What an executor cannot do in New York can be summed up as follows:
- Ignoring the beneficiaries
- Refusing to follow the will
- Taking unreasonable expenses
- Failing to keep records of every single expense
Let’s look at each of those things in more detail.
An executor cannot lie about anything related to the estate. An executor cannot provide false information to the beneficiaries or the court. For example, when a beneficiary asks about something relating to the estate, the executor must answer truthfully. And when the executor fills out court forms and schedules, the executor must not write down false information or check the wrong boxes.
An executor cannot steal from the estate. On the most simple level, the executor cannot steal money or property they’re managing. The executor also cannot steal in more sophisticated ways.
Penalties for stealing from an estate
There are significant penalties for stealing from the estate. The court can discharge the executor 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 executor is entitled to
It can be tempting for an executor 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.
Transferring estate property below market value
An executor can transfer property to himself only if he pays fair and full market value for it, or if the transfer is being done as part of distributing the estate, with equal distribution among all the beneficiaries and in accordance with all the applicable rules.
Estate property does not belong to the executor – he is just managing it.
What do we call it when a manager steals the money or property he is managing? That’s right; it’s called embezzlement. Or more simply, stealing.
Let’s say an estate contains a house that is worth $1 million, and the executor transfers it to himself 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 executor is one of the beneficiaries, he is responsible to manage the estate for everyone’s benefit, not just his own.
The executor 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 executor 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 executor buying them out, the executor should explain it to the beneficiaries. For example, the executor can explain the savings on transaction costs, such as not having to pay a broker. There must be a feeling that the executor fulfilled his responsibilities to the beneficiaries.
The executor 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 needs
The executor can only use estate funds to pay the legitimate expenses of the estate, taxes, and legal fees. The executor cannot use estate funds for his personal needs or expenses.
Using estate property for himself
An executor cannot use estate property such as real estate and a vehicle for his own personal use. The executor cannot use the property of the estate for himself or his family without the consent of the other beneficiaries. For example, living in a house that belonged to the person who died.
Taking over the estate business for the executor’s own gain
If an estate owns a business, an executor cannot use that business for his own gain. The business has to be sold at a fair market value. When there is a family business as part of the estate, it is likely that the beneficiaries are due to inherit part or all of it in order to keep the business ownership within the family. The executor cannot indefinitely assume control of the family business and take it over to the detriment of the other beneficiaries.
Favoring one beneficiary over another
Favoring one beneficiary over another can be considered stealing from the estate. It has the same effect as the executor stealing money from one beneficiary for himself and then transferring that property to another beneficiary.
There are all sorts of other contractual or legal matters that may require an executor’s attention. For instance, if the testator owned commercial property and had tenants, the executor 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 executor cannot do in New York is fail to work with attorneys and accountants in order to make sure assets are properly valued and contractual obligations are completed.
Here is a list of things that the executor cannot do in New York as far as neglecting the estate is concerned:
- Fail to take inventory of assets, including personal and real property
- Mismanage estate assets including bank accounts, stock, bonds, retirement accounts, pensions
- Be negligent or careless in investing assets
- Sell personal and real property below market price
- Fail 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 estate business
- Fail to wind up and settle an estate
- Fail to distribute assets to the beneficiaries
Ignoring the Beneficiaries
The executor 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 executor cannot fail to communicate with the beneficiaries in a clear, reasonable and timely manner.
Refusing to Follow the Will
Acting in bad faith
An executor is named by a testator (the person who made the will) at the time a will is made. After the death of the testator, the executor is confirmed by the probate court. The executor cannot refuse to carry out the wishes and intent of the testator and cannot act in bad faith, refuse to represent the best interests of the beneficiaries at all times during the probate administration of the estate, and refuse to wind up close an estate.
Refusing to file probate
An executor cannot fail to initiate the filing of a Probate proceeding with the probate court by filing the original will and death certificate with the court and is responsible for obtaining and filing any other necessary documentation that the court may require. An executor cannot fail to carry out their duties. And most importantly, the executor cannot steal from the estate.
Other things an executor cannot refuse to do
Here are some other things that an executor cannot refuse to do:
- Refuse to follow the terms of the will
- Refuse to wind up and settle an estate
- Refuse to distribute estate assets to the beneficiaries
Charging Unreasonable Expenses
Reasonable vs. unreasonable expenses
The executor is allowed to charge reasonable expenses and is not allowed to charge unreasonable expenses.
The executor is allowed to charge reasonable expenses:
- commission based on a formula, about 3% on average
- reasonable expenses, usually not a big amount
- court fees
- funeral expenses
- attorney fees
- accountant fees
- house maintenance
- reasonable travel and accommodation expenses
- pet expenses
The executor is not allowed to charge unreasonable expenses:
- no taking a salary
- An executor or their relative cannot take a salary for managing property of the estate or taking care of the deceased or their property while they were still living
- no expenses before the estate was created
- Expenses incurred out of obligation to the deceased, such as taking care of them when they were sick. Although this compensation may be allowed if there is a contract that obligates the now-deceased person to pay for the services.
- no transportation and accommodation for friends or family
- An executor is allowed to charge his own reasonable transportation and accommodation expenses while taking care of the estate, but not for his friends and family
- no excessive expenses
- expenses that are not needed
- above market price
- or benefitting the executor
Taking excess compensation
An executor is entitled to receive compensation for his or her services in accordance with the law. When a spouse or a family member acts as executor, 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 executor cannot take compensation that is in excess of what they are allowed to take by law. For example, an executor cannot take a salary for managing estate property or get reimbursed for hotel stays and meals related to managing the property.
An executor is held a higher standard of behavior and is expected to act in an honest, fair and ethical manner. An executor cannot breach their fiduciary duty. They could be held legally liable for any losses suffered by the estate or beneficiaries. An executor 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 executor committed any crimes such as embezzlement of estate assets.
Failing to Keep Records
Because an executor is managing the estate for the benefit of the beneficiaries, they should keep records of every single expense.
Acting as an executor is a big responsibility, and one needs to be careful not to do the wrong thing. If you think that the executor is doing something wrong, or you are an executor who is being accused of doing something wrong, you need to get in touch with an experienced estate litigation attorney.
Not Getting Signed Releases
Once the executor collects the assets of the estate and pays out its debts, it’s time for the executor to disburse the funds to the beneficiaries. But before the executor 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 executor. 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.
Because there are many things that an executor cannot do in New York, 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 have an issue with an executor or if you wish to hire a New York estate attorney to assist you with your duties as executor, we at the Law Offices of Albert Goodwin are here for you. You can send us an email at firstname.lastname@example.org or call us at 718-509-9774.