An executor is the person authorised and appointed in a Will to administer an estate in accordance with the terms contained in the Will. Often they will be referred to as an executor, an executrix or a legal personal representative (also known as “LPR”s).
Being an executor can be complicated. Executors must at all times act with care and in the best interests of the beneficiaries to the estate. An executor is required to administer the estate as quickly as reasonably possible and in accordance with the terms of the Will.
An executor has an important role and must perform certain responsibilities including:
- Locating and interpreting the Will and identifying the willmaker’s intentions;
- Identifying the assets of the estate;
- Protection of the assets including arranging appropriate insurance or taking possession of the assets;
- Obtaining a Grant of Probate (if required);
- Collecting income of the estate;
- Determining any liabilities of the estate and arranging payout of these debts;
- Distributing the estate assets including payment of bequests and transfer of assets to beneficiaries; and
- Attending to accounting and tax requirements for the estate.
If an executor makes any errors that result in litigation or increased tax liability which could erode the value of assets in the estate, there could be serious consequences, not only for the estate, but for the executor personally.
Below we have discussed a couple of the more common mistakes made by executors.
An executor should aim to administer an estate within 12 months from the date of death however there are circumstances where this will not always be possible (eg: where tax returns are to be completed, administration of complex assets, etc).
Where a Grant of Probate is required to administer the estate the Court will request an explanation of the reason for any significant delay.
An executor who does not attend to the administration of an estate in a timely manner could be removed from their position.
Identification of assets and liabilities
When administering an estate, an executor is responsible for identifying, managing and protecting all assets of the estate until such time that they can be distributed or transferred to the beneficiaries under the Will.
As all liabilities of the estate are to be paid prior to any distribution to beneficiaries, it is essential that all assets be located and realised before any distribution to beneficiaries.
It is important for executors to also consider future tax liabilities when dealing with distribution to beneficiaries.
An executor has a duty to maintain detailed records of all that they do on behalf of an estate. This includes all money received and paid by estate as well as expenses they have incurred personally should they wish to seek reimbursement from the estate.
When an asset of an estate is realised, it is important that an executor understands that these funds need to be held on trust for the estate and cannot be mixed with their own personal funds. If an executor causes mixing of the funds, there is potential for the executor to face personal liability for any loss caused by their error. At the very least it may be complex and time consuming to identify the correct owners of the funds.
Whilst the estate must be administered promptly, executors should also be cautious and careful, as distribution of assets too early can create problems if for example, there are unforeseen expenses to be dealt with such as tax liabilities, unexpected creditors if a family provision claim is made against the estate. An executor may incur some personal liability where the assets have been distributed and are no longer recoverable.
Not obtaining legal advice
If you are an executor appointed under a Will, it is critical that you obtain legal advice from the outset to assist in a smooth administration and to avoid the potential for mistakes and consequent liability. The above are only some of the common mistakes made by executors and when made, they can be costly not only to the estate, but have the potential to significantly costly to an executor personally.
How can Nevett Ford help?
Nevett Ford’s best wills and estates lawyers in Melbourne are able to guide and assist you through the process of administering an estate. Every situation is different and we take the time to ensure that that the common mistakes referred to above are avoided. If you are an executor of an estate, you can contact us at firstname.lastname@example.org or phone us on 03 9614 7111.