What to do when an executor steals from the estate?
The suspicion that an executor may be stealing from an estate is a common grievance from heirs and beneficiaries. The problem lies in the fact that an executor is the only person or entity in control of estate assets. Unless they volunteer information such as bank statements and records, a beneficiary cannot verify the true state of affairs. That is, unless the Surrogate’s Court is made to intervene.
NY Surrogate’s Court does not supervise the estate administration and does not serve as a watchdog over the estate. To set the record straight, the court is not involved in every step of the administration process, and it does not mandate the executor to file an accounting at the closing out of the estate. After letters testamentary issue to the fiduciary naming him as executor, Surrogate’s Court requires nothing further from the fiduciary.
The Executor’s Discretion
The truth of the matter is that the executor can do as he pleases unless someone make a complaint (ie petition) to the court. So, the executor can get away with as much as the beneficiaries will let him. Fraud, theft and embezzlement charges do not always act as deterrent. The hundreds of thousands and sometimes millions of dollars – under the executor’s control is often the most money he has ever seen. Thus, lawfulness quickly goes out the window.
Very often, my law firm receives a call from an executor himself who needs legal representation. It is not uncommon for him to tell us the following: by becoming the executor or administrator of the estate, he believes 1) the assets belong only to him; 2) he decides who gets what; or 3) the other beneficiaries waived their rights to an inheritance by signing a waiver and consent form.
Despite these misconceptions being so common, these beliefs remain to be a mind-blowing phenomenon.
No Lawyer, Big Problem
It is a big red flag when an executor is not represented by an attorney. Problems usually arise in there is no estate lawyer in the picture. Without proper representation, the executor has no one to guide him and prevent him from making bad decisions. I can’t count how many times I had to correct my clients from executing terrible ideas.
An executor usually does not have a probate lawyer for two reasons:
1) no lawyer will work with him because he is extremely difficult;
2) he doesn’t want someone to watch over him or question what he’s doing.
Both of these are problematic and should be an indicator that this person is unfit to be a fiduciary.
“Waiver and Consent to Probate”
If you are a beneficiary in a will or an heir to estate, you will receive a form in the mail titled “waiver and consent”. By signing this document, among other things, you tell the court that you consent to the person named on the form to be the estate administrator or executor. The person may be your sibling, uncle, cousin. You may think that there is no harm in signing this form – you think you trust this person and what choice do you have anyway?
Great harm can result from this form. If there is an ounce of mistrust or the person has a questionable history – then do not sign this form. You should discuss your full rights with a NY estate lawyer as this article is not intended to give legal advice, but only a general overview of the process.
At the very least, if you refuse to consent to the appointment, Surrogate’s Court may order for a bond be posted for your share as a prerequisite to this person becoming the executor.
What is a Bond?
A bond serves as insurance if an executor steals. Similar to when you have property insurance and your home is robbed of expensive jewelry – the insurance company typically covers the cost of replacement under your policy. If you sign a waiver and consent form, then the form usually checks off a box that you waive your right to a bond. This way the court does not require the executor to post a bond for your share. However, if your estate lawyer demands that a bond be in place or the court orders its filing based on the case circumstances, then you can submit a claim to the bond company if the executor steals your inheritance.
A bond is a tricky matter. It should not be assumed that a court will order a bond if you refuse to sign the consent form. An adequate bond is the true share of your inheritance. For example, if the estate is $500,000, and you are one of two beneficiaries in the will, an adequate bond for your share should cover $250,000.
What if the executor underestimates the assets or doesn’t know the true value of the estate at the beginning?
This is also a common occurrence. Sometimes the assets are undervalued intentionally, and sometimes it’s an honest mistake.
My law firm recently had a case where the administrator valued the estate at $1.7 million. Yet when he started collecting assets, the total value of the estate was over $5.4 million. There was no bond in place here (which was a huge problem). But even if the court had ordered a bond to be filed, our client would still not be adequately protected. She was one of five siblings that was inheriting the estate. With the given 1.7 figure, if a bond was ordered, it would only protect her for $340,000 (1/5 of 1.7 mil). Her actual inheritance was $1,080,000. The bond would fail to protect her for the other $740,000, which is a substantial amount of money.
So, what is the solution here? The problem is that when a nominated executor or administrator submits a petition to become fiduciary of the estate, the value of assets listed by this person is taken at face value. The court is not asking for any proof to verify that the listed figure is accurate. It is up to your probate lawyer to object to the value of assets alleged or argue for other security measures to make sure your share is protected.
Get the Accounting
The executor does not have to file an accounting with the Surrogate’s Court unless an interested party compels him to. An estate attorney for an heir or beneficiary will usually ask the fiduciary to provide an informal accounting to spare the delay and cost of an official accounting with the court.
An informal accounting is a document from the executor itemizing assets collected, all expenses, any distributions made, commissions he may be seeking, and the proposed distribution. Example:
Chase Bank account: $100,000
MET Life insurance: $200,000
Funeral bill: $10,000
Condo maintenance charges: $25,000
Junk removal: $5,000
Michael Smith $182,500
Anna Smith $182,500
Leo Jonas $182,500
Diana Keegan $182,500
What if the executor refuses to provide an informal accounting or you disagree with the figures he shows?
The only solution is to compel a formal accounting in court.
In court, you can examine him under oath, subpoena bank records, get discovery, and object to his accounting.
A formal judicial accounting is used to determine if the executor stole from the estate, paid improper expenses, engaged in conflict-of-interest transactions, or diverted assets. If the parties cannot settle their differences , the judge will make a decision.
If the judge finds that the fiduciary stole or made bad decisions that cost the estate money, then he will have to pay the loss back from his own share (if he is also a beneficiary) or be ordered via judgment to return the funds.
If you are certain that the executor or someone else stole assets, a proceeding to return the property back to the estate can be filed in New York Surrogate’s Court. For example, a decedent owned a house, and before or after her death, the executor signed the deed to himself. An available remedy to force the transfer back of the property is a Turnover proceeding.
Another example is let’s say the decedent had bank accounts and before her death, the daughter added herself as a beneficiary or a joint tenant with right of survivorship to all accounts. This strategy excluded the decedent’s other children from inheriting and they are ANGRY. In a turnover proceeding, the disinherited children can claim the decedent was unduly influenced, lacked mental capacity, or was defrauded. The judge will make a decision based on the evidence presented. If the transfer is ruled as improper, the daughter will be ordered to return the money back to the estate.
If the executor of the estate is refusing to make distributions, keeping secrets, or is stealing assets, do not delay. The longer you wait, the more risk you run of the stolen funds becoming unrecoverable. Call to speak to an estate attorney at Mishiyeva Law, PLLC, at 646-233-0826.