What Can Happen to an Executor Borrowing Money?

An executor occupies a singular position of trust in managing a decedent's financial affairs. While an executor has the power to borrow money for an estate under a limited set of circumstances, borrowing money for personal gain is unethical and potentially illegal. Surviving family members must monitor the financial activities of a private executor closely to ensure that all financial transactions are in the best interest of the decedent's estate.

Borrowing for the Estate

An executor has the power to borrow money on behalf of the estate she is stewarding in order to make purchases, manage property and consolidate/pay existing debts. A bank or other financial institution can accept the executor's signature legally for approval on all loan documents. The probate court that has jurisdiction over the estate usually will require the executor to provide detailed financial records relating to the loan, including how the estate will use proceeds from the loan and how the estate will repay the debt over time.

Conflicts of Interest

A professional executor must never be the beneficiary of a loan taken out on behalf of the estate he is managing for a decedent. Doing so causes a conflict of interest between the executor's own financial interests and what's best for the management of the estate's financial affairs. This is at the very least an unethical practice and a breach of the surviving family's trust. At its most severe, using the powers of an executor for financial gain could constitute a criminal violation of the law.

Civil Legal Actions

Mismanaging the financial affairs of an estate by borrowing money for personal gain could cause surviving family members to sue the executor in civil court. The executor could be liable for any funds obtained through use of the estate's assets or credit rating. Family members may also sue for pain and suffering damages incurred through seeing the financial assets and personal property of a departed loved one used for the benefit of a seemingly greedy financial professional. An executor could face the loss of all professional licenses in addition to substantial financial liability.

Criminal Penalties

Embezzlement is a form of white collar theft seen most often in the areas of banking and finance. An executor borrowing money from an estate without the court's knowledge and with the intent to defraud the estate is committing embezzlement. The punishment for this felony-level offense varies by how much money the executor obtains through fraudulent practices -- the more money, the more time in prison. The court also will assess a fine commensurate with the level of theft in addition to any civil liability incurred by the executor.