Selling the House as an Administrator of an Estate and Avoiding Self-Dealing Issues
When selling a house as an administrator, it makes sense to look at the letters of administration first, to make sure they do not contain restrictions against selling real property. If the letters of administration are not restricted, then the administrator is allowed to sell the house. But carefully look at the estate language for what the administrator is allowed to do with the funds. The administrator is not allowed to sell the house to himself or for below market value, unless the estate expressly states otherwise.
When selling a house as an administrator, can I sell it to myself? Only for fair market value. The house does not belong to the administrator – he is just managing it. What do we call it when a manager steals property he is managing? That’s right, it’s called embezzlement. Or more simply, stealing.
Let’s say a estate contains a house that is worth $1 million, with the person selling a house as an administrator to himself as an individual for $200,000. This gives him the opportunity to “flip” the house on the market and walk away with $800,000 or live in a $1 million house having only paid $200,000. Even if the administrator is one of the beneficiaries, he is responsible to manage the estate for everyone’s benefit, not just his own.
The estate belongs to all the beneficiaries. If the person selling a house as an administrator uses the estate’s money for his own needs in any way or transfers estate money to himself, he is considered by the law to be taking everyone’s money, not just his own. As an example, if he takes four thousand dollars, he is not taking four thousand dollars of his own money. He is stealing a thousand dollars from each of his siblings. If he takes a penny, most of that penny belongs to the other beneficiaries.
What can happen if the person selling a house as an administrator neglects good advice and sells the house to himself for less than fair market value? Nothing good. The administrator can be removed by the judge on the case. The court will force the administrator to return the house to the estate or pay restitution to the beneficiaries of the estate. The court might order the administrator to pay for his own attorneys’ fees as opposed to using estate funds to pay for his attorney’s fees. The judge may even order the administrator to pay the beneficiaries’ attorneys’ fees. What is scarier is that the administrator can even be criminally prosecuted for stealing. That’s right, a criminal prosecution even if the administrator is one of the beneficiaries of the estate that holds the house. The Surrogate’s Court judge can refer the case to the District Attorney’s office, which has the power to prosecute the case in criminal court.
A person selling a house as an administrator cannot sell the house to himself because the house belongs to someone else. Unless he pays full price for it. As explained above, doing so is stealing and can lead to an array of legal woes.
Although we talk about an administrator, the same rules apply to an administrator d.b.n., administrator c.t.a.d.b.n., administrator c.t.a. and ancillary administrator.[1]
Above, we’ve referred to the administrator as a manager. The legal term for someone managing money, including an administrator is “fiduciary.” [2] New York’s Estates, Powers and Estates Law governs the conduct of a estate fiduciary, as well as an administrator and an agent under a Power of Attorney.
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 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.” [3]
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.” [4]
The estate is the owner of the house. If the person selling a house as an administrator transfers the house to himself, even if he’s paying something for it, he commits larceny.
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.” [5]
For a person selling a house as an administrator, having your New York estate lawyer get a release form beneficiaries is especially crucial when the transaction in question involves the administrator personally, such as when the transaction is between the estate and the administrator or the administrator derives some sort of benefit from the transaction. If the administrator is transferring a house to himself, even if for fair market value, the administrator should obtain a written release from the beneficiaries, or at least get them to approve it in writing, in order to avoid the possibility of being sued. Transferring a house to yourself would trigger feelings of inequity in beneficiaries, so it is important to communicate with them, explain that they are still getting a fair share of the estate, and that they are actually getting more money than they would have if not for you buying them out because of cost savings on transaction costs such as paying a broker. It is important that there is a feeling that the administrator fulfilled his responsibilities to the beneficiaries.
The most crucial release that the person selling a house as an administrator can get from the beneficiaries is at the end of the estate. Once the assets are collected or sold and the debts are paid out, and 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 the release from the beneficiaries that states that they 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 estates, what the expenses were, and what is the share of inheritance for each beneficiary.
To sum up, administrators should not sell the house to themselves, unless it is for fair market value and with either signed consent from each and every beneficiary or an order of the court authorizing the administrator to sell the house to himself.
The administrator should place the proceeds of the sale of the house into the estate account.
The administrator can only use estate funds to pay the legitimate expenses of the estate, taxes and legal fees.
Whether you are a beneficiary who thinks that the administrator is about to sell the house to himself, or if you are an administrator and you feel that you are being falsely accused of selling the house to yourself for less than fair market value, you can speak with New York estate attorney Albert Goodwin, Esq. He can be reached at (212) 233-1233.
Law Offices of
Albert Goodwin, PLLC
31 W 34 Str, Suite 7058
New York, NY 10001
Tel. 212-233-1233
[email protected]