The number of matters filed in the Supreme Court that relate to disputes about how an executor is administering or has administered a deceased estate are on the rise.
Usually, the trusted family member or friend appointed as an executor is just trying to do the right thing by their loved ones. So, what are they doing wrong? Read on to find out how to ensure you stay on the right side of the law when acting as an executor.
Role of the Executor
Your primary role as executor is to ensure that you carry out the ‘terms of the deceased’s Will’ (per Doyle J, Brooks v Young SASCFC 81). What does this involve?
Proving the Will
Once the deceased person has passed away, the executor may need to apply for a Grant of Probate (read more about this here). A Grant of Probate is a document that certifies that the Supreme Court recognises that the document presented is the last valid Will of the deceased, and that the executor now has the authority to deal with estate assets and liabilities. In some cases, for example if the estate is a small one, probate may not be required (read more about this here).
Once a Grant of Probate is issued
The executor’s role following a Grant of Probate can be summarised as:
- Getting in all of the assets of the Estate;
- Paying all the expenses and liabilities of the testator; and
- Distributing the Estate to the beneficiaries of the Estate according to the terms of the Will.
When doing this, the executor must:
- Preserve, protect and administer the assets of the Estate. This includes securing and insuring any real estate or other valuable property that belonged to the deceased. The assets of the Estate must be secure and insured until you sell the property or distribute it under the terms of the Will;
- Keep beneficiaries informed regarding the administration of the estate. This includes promptly notifying beneficiaries of the grant of probate and their entitlement under the Will;
- Exercise due diligence. The Estate should be administered and distributed as soon as practicable. This can often take up to a year, but if you’re concerned your administration may take longer than this, we recommend you seek legal advice about whether this is reasonable;
- Guard against a conflict of interest. The executor should not put themselves in a position where they have a personal interest (or potential conflict of interest) with the estate they are administering – except if the Will provides otherwise;
- Act in the best interests of the beneficiaries at all times. All beneficiaries should be treated equally, with no one treated more favourably than anyone else, even if one beneficiary had a closer relationship with the deceased than another; and
- Not profit from their position unless the Will says otherwise. That said, the executor may apply to the Court for an executor’s ‘commission’ to compensate them for their time and effort. You can read more about this here.
Ordinarily, the expenses incurred by the executor when administering the Estate can be paid out of (or reimbursed from) the Estate. However, in certain circumstances, the Executor can be personally liable and up to the full extent of the estate assets that come into their hands.
The executor must ‘account for’ the property of the estate. If there is any loss to the beneficiaries (or creditors) of the estate from a failure to perform their duties properly, the executor may be required to personally make the beneficiary or the creditor whole, i.e. pay them what they would have otherwise been entitled to from the estate. So for example, if the executor distributes all of the assets to beneficiaries, and then finds that a creditor has not been paid, the creditor can claim against the executor for the amount due.
An executor can also be liable for mismanagement, misapplication or waste of the estate. In this case, either a beneficiary or creditor of the estate can bring a claim against the executor. The Court has previously found the following to be mismanagement or waste of the Estate:
- Negligence or wrongful administration of the estate;
- Failure to call in investments, including debts;
- Failure to pay debts, particularly those that bear interest;
- Sale of assets below their true market value;
- Distribution without making provision for future or contingent obligations;
- Payments to the executor for performing their role as executor if this is not specially allowed under the Will; and
- Theft from the Estate.
Generally, where there are two or more executors, you will not be liable if the breach of duty is committed by your co-executor(s). However, if you have allowed or not taken care to prevent the other executor(s) from committing a breach of duty, you may be also personally liable for the breach as if you had done it.
Standard of behaviour
An executor should exercise their role with the same level of care as an ordinary prudent person of business would extend to their own affairs. This applies even if you are not a person of business. The standard of care applied to executors is ‘reasonable care, prudence and circumspection’. If you are not familiar with business affairs, then you should carefully reconsider taking up the role of executor. Even if you are named in the Will, there is no legal obligation to take up this role.
Acting honestly and in good faith for the benefit of beneficiaries is the very minimum standard of behaviour required.
However, a paid executor will usually be held to a higher standard as they are expected to have a higher level of diligence and knowledge than someone who is not paid for their role. An even higher level of care is required for any person who advertises their services as an executor, for example, a solicitor or accountant.
This all sounds very intimidating if you are appointed as an executor. Luckily, in every state, executors have the right to apply to the Court for ‘judicial advice’ about how to administer the estate. The Court can advise you if you are faced with any difficulties in administering the estate. However, in most cases you can simply ask a professional adviser, such as us, what you are required to do to meet your legal obligations.
Although a beneficiary may know that they are entitled to a gift under the deceased’s Will, the beneficiary does not have an interest in the gift until the executor has finished their administration duties and the estate is ready to be distributed.
However, if a beneficiary is concerned about how the executor is administering the Estate, they can make a Court application to compel the proper administration of the Estate.
The information contained in this post is current at the date of editing – 22 September 2023.