Holding a New York Executor Accountable

Why Start an Accounting Proceeding

If beneficiaries are not satisfied with the way the personal representative is handling the estate, they can start an accounting proceeding. Beneficiaries do this when they think that the personal representative is not carrying out the deceased person’s directives, or that he or she is not qualified to handle investment or business matters for the estate.

If the accounting reveals that the personal representative is receiving improper personal benefits from his or her role, the estate beneficiaries should start fiduciary removal.

Trust Accounting

The same is true for beneficiaries of a trust. If they feel that the trustee is not doing a good job investing the trust’s assets, or they suspect that the trustee is involving his or her personal business with that of the trust (for example, selling stock of the trustee’s own company to the trust). Trust beneficiaries have the right to petition for accounting, and if their suspicions prove to be correct, can proceed to fiduciary removal.

On the other hand, situations do arise when fiduciaries are accused of wrongdoing without good cause, such as in cases where investments took a downturn at no fault of the fiduciary.

We represent both fiduciaries and beneficiaries in accounting proceedings. Call the Law Offices of Albert Goodwin at (212) 233-1233 and make an appointment to discuss your accounting proceeding.

The Fiduciary Duties an Executor Owes

An executor (also called a personal representative) is a fiduciary. That word carries specific legal content. A fiduciary is held to the highest standard of conduct that the law knows – higher than the standard for ordinary parties to a contract, higher than the standard for a director of a corporation toward the shareholders. The classic statement is from Judge Cardozo in Meinhard v. Salmon: a fiduciary must observe "not honesty alone, but the punctilio of an honor the most sensitive." That is the lens through which a New York Surrogate evaluates an executor's conduct.

The core duties include the duty of loyalty (the executor must put the beneficiaries' interests first), the duty of care (the executor must act with the prudence of an ordinary person managing their own affairs), the duty to account (the executor must keep records and produce them on demand), the duty of impartiality (the executor must treat beneficiaries fairly relative to one another), and the duty to follow the directives of the will. A breach of any of these duties can expose the executor to surcharge, removal, and personal liability.

What an Accounting Proceeding Actually Does

An accounting proceeding is the procedural mechanism by which the court reviews the executor's conduct. The accounting consists of a series of formal schedules covering everything that came into the estate, everything that went out, what remains, and what is proposed for distribution. The beneficiaries have an opportunity to object to specific items.

The accounting can be voluntary or compelled. A voluntary accounting is filed by the executor at the close of administration to obtain a discharge from further liability. A compelled accounting is filed in response to a beneficiary's petition under SCPA § 2205, which gives the beneficiary the right to demand an accounting when one has not been provided.

How to Start a Compulsory Accounting

If you are a beneficiary and the executor will not give you information or has been administering the estate for an unreasonable period without distributing anything, you can petition the court to compel an accounting. The petition is filed in the Surrogate's Court where the estate was probated. It identifies the executor, the estate, the petitioner's interest as beneficiary, and the relief requested – usually a directive that the executor file a formal accounting within a specified time.

The court will issue a citation requiring the executor to appear and respond. If the executor cannot offer a sufficient explanation for not having accounted, the court orders an accounting. The executor then has typically ninety days (sometimes more) to file the accounting and serve it on the beneficiaries.

Reviewing the Accounting

When the accounting arrives, the beneficiaries have a defined period to object. The objections must be specific – they cannot simply assert that the accounting is wrong. Each objection should identify the schedule, the line item, and the basis for the objection. Common objections include:

• Missing assets that should be on Schedule A.
• Inflated administration expenses on Schedule C.
• Personal expenses charged to the estate that should not be there.
• Sale of estate property at less than fair market value to the executor or a related party.
• Investment decisions that violated the prudent investor rule.
• Failure to collect debts owed to the estate.
• Excessive executor commissions.
• Excessive attorney fees paid out of the estate.
• Delay in distribution that caused identifiable losses.

Building objections requires careful review of the accounting against the underlying documents – bank statements, real estate records, investment statements, and tax returns. We frequently engage forensic accountants to support the analysis in complex cases.

Discovery in an Accounting Case

Once objections are filed, the case enters a discovery phase. The beneficiaries can demand production of all underlying records – every bank statement, every check, every receipt. They can subpoena banks, brokerages, and other third parties. They can depose the executor and the executor's attorneys (subject to privilege protections). They can hire experts to evaluate specific transactions.

The executor has corresponding rights to obtain discovery from the objecting beneficiaries, but the focus is usually on the executor's conduct because that is what is being challenged.

Surcharge

If the court finds that the executor's actions caused loss to the estate, the remedy is surcharge. The executor is ordered to repay the loss with interest, often at the statutory rate from the date of the wrongful act. The repayment comes out of the executor's own funds, not the estate – the whole point is that the executor has to make the estate whole.

In addition to compensatory surcharge, the court can deny commissions to the executor, deny the executor's attorney fees, and (in egregious cases) award punitive damages. Removing the executor and replacing them with a successor fiduciary is also a common remedy where serious misconduct is found.

Defending an Accounting

From the other side, we represent executors and trustees whose conduct is being challenged. Many accounting objections lack merit – they are sometimes filed by beneficiaries who are dissatisfied with the size of their share, who do not understand the executor's duties, or who are continuing family conflicts that long predate the estate. A well-prepared executor with clean records and an honest explanation generally comes through an accounting in good shape.

The keys to defending an accounting are: keep good records during administration, communicate with beneficiaries regularly, avoid even the appearance of self-dealing, consult counsel before any unusual transaction, and document the reasoning behind discretionary decisions. Executors who get into trouble are usually the ones who treated the estate informally, mixed personal and estate funds, or made important decisions without records of the analysis.

Trust Accounting Proceedings

The same framework applies to trustees of trusts. Trust beneficiaries have the right to demand an accounting under SCPA § 2205 or the trust instrument itself. The trustee can also file a voluntary accounting to obtain a discharge. The schedules and procedures parallel those for estate accountings, with adaptations for the ongoing nature of a trust.

Trust accounting cases often span multiple years of activity. Investment performance, distributions to beneficiaries, allocations between income and principal, and the trustee's compensation are all common areas of scrutiny.

Talk to an Accounting Litigation Attorney

Holding an executor or trustee accountable through an accounting proceeding is one of the most powerful tools the law gives beneficiaries. If you suspect that the fiduciary on your case is not doing the job properly, or if you are a fiduciary defending your administration, contact us at 212-233-1233 or by email at [email protected].