Background and why this matters
Executors and trustees act as fiduciaries: the law requires they manage assets honestly and prudently for beneficiaries. That duty includes preventing and addressing fraud that can erode estate value, delay distributions, and expose the fiduciary to liability. Recent trends—more online accounts, faster electronic transfers, and remote notarizations—have increased both opportunity and complexity for fraud (see Consumer Financial Protection Bureau guidance on elder financial exploitation) (https://www.consumerfinance.gov).
In my 15+ years in financial services I’ve seen preventable losses when simple controls were missing: a trustee with sole online access to accounts, an executor who paid invoices without verification, and families that didn’t separate duties. The recommendations below are practical, prioritized, and legally mindful.
Core principles
- Segregation of duties. No single person should both approve payments and reconcile bank statements. Splitting tasks reduces opportunity for theft.
- Timely and transparent recordkeeping. Keep originals, scan documents, and keep an index of every transaction, check, and communication.
- Immediate digital hygiene. Secure passwords, enable multi-factor authentication (MFA), and limit online account access to named fiduciaries.
- Professional oversight. Use external auditors, CPAs, or forensic accountants for larger or complex estates.
Key preventive controls (what to implement first)
1) Open estate/trust bank accounts promptly and centrally
- Move funds into institutions with a clear trust/estate account structure rather than leaving them in decedent accounts. Use accounts labeled for the estate or trust so institutions apply the right rules.
- Require two signers for disbursements above an agreed threshold. Many courts expect this control for contested estates.
2) Establish an approvals policy and payment workflow
- Create a written payment authorization form and require original invoices or contracts before payment.
- Use pre-approved vendors recorded in a vendor ledger and check new vendors against that ledger.
3) Implement routine reconciliations and independent reviews
- Reconcile bank and investment statements monthly. Have a second party (co-trustee, accountant, or third-party reviewer) sign off.
- Schedule at least one independent audit or review during administration for sizeable estates (AICPA guidance supports peer review/audits for fiduciary accounts where risk is material).
4) Use transaction alerts and bank notifications
- Set up email/SMS alerts for large transfers, changes to payees, or new electronic debit authorizations.
- Insist on positive pay services for checks if the account supports it; this prevents altered or forged checks.
5) Limit account access and rotate passwords
- Document who has access to each financial, digital, and insurance account. Remove access quickly when someone’s role ends.
- Enforce MFA and use a secure password manager. Consider a corporate-grade (or estate-specific) password manager for multi-user access.
Monitoring and detection techniques (daily to monthly tasks)
- Daily: Review account activity for unexpected transfers, wire initiations, or large ATM withdrawals.
- Weekly: Scan for duplicate payees, round-dollar payments (common red flag), or repeated reimbursements to the same individual.
- Monthly: Compare bank statements to the transaction register, vendor invoices, and the estate/trust accounting records prepared for beneficiaries.
- Quarterly: Review beneficiary disbursements and trustee expenses for reasonableness. Engage an outside reviewer if patterns appear irregular.
Digital asset and cybersecurity specifics
- Catalog digital accounts (see FinHelp’s Digital Executor guide) and logins during initial inventory. Include email, investment portals, and cryptocurrency wallets. Link: Managing online accounts and passwords in an estate.
- Use hardware wallets or custodial services for crypto and require dual controls for transfers where feasible.
- Follow NIST cybersecurity basics: MFA, least privilege access, patching, and encrypted backups (https://www.nist.gov).
Documentation and beneficiary communication
Maintain a transaction ledger that lists date, amount, purpose, supporting documents, and approver. Provide beneficiaries periodic, concise accounting that includes receipts and bank statements when appropriate; transparency deters collusion and raises red flags faster.
Create a whistleblower and reporting policy for staff, vendors, and beneficiaries so concerns can be raised confidentially—this is commonly recommended in nonprofit and corporate fiduciary governance policies and translates well for larger estates.
When to bring in professionals
- Suspected fraud or irregular large transactions: consult an estate attorney and forensic accountant immediately.
