What an Administrator of an Estate Cannot Do in New York and what are the Consequences

Acting an administrator is a big responsibility, and one needs to be careful not to do the wrong thing. Here is a summary of what an administrator of an estate 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 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

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. An administrator of an estate cannot fail to follow those rules.

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. What an administrator 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 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 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 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.

Because there are many things that an administrator 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 administrator, call the Law Offices of Albert Goodwin at (212) 233-1233 or 212-233-1233.

An Administrator Cannot Act Without Court Appointment or Serve Out of Priority

An administrator has no authority to touch estate assets until the Surrogate's Court issues Letters of Administration under SCPA Article 10. A person cannot simply declare themselves administrator, even if they are the closest relative. The petition must be filed in the Surrogate's Court of the county where the decedent was domiciled at death, and any distributee with an equal or higher right to serve who has not signed a renunciation or consent must be served with a citation before the court will make an appointment.

An administrator also cannot jump the statutory line. SCPA 1001 sets a strict order of priority among the decedent's distributees: the surviving spouse first, then children, grandchildren, parents, siblings, and more distant relatives in the order they would inherit under the intestacy statute. A lower-priority relative can only serve if those with higher priority renounce or consent.

Certain people cannot serve at all. Under SCPA 707, ineligible persons include felons, infants, non-domiciliary aliens (unless serving with a New York co-fiduciary), and persons the court finds dishonest, substance-impaired, or otherwise unfit. In addition, under SCPA 805 the court may require the administrator to post a fiduciary bond, particularly where there are minors, unknown heirs, or a non-resident fiduciary. An administrator cannot avoid a bond requirement without the written consent of the interested parties or an order of the court.

An Administrator Cannot Distribute Assets Contrary to the Intestacy Statute

Because an administrator handles the estate of someone who died without a will, there is no document directing who inherits. Distribution is governed entirely by New York's intestacy statute, EPTL 4-1.1. The administrator cannot deviate from those statutory shares. For example, where the decedent left a spouse and children, the spouse receives the first $50,000 plus one-half of the balance, and the children share the rest. An administrator who pays the wrong people, or pays the right people in the wrong proportions, can be held personally liable for the misdistribution.

An administrator also cannot distribute based on an unverified claim of heirship. Where the family structure is not obvious, or where the administrator claims to be the sole distributee, the court typically requires an affidavit of heirship — a sworn statement from a disinterested person familiar with the family, or a genealogist, confirming that no closer or additional distributees exist.

An Administrator Cannot Pay Debts and Claims Out of Order

An administrator cannot pay creditors in whatever order is convenient, or pay favored creditors while the estate lacks funds for higher-priority obligations. SCPA 1811 sets the order of priority for paying an estate's obligations, including funeral expenses, administration expenses, and creditor claims. An administrator who exhausts estate funds on lower-priority claims can be held personally responsible for the higher-priority obligations that go unpaid.

When an Administrator Can Lawfully Keep Estate Assets

While an administrator cannot take estate property for himself, there are narrow situations where an administrator lawfully ends up with estate assets:

• The administrator is the sole heir. If the decedent left only one distributee under New York's intestacy statute, EPTL § 4-1.1 — for example, an only child whose parent died with no spouse — that person is entitled to the entire net estate once valid debts, taxes and expenses are paid. Even a sole-heir administrator should keep clean records, because creditors and the Surrogate's Court can still scrutinize the estate.
• Statutory commissions and documented expenses. An administrator is entitled to statutory commissions under SCPA § 2307 and to reimbursement of legitimate, documented out-of-pocket estate expenses. This is compensation for service, not a windfall, and taking more than the statute allows is improper.

Criminal Exposure for Taking Estate Assets

Beyond removal and restitution, misappropriating estate property can constitute larceny under New York criminal law. Under Penal Law § 155.05, a person commits larceny when, with intent to deprive another of property, he wrongfully takes, obtains or withholds property from an owner — and the statute expressly includes embezzlement. The estate is the owner of its assets, and beneficiaries are the ultimate owners of their shares. Depending on the dollar amount involved, grand larceny charges under Penal Law §§ 155.30–155.42 can apply. A Surrogate's Court judge can refer a matter to the District Attorney for criminal prosecution, even when the administrator is also a beneficiary.

What Beneficiaries Can Do When an Administrator Crosses the Line

If a beneficiary believes an administrator is taking estate property or hiding assets, the Surrogate's Court provides specific procedures to hold the administrator accountable:

• Gather records. Collect anything showing what the decedent owned — bank and brokerage statements, deeds, vehicle titles, life insurance information — and document any withdrawals, transfers or property changes that occurred before or after death.
• Compel a formal accounting. Beneficiaries can request an informal accounting first; if the administrator refuses, they can petition the Surrogate's Court to compel an accounting under SCPA § 2205. The accounting must show what came into the estate, what was paid out, and each beneficiary's share.
• Bring a discovery and turnover proceeding. A discovery proceeding under SCPA § 2103 allows a beneficiary to examine the administrator under oath about missing property, and a turnover proceeding under SCPA § 2104 can compel the return of property that belongs to the estate.
• Petition for suspension or removal. Where the administrator has wasted or misappropriated assets, has a conflict of interest, or is otherwise unfit, a beneficiary can petition to suspend or remove him under SCPA § 711 and § 719.
• Seek a surcharge. Through the accounting proceeding, the court can surcharge the administrator personally for the value of what was taken, order restitution with interest, deny commissions, and in some cases shift attorneys' fees.