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.
References
- U.S. Legal Wills: Executor Responsibilities
- USLegal.com: Punishment for Embezzlement
- Judicial Council of California. "Wills, Estates, and Probate - What Is 'Probate'?" Accessed April 27, 2020.
- Mergen Law LLP. "Definition: Executor and Executrix." Accessed April 27, 2020.
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- Office of the Executive Secretary, Supreme Court of Virginia. "Probate in Virginia - What Are the Basic Duties of an Executor or Administrator?," Pages 4-5. Accessed April 27, 2020.
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- Judicial Council of California. "Wills, Estates, and Probate - Step 2. As Estate Representative, Start Gathering Information and Fulfilling Your Duties." Accessed April 27, 2020.
- Federal Trade Commission. "Debts and Deceased Relatives." Accessed April 27, 2020.
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- Tennessee Department of Revenue. "Tennessee Inheritance Tax Guide," Page 6. Accessed April 27, 2020.
- Legal Information Institute. "26 U.S. Code § 2032. Alternate Valuation." Accessed April 27, 2020.
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- Tax Foundation. "Does Your State Have an Estate or Inheritance Tax?" Accessed April 27, 2020.
- Superior Court of California, County of Santa Clara. "How Are Taxes Handled in Probate?" Accessed April 27, 2020.
- Alaska Court System. "Do I Have to File a Federal Income Tax Return for the Person Who Died?" Accessed April 27, 2020.
- Superior Court of California, County of Santa Clara. "What Must I Do to Close the Estate?" Accessed April 27, 2020.
- Alaska Court System. "Does the Personal Representative Have the Right to Be Paid?" Accessed April 27, 2020.
- Superior Court of California, County of Santa Clara. "If I Serve as Executor, Will I Get Paid?" Accessed April 27, 2020.
Writer Bio
Jonathan Lister has been a writer and content marketer since 2003. His latest book publication, "Bullet, a Demos City Novel" is forthcoming from J Taylor Publishing in June 2014. He holds a Bachelor of Arts in English from Shippensburg University and a Master of Fine Arts in writing and poetics from Naropa University.