Bringing assets back into the estate: The recovery of misappropriated estate assets

There are an increasing number of cases before the courts concerning the misappropriation of estate assets. Typically, this involves assets being misappropriated by a beneficiary, family member, or personal representative following death, but may also concern assets which were misappropriated during the deceased’s lifetime.

Whether the misappropriation has taken place pre or post death, the Personal Representatives (PRs) (and beneficiaries) of the estate will want to investigate the matter and seek to recover any assets which properly form part of the estate.

As such, it is important that PRs are aware of this issue, and understand how to recover misappropriated estate assets should the need arise. 

PRs: the duty to investigate 

The PR responsible for administering an estate has duties to collect in and distribute the deceased’s assets and to provide the beneficiaries with an account of all the assets held by the deceased at the time of their death. Should the PR consider that any assets are missing, this is something that must be investigated. 

Often, the beneficiaries of the estate, or family members of the deceased, have a better understanding of what the estate should consist of and may alert a PR to any missing assets. In order to discharge their duties, the PR must investigate any questionable transactions, for example the transfer of property or money to third parties, whether pre or post death.  

The PR will have access to and control of the deceased’s bank accounts (and other assets) and is able to request and review receipts or accounts for transactions which appear suspicious.   

As well as complying with their duties as PR of the estate, taking such action will also protect a PR from potential claims from the beneficiaries of the estate for failing to prevent or mitigate losses to the estate. 

It is important that PRs carry out a cost-benefit analysis of pursuing any legal action in relation to missing assets; it must be proportionate and reasonable to do so, and it is important that a PR considers whether directions should be obtained from the court prior to engaging in any form of litigation (and using estate funds to meet the associated costs). 

Pre-death: the deceased’s assets were misappropriated during their lifetime 

A report in 2024, commissioned by the Alzheimer’s Society, shows that around 1 million people in the UK have a form of dementia. This is projected to rise by 40% to 1.4 million people by 2040. We are seeing a sharp rise of cases involving the financial abuse of vulnerable people, including those that are elderly or suffering from dementia.  

Where the deceased suffered from a condition affecting their capacity, the PR should be particularly alert to any significant transactions made to third parties at a time that they were known to lack capacity. Similarly, if the deceased had an active Lasting Power of Attorney (LPA) in place, any large transfers of funds or assets from the deceased to the attorney may require additional consideration, to ensure that there has been no abuse of the LPA. 

It is possible for lifetime transactions to be declared invalid, and for the court to award a financial sum to be paid from the recipient to the estate, or for specific property to be returned. The court also has the power to make a costs order such that a portion of the legal fees incurred in making the claim may be recovered. 

If funds have been misappropriated by a beneficiary, the PR may seek to deduct any losses from that beneficiary’s entitlement under the estate. However, additional steps to enforce a judgment may be required if the individual who misappropriated funds is not a beneficiary. 

Post-death: the deceased’s assets were misappropriated following their death 

When someone dies, family members may believe that they have a right to certain of the deceased’s property or that they were promised certain items, irrespective of what is set out in the deceased’s Will. 

Examples of this include where a family member has access to the deceased’s property and unilaterally takes assets such as jewellery, cash or other valuable items prior to the items being properly accounted for by the PR. This can be a great source of upset for other family members, particularly as it can be difficult to prove what has been taken if there is no record of the property. 

Another common situation is where an individual - who was helping the deceased with their finances and so has access to their bank accounts - withdraws funds following the death. This can be more easily proven, as the PR will have access to the deceased’s bank records. 

As above in relation to pre-death, anyone who has misappropriated estate assets will be personally liable to return the property or an equivalent financial sum.  If they are a beneficiary, then these losses can be deducted from the sum they are due to receive; if not, they may be ordered to repay the sums from their personal assets. 

What if the PR has misappropriated estate funds? 

The PR has control of the estate assets, which may give them the opportunity to misappropriate estate funds, property, or chattels (such as art or jewellery). 

However, the transfer of assets into the PRs name is not necessarily misappropriation; there may be situations where it is legitimate that a bank account, or other asset, has been transferred into the name of the PR. The asset may be appropriately held in his or her capacity as PR prior to it being distributed to beneficiaries.  In the case of a bank account, funds should not usually be mixed with those of the PR, or spent by the PR save for legitimate estate expenses.  

The role of a lay (i.e. not a professional) executor or PR is ordinarily a gratuitous role; as such they are not usually permitted to be paid for their time spent on the administration and should not pay themselves from estate funds. Doing so may amount to misappropriation. 

If there is suspicion that a PR has misappropriated estate funds, it is important to act quickly in order to safeguard the remaining assets and to recover any assets that have been taken. 

If the estate has suffered financial loss caused by the executor’s actions, then it may be possible to bring a claim for breach of trust to recover those losses. The PR will be personally liable for any losses.  It may also be appropriate to apply to the court to remove the PR from their role; in this case an independent party would be appointed to finalise the administration of the estate.
  
In claims involving the misappropriation of estate funds generally, evidence will be important: for example, financial statements, bank records, the title to any properties and correspondence with the PR or any relevant third parties. If a PR or beneficiary is considering taking action to recover estate assets, it is important to obtain advice on the merits of any action at an early stage. 

If you require further information or advice from our team of specialist contentious trust and estate lawyers, please contact a member of our team, email us or call us on +44 (0)20 7814 1200. 

About the author

Cally Brosnan is an Associate in the dispute resolution team, specialising in wills, trusts and inheritance disputes.