate assets in the long run.

Negotiation and mediation

The first step you or your attorney should take when you suspect the executor of acting fraudulently is to talk and negotiate with the executor. It is possible that the executor is simply acting negligently in wasting assets, and not fraudulently. The sooner you and the executor arrive at a settlement, the less expensive it will be, both for the estate and the beneficiary.

An executor, when defending himself, is allowed to use estate assets for his legal fees. The beneficiary, on the other hand, will initially use his own funds in questioning the executor and claiming executor fraud. If the beneficiary succeeds, the beneficiary can request the court that his attorney’s fees be paid by the estate and that the executor’s attorney’s fees be borne by the executor alone and not by the estate. If, however, the executor is successful in defending himself, the estate pays for the executor’s attorney’s fees.

Thus, the faster the issue is resolved, the better for the estate because the estate will not be burdened with a lot of legal fees and more proceeds can be distributed to the beneficiaries.

Removal of executor

If you and the executor cannot agree on a settlement, then you should inform the executor that you will be constrained to file a petition removing him as executor and nominating another person, possibly yourself, as successor executor. In New York, SCPA § 711 provides for the reasons an executor can be removed. The reasons one can remove an executor does not only include executor fraud, but also executor negligence, such as:

• Ineligibility;
• Wasted assets;
• Damaged property;
• Dishonesty, drunkenness or want of understanding;
• Failure to obey a court order;
• Failure to notify the court of an address change;
• Removal of property from the state without court approval;
• Occurrence of a contingency.

Petitioning to remove an executor for executor fraud will not be granted on mere allegation alone, but must be substantiated by evidence. An estate litigation lawyer will be able to tell you which documents you will need to substantiate your allegation, depending on the type of fraud that was committed.

In addition to requesting for the removal of the executor, you will also request the court for the appointment of a successor executor in the same petition.

Surcharging the executor

Once the executor is removed, the executor cannot commit more acts of fraud with regard to the estate. However, if estate assets have already been wasted and dissipated due to executor fraud, you can petition the court to surcharge the executor. This request to surcharge the executor can be made in the same petition for removal of the executor.

A surcharge action requests the court to hold the executor liable for damages caused by reason of the executor’s gross negligence, dishonesty, fraudulent action, wrongful or illegal act, or mismanagement. These damages may include actual damages, interest, and punitive damages, as the case may be.

The judge will only grant your petition to surcharge the executor if you are able to prove that the executor’s act caused such damage. Proving an allegation will require documentary and testimonial evidence, which may be gathered through depositions, interrogatories, witness interviews, and subpoenaed documents. The discovery process can be expensive, and you will need to compute whether the legal expenses associated with the litigation is less than the estate damage you are claiming.

Temporary restraining order and/or preliminary injunction

If the executor has not committed fraud yet, but you are of the belief that the executor will commit fraud, for example by selling estate property below market value to his son, you can request the court for a temporary restraining order and/or preliminary injunction, enjoining the executor from selling such property at a price below market value without court approval. If you act quickly enough, you will be able to stop the executor from committing executor fraud.

Executor fraud is a serious matter which should be addressed immediately in order to prevent dissipation of estate assets and preserve the beneficiaries’ distributions. You need experienced legal representation to help you combat executor fraud. Should you need assistance in this matter, the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can send us an email at [email protected] or call us at 212-233-1233.