ONE definition of a pitfall is “a covered pit for use as a trap”. Although the inference of setting traps does not sit well with estate law, there are indeed traps awaiting the unwary executor.
An executor has legal responsibility in the administration of a deceased person’s estate to preserve and collect assets, pay debts, resolve claims against the estate and then carry out the testator’s wishes in accordance with the will.
If executors fail in the proper performance of their duties, serious consequences will follow.
When choosing an executor, look beyond favourite children and friends and consider the person who would best manage the administration of the estate.
An executor requires skills to not only manage the assets but also to communicate with beneficiaries, the lawyer acting for the estate, asset-holders and other stakeholders.
The primary qualification is to be reliable and honest. Proper estate management also includes completing the administration of the estate efficiently and without delay.
In many cases, multiple executors are appointed. When they are unable to work together, an application may be made to remove one or all of them and appoint an independent administrator.
Litigation is an option when executors wish to resolve disputes. It does have disadvantages, for example, it may divide families and reduce the asset pool of the estate.
Other options include seeking judicial advice which may be advising whether or not the executor is justified in taking a particular action. The executor is protected from liability by following the advice given.
If seeking judicial advice, be aware that the court is not an arbiter of the terms of a commercial contract but will consider whether the executor has the power to enter into such a transaction.
An executor is required to lodge tax returns for the deceased up to the date of death and for the estate from the date of death. It is recommended that executors seek specific tax advice from an accountant or tax advisor.
When no tax returns are required to be lodged, an executor should notify the Commissioner of Taxation accordingly.
Part of the executor’s role is to pay for estate liabilities and those incurred in the administration of an estate.
Prior to distributing any monies to beneficiaries, executors should ensure that there are sufficient funds in an estate to meet its liabilities and expenses, or they may be personally liable.
If an executor has not distributed an estate within 12 months of the date of death, then a beneficiary of a legacy (a gift of money), may claim interest on the unpaid legacy until it is paid in full.
In Queensland, the rate is 8 per cent unless otherwise determined by the Court.
Estates are commonly administered without difficulty. A number of pitfalls could be avoided if a testator and legal adviser give careful consideration to the most appropriate person to be an executor, bearing in mind the duties and relationships among beneficiaries.