The executor of a deceased estate is entrusted with taking care of the finances of the deceased. The majority of executors fulfil their fiduciary duty with diligence and honesty, but there is an opportunity for an unscrupulous person to unethically profit from their position of trust. When an executor uses deceitful practice to acquire estate assets for themselves or for someone other than the rightful beneficiary, this is known as executor fraud. This article defines executor fraud in Australia and explains the consequences of this fraud.
What Is Executor Fraud?
When an executor of an estate commits acts for their own gain, this behaviour is executor fraud. Fraud is a criminal act whereby a perpetrator obtains advantage, assets or money through unlawful behaviour. Executor fraud is often uncovered because a beneficiary of the estate becomes suspicious of the executor’s secretive or uncooperative behaviour.
Examples Of Executor Fraud
An executor has multiple opportunities to act fraudulently during the course of the deceased estate administration. The courts have previously found instances of executor fraud when someone paid themselves advances or unreasonable expenses from the estate, or a “salary” to act as executor, or treated a deceased’s bank account as their own. An executor might also create fake creditors in order to fraudulently withdraw money from the estate. It is also fraud if the executor takes assets from the estate, or sells assets under market value to themselves, family or friends. Another instance is when an executor delays the administration of the estate unduly because they are living in the deceased’s house as if it is their own property.
Signs Of Executor Fraud
It can be difficult to recognise the difference between an executor acting diligently in the course of administering the estate, and what is actually executor fraud.
Signs of executor fraud include:
- Belligerent or uncooperative behaviour. It is cause for concern if the executor is treating family members or beneficiaries of the deceased unfairly or acting in a threatening manner;
- Selling assets or funds from the estate with no evidence of the proceeds being deposited back into the estate;
- Hiding or refusing to share estate finances with beneficiaries; or
- Failing to make all efforts to notify a beneficiary.
Executor Fraud: Accountability And Defences
An executor must ensure that they keep accurate and up-to-date financial accounts of their administering of the estate. This not only provides accountability and highlights incidents of fraud but also provides a paper trail to use as evidence in their defence if they are ever accused of executor fraud. When the executor completes the estate administration, they need to provide a summary of all financial activity that has occurred since the Supreme Court issued the grant of probate.
An executor needs to keep records of the initial inventory of the estate with the values of all assets in the estate. As the administration progresses, the executor also needs to track business income and losses, and profits from the sale of assets. Finally, it is essential to account for all disbursements from the estate, for costs and fees, and to creditors and beneficiaries. This accounting must be specific and detailed, and the executor needs to make these records available to beneficiaries for review.
An executor must be able to justify their actions at any point in the course of the estate administration, although the extent that they must disclose specific details of the administration depends on the identity of the enquiring party. For instance, the executor must give full disclosure at any time pursuant to a court order, but need not provide the same level of detail to a person who will only receive a small gift under the will. The rights of a residual legatee are much broader. As each transaction impacts the residual legatee’s interest in the estate, they are entitled to receive a full accounting of the administration and management of the entire estate. If the executor fails to comply, the residual legatee can ask the court to compel the executor to provide the requested information.
Repercussions of Executor Fraud
There can be serious consequences for an executor who acts fraudulently, including personal liability for any financial loss incurred through the misappropriation. In Australia, Supreme Courts have statutory power to revoke probate from someone who is found to have committed executor fraud. For instance, in Victoria, the Supreme Court of Victoria can remove an executor under the Administration and Probate Act 1958 if the executor jeopardises the proper administration of the estate. Someone who commits deliberate and egregious acts of executor fraud can also face criminal charges.
An executor who has been accused of fraud must not ignore the accusation. Even if the allegation was made in an off-hand manner, it is best to take it seriously. A beneficiary of the will can apply to the court for the executor’s removal and also sue the executor personally for any loss incurred through financial mismanagement or fraud. An executor must attend court to defend himself or herself, otherwise, they may find that a default judgment is made against them, even if the charges are baseless. It is best for a person to consult an experienced solicitor at once if they are accused of executor fraud.
The specialists at Armstrong Legal can help if you have reason to suspect executor fraud. Please contact the team for advice on whether the executor’s behaviour is fraudulent, and assistance with applying for the removal of the executor from their position. Call 1300 038 223 today for guidance on this or any other legal issue.