Being an executor comes with considerable responsibility and can be a rather thankless task, particularly when you are not a beneficiary of the estate. An appointed executor has a number of obligations and it is important executors take these obligations seriously. Litigation against executors for failing in their duties is becoming more common.
As people’s affairs become more complex, the administration of their estate similarly becomes more complex. Many testators have interests in companies and trusts, and businesses. Blended families are now commonplace. Litigation (commenced both pre-death and post-death) can both delay the administration and increase the costs of administrating estates significantly.
Specifically, an executor has six main obligations including:
1. Organising the funeral
It is the executor’s responsibility and obligation to organise the funeral of the deceased person. A common misconception is that it is the estate’s responsibility to bear the expenses of the funeral. In fact, it is actually the executor (or the person who organises the funeral) who is personally responsible for the payment of funeral expenses. However if the costs are reasonable then the executor is entitled to reimbursement from the estate in priority to other debts (except secured debts).
2. Collecting assets
After the funeral has been organised, the executor should identify and start collecting the assets owned by the deceased person. The executor should obtain control of assets, such as proceeds of bank accounts, shares held in both public and private companies, life insurance, real property, superannuation, wages and businesses. The executor should ensure that estate property is insured.
Depending on the assets held, probate of the will may need to be obtained before an asset holder (such as a bank or share registry, or superannuation fund) releases the assets to the executor. Probate is the process of officially proving the will and involves an application to the Supreme Court of Queensland.
3. Payment of liabilities
The order in which liabilities are paid will depend on whether there is sufficient funds to pay all liabilities. Generally, there are adequate funds to pay all liabilities and this is known as a “solvent estate”. However, when there are insufficient assets to pay all outstanding debts (known as an insolvent estate), there is an order of priority on which debts are paid first.
4. Finalise any legal action involving the estate
It is the executor’s responsibility to finalise litigation commenced by the deceased person or against the deceased person before death. This can include property settlement proceedings (typical in divorce proceedings), personal injury claims, a claim where someone owed the deceased person money, etc.
The most common form of litigation commenced against an estate post-death are applications for further provision. These applications are made by a “relevant person” seeking further provision to be made to them from the estate. A relevant person includes a spouse (including a de facto and same sex spouse), children (including adopted children and step-children) and certain dependents.
Other litigation that is also commonly commenced against an estate is a claim for an outstanding debt by the deceased person.
In relation to litigation involving estates, another misconception is that the executor’s legal fees in pursuing or defending litigation on behalf of the estate will be borne by the estate. In fact, the executor is personally responsible for his/her legal fees but is entitled to reimbursement from the estate only when the executor “acts reasonably” in the course of that litigation. Sometimes it is necessary for an executor to seek the court’s approval to pursue litigation to ensure the executor’s legal costs are borne by the estate. This is particularly so because courts are becoming more strict as to what “reasonable” means and a number of executors have been caught out and worn their legal costs personally.
5. Distribution of the estate to the beneficiaries
After payment of all liabilities it is the executor’s responsibility to distribute the estate to the beneficiaries within a reasonable time.
As to what a reasonable time means will depend on the circumstances of the estate. A reasonable time is generally referred to as “the executor’s year” and most people would expect simple estates to be finalised and distributed within 12 months from the date of death. This is important for specific legacies (being a gift of money) under the will because if they are not paid within 12 months then the estate will need to pay the beneficiary 8% per annum interest on the legacy until it is paid.
There is no hard and fast rule as to what is a reasonable amount of time. Some estates are more complex and take more time than others, particularly if there has been litigation involving the estate.
However, executors need to be careful because if they do not act efficiently in discharging their duties and administering the estate within a reasonable time, then beneficiaries may apply to the court for their removal, particularly if there have been long delays without explanation.
6. Management of trust funds for minors
If any beneficiary of the estate is a minor or under the age of contingency (which means under the age that they are entitled to receive, generally 18, 21 or 25), then the executor must hold those funds on behalf of the minor beneficiary until the age which they are to receive their inheritance.
The executor has additional obligations to minor beneficiaries, particularly in respect of maximising the beneficiaries’ entitlements. There may also be obligations on the executor to release funds to the minor’s guardian for their maintenance, education and support in life. It may be prudent for an executor to obtain financial advice from a suitably qualified person before investing the trust funds.
Due to these stringent responsibilities and obviously the personal risk a person exposes themselves to in acting as an executor, executors do have the right to apply to the court for commission to be paid to the executor from the estate assets for the executor’s “pains and troubles” in administrating the estate.
If you are an executor of an estate, it is important that you receive appropriate advice regarding your obligations, responsibilities and rights to ensure that you are administrating the estate in the most appropriate manner.