Robert A. Bonavito, CPA PC

Estate and Trust Fraud in New Jersey

At least 25% of our firm’s investigations deal with estate and trust fraud. The reason for this is that executors of estates and trustees are not fully aware of the responsibility they have.

Some General Information on Estates and Trust

Wills and trusts are the primary planning tools utilized by individuals to address end-of-life issues. The duties and instructions listed in the will or trust will be carried out by executors, executrix, personal representatives or trustees.

When someone passes away their will is probated. Probate is the general administration of the deceased persons Will or the estate of the deceased.

In New Jersey if the estate is valued under $20,000 it may qualify for a less complex probate process.

When there is no Will, the estate is called interstate estate. If there is no will the probate court will select a personal representative.

If you die in New Jersey without a will and have no spouse, children or grandchildren your estate will be left to your parents.

Probate is simply the process of going to the County Surrogate’s Court or probate court in the county where the deceased person lived. This is typically very easy to do. Simply enter courthouse with a copy of the will and identification.

When you go through probate, your will and other documentation will become public record. In order to avoid your personal business being open to public scrutiny many individuals utilize trusts and other planning techniques that can help avoid probate.

Some instruments that can avoid probate include living trust and Pour Over Trust that are created within the will. Other property such as life insurance, retirement accounts or real estate brokerage accounts can avoid probate with appropriate planning. If a beneficiary is properly named or accounts are held in joint names and/or rights of survivorship, these assets can usually avoid probate.

Reasons for Fraud Investigations in Estates and Trust

The main reason we have so much litigation is that the administrators of the estate and trustees often do not take their duties seriously and do not properly maintain proper records.

General responsibilities of estate administrators:

Wills are typically probated within 30 days after the date of death.

The probate courts first action is to appoint an administrator. The administrator becomes a legal representative of the deceased.

In general, the estate administrator has three main duties

  • Collect all assets of the deceased
  • Pay all creditors
  • Distribute the remaining assets to heirs or other beneficiaries

Issues that we have seen, include executors that have made unauthorized loans to themselves, paid expenses without proper invoicing and did not have proper records at the onset of the creation of the estate.

Mismanagement or Fraud

The most common ways that trustees breach their fiduciary obligation include:

  • Mismanaging trust assets, records or trust management
  • Fraud
  • Borrowing from the trust for personal use, particularly outside of the trust’s terms
  • Behaves in a self-serving manner that enriches him or herself to the detriment of the beneficiaries
  • Charging an unusually large amount of money for trust administration
  • Fails to keep accurate and complete records of the trust’s activities
  • Working with one or more beneficiaries at the expense of other beneficiaries
  • Failing to report to beneficiaries and keep them informed
  • Permitting a co-trustee to breach his or her fiduciary duty and/or commit fraud
  • Co-mingling trust funds with outside funds, including their own

The most important duties as an administrator:

  • Read carefully the will and/or trust
  • Find the majority of the assets of the deceased and set up an estate bank account.
    1. Keep a list of assets, debts, bank accounts, investments, insurance policies, etc.
    2. Keep a file with the names of the CPAs, Attorneys and other important professionals
    3. Keep communication open with the beneficiaries
    4. Have back-up for all deposits, disbursements or other transactions within the estate
    5. Make sure you do a thorough accounting once your services are complete
  • We recommend that the estate bank account be set up at the deceased’s bank; this will expedite transfer of funds.
  • Be organized and keep good records; everything you do may be scrutinized and will require proper documentation.
  • Any expenses paid or incurred prior to setting up the estate bank account must be carefully documented.
  • Be sure to file all tax returns; do not be afraid to hire professionals when they are needed for tax advice, etc.

Executor fees in New Jersey are set by statute; 5% for the first $200,000, 3.5% of the next $800,000 and 2% of anything in excess of $1 million

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