This article outlines some important issues for Executors to consider when administering an estate.
The main duties of an Executor may be summarised as follows:
- to arrange for the proper disposal of the body;
- to obtain a grant of Probate;
- to ascertain what assets compromise the estate and recover any amounts due to the estate;
- to ascertain the liabilities of the estate and to pay the funeral, testamentary, and administration expenses and the debts of the estate;
- to distribute the estate in accordance with the testamentary dispositions or to those entitled to take on intestacy;
- where assets are to be held on trust, to invest those assets approximately and administer the trust;
- to keep proper accounts; and
- to wind up the estate.
The Disposal of the Body
The obligation to arrange the funeral and the burial of the body rests on the Executor (and in this summary we will refer to an Executor, however the same obligations fall on an Administrator or other persons appointed by a Court).
To Obtain a Grant
No one who is appointed an Executor under a will can be compelled to accept the office of Executor. He/she may renounce – but they should do so promptly, and if a person named in a will as the Executor intermeddles, then he/she may be ordered to apply to take out a Grant.
Calling in the Assets
Upon a Grant of Probate of a Will (or Grant of letters of administration in the case of an intestacy or partial intestacy, or a Grant of Administration with the Will annexed), all the real and personal estate of which the person dies is seized or possessed of or entitled to (in New South Wales), shall as from the death of such person, pass to and vest in the Executor.
Note the words “pass to and vest in”. The vesting is an actual vesting of property which entitles the Executor to administer the estate – not in the latter’s own right but on behalf of the deceased person. It will follow that the Executor cannot deal with the property other than in that capacity. Upon a Grant, title to the property vests in the Executor but relates back to the time of death. Thus acts by an Executor before a Grant are validated by the Grant, if done for the benefit of the estate.
Any real estate held by a person in trust or by way of mortgage, vests in the Executor from that person’s death, subject to the trusts and equities affecting that land.
Payment of Debts
The real and personal estate of a deceased person shall be assets in the hands of the Executor for the payment of all duties and fees and for the payment of the deceased person’s debts.
An Executor may sell or mortgage any real estate that comes into their hands without a power of sale, and convey the same to a purchaser or mortgagee in as full and effectual a manner in law as the deceased person could have done.
One of several Executors acting alone lacks power to sell the deceased person’s real estate, without the leave of the Court.
Where the estate of a deceased person is solvent, the real and personal property in the estate (subject to any charges on any species of property and any specific provision in the Will) is to be applied towards the payment and discharge of the funeral, testamentary, and administrative expenses and debts and liabilities in the following order:
- Assets disposed of by the Will, subject to the retention of a fund sufficient to meet any pecuniary legacies;
- Assets not specifically disposed of by Will but included (either by a specific or general description) in a residuary gift, subject to the retention out of such property of a fund sufficient to meet any pecuniary legacies.
- Assets specifically appropriated or disposed of by Will (either by a specific or general description) for the payment of debts.
- Assets charged with or disposed of by Will (either by specific or general description) subject to a charge for the payment of debts;
- The fund, if any, retained to meet pecuniary legacies; and
- Assets specifically disposed of by Will, according to value.
Note that the order listed applies subject to any of the specific provisions contained in the testator’s Will.
The expressions “testamentary expenses” and “administrative expenses” include the costs of obtaining a Grant; the costs of getting in the assets of the estate; costs of any litigation (for example, a Family Provision Act claim); administration proceedings, or a construction suits; and / or a claim for commission, if entitled.
Property which is subject to a secured debt, whether a legal mortgage or equitable charge (including a lien for unpaid purchase money), or land in respect of which there is a debt owing at the time of death any money under a contract or purchase, is primarily liable to bear that debt.
The Obligation to Keep Accounts
An Executor (and administrator) is always obliged to keep “proper” accounts: i.e. accounts that are unambiguous, clear, and distinct so as to provide accurate information to the beneficiaries of the estate.