- Complex investment or business assets: use a fiduciary or corporate trustee or hire a financial advisor with fiduciary credentials.
- Tax anomalies or potential conduit transactions: consult a CPA experienced in fiduciary tax (see IRS guidance on fiduciary income tax responsibilities) (https://www.irs.gov).
Step-by-step response if you suspect fraud
1) Preserve evidence. Do not delete emails, alter bank records, or destroy documents. Export and save electronic account statements and take screenshots with timestamps.
2) Limit further losses. Freeze the estate/trust accounts or move funds to an insured account pending advice from counsel and the bank.
3) Document a timeline. Create an incident timeline summarizing what was observed and when.
4) Notify beneficiaries and co-trustees as required by law or court order. Many states require prompt notification of suspected fiduciary breaches.
5) Engage counsel and a forensic accountant. If criminal activity is likely, file a police report and work with prosecutors; federal bank fraud or wire fraud can implicate federal authorities.
6) Consider probate court actions. In contested matters, courts can remove fiduciaries, order accounting, and require restitution.
Legal exposure and best practice to limit personal liability
- Act promptly. Timely detection and disclosure to beneficiaries and the court reduce the chance a fiduciary will be personally charged with malfeasance.
- Keep contemporaneous notes of all decisions and the reasons behind them. Courts evaluate whether a fiduciary acted prudently and in good faith.
- Consider fiduciary liability insurance if administering larger estates or serving as a professional fiduciary.
Common mistakes and how to avoid them
- Relying on informal family processes. Formalize permissions and approvals in writing.
- Paying invoices without verifying delivery of services or matching contracts. Keep purchase orders and delivery confirmations.
- Allowing unchecked online access. Use separate estate email addresses, change passwords at the outset, and assign access selectively.
Practical checklist (starter)
- Open estate/trust accounts at a reputable bank; label them clearly.
- Require two signatures for X-dollar+ transactions.
- Enable transaction alerts and positive pay where available.
- Reconcile accounts monthly and have a second reviewer sign off.
- Keep original invoices and digital copies in a secure, backed-up folder.
- Provide beneficiaries a simple periodic accounting and a contact for concerns.
Related FinHelp resources
- For tax steps executors need to follow, see Handling Tax Issues After a Taxpayer’s Death: Executor Actions and Filing (https://finhelp.io/glossary/handling-tax-issues-after-a-taxpayers-death-executor-actions-and-filing/).
- For practical help with online account management, see Digital Executor: Managing Online Accounts and Passwords in an Estate (https://finhelp.io/glossary/digital-executor-managing-online-accounts-and-passwords-in-an-estate/).
- If you’re choosing or serving as an executor, read Choosing the Right Executor: Duties and Selection Tips (https://finhelp.io/glossary/choosing-the-right-executor-duties-and-selection-tips/).
Authoritative sources and further reading
- Consumer Financial Protection Bureau, resources on elder financial exploitation and scams (https://www.consumerfinance.gov).
- Internal Revenue Service, fiduciary responsibilities and tax filing for estates and trusts (https://www.irs.gov).
- National Institute of Standards and Technology (NIST), Cybersecurity Framework and guidance on basic controls (https://www.nist.gov).
- SEC Investor.gov for investment and broker-related fraud red flags (https://www.investor.gov).
Frequently asked practical questions
Q: How often should I reconcile accounts? A: Monthly reconciliations are the practical minimum; high-activity estates may require weekly checks.
Q: Do I have to tell beneficiaries about a suspected fraud? A: State law varies, but in many jurisdictions you must promptly inform beneficiaries and the probate court of material breaches. Consult counsel.
Q: Can I be removed if fraud occurs while I’m executor/trustee? A: Yes—courts can remove fiduciaries for neglect, breach of duty, or wrongdoing. Acting quickly to remediate and document your actions reduces this risk.
Professional disclaimer
This article provides general educational information and is not legal or financial advice. For guidance tailored to your estate or trust, consult an estate attorney, CPA, or licensed financial advisor. The recommendations above reflect best practices current as of 2025 and relevant guidance from federal agencies (CFPB, IRS, NIST).