What is “proper” will depend upon the circumstances of the case, that is, upon the nature and type of assets in the estate. The minimum obligation which the law imposes upon an Executor is to keep a trust account separate from other matters; ensure that particulars of receipts and payments are supported by vouchers, and which must be available for inspection; and the account must contain information as to the amount and state of the assets where the Executor is:
- a creditor of the estate;
- the guardian of a minor who is a beneficiary of the estate;
- the Executor /administrator of an estate where the whole or a substantial part of the estate passes to charity;
- a person (not being a beneficiary or substantial beneficiary of the estate) selected at random by the Court;
- a person otherwise required to do so by the Court
He/she may be required to “verify and file” or “verify, file and pass” accounts relating to the estate within such time, and from time to time and in such manner as may be fixed by the rules, or as the Court may order.
The “passing” of accounts is an important part of the process of the maintenance of accounts; if accounts are misleading or insufficient, the Court will order proper accounts to be filed.
The obligation that may be placed on an Executor (and administrator) to pass accounts is quite distinct from their obligation to keep and maintain accounts.
Section 86 of the Wills, Probate and Administration Act permits the Court to allow commission to be paid from the assets of the estate to the Executor for the latter’s “pains and trouble, as is just and reasonable.”
If the Will provides for the payment of a gift or allowance to an Executor then, absent unusual circumstances, the Court will not allow further commission to that Executor. A problem (of construction) may arise to determine whether a legacy given to an Executor excludes a right to commission. It has been held that a gift of residue to an Executor does not raise a presumption that the gift is given in consideration of that beneficiary acting as Executor.
An Executor may be disallowed commission if he neglects or omits without good reason to pass the accounts of the estate.
If a testator authorises an Executor to charge for their services, the Executor may either make such charges as they consider reasonable (i.e. pursuant to the authority), and have the amount moderated on the passing of accounts, or make no charges but apply for commission in the usual way by bringing the nature of the services rendered to the notice of the Court by Application.
If the Executor is a professional person (e.g. an accountant or solicitor) authorised by the will to charge for both professional and other services, they may charge for their professional services, moderating their bill before the Registrar and, in respect of their other services, apply for commission.
The Court will take into account when deciding what, if any, commission should be allowed to an Executor, the conduct of the Executor and the performance of their duties. It has been held that where an Executor has neglected to keep accounts, such may constitute a ground for diminishing an entitlement to commission.
In effect, a failure by an Executor to keep and maintain proper accounts constitutes a breach of their obligations.
An Executor who would otherwise be entitled to receive commission may lose some or all of that commission for breach of trust; but the authorities show that a trustee will not necessarily be denied commission merely because they have acted “irregularly”.
Distribution may be made when the assets have been called in and all the debts paid.
The Executor will then hold the net distributable estate subject, perhaps, to outstanding administration expenses and commission, for the beneficiaries named in the Will or, in the case of the administrator of an intestate estate, for those entitled to take on an intestacy.
There is a clear distinction drawn between administration and trusteeship. Sometimes the distinction is not always clear. Obviously, obtaining a Grant, collecting all the assets of the estate, and paying the debts and expenses of the estate are a necessary condition for the completion of the administration. But completing those tasks may not necessarily complete administration. For example, if there is some impediment to transferring an asset to the Executor, or those entitled thereto under the will (assuming they are sui juris), then at least so far as that asset is concerned, the duties of administration would not be completed.
It is when administration is complete, that the Executor thereafter holds as trustee for the beneficiaries of the estate. If no impediment exists to transfer title to an asset, such as land, to those who are sui juris and presently entitled under the Will, while that task might be characterised as one of the duties of administration the fact that the Executor continues to hold that asset may mean that they are holding it as constructive trustee.
If then all the other Executorial duties have been completed, except that land has not been transferred, and there is no impediment to the transfer to beneficiaries presently entitled and sui juris, the Executor becomes a trustee and is no longer able to seek an order for statutory power of sale. Before then, the Executor’s statutory power of sale must be for the “purpose of administration” “The purposes of administration” as including “payment in due course of administration of the debts, funeral and testamentary expenses,” and other related costs.