It takes a quick thinking and a time-rich person to properly discharge all the obligations of being an executor. Accountants are often tasked to fill this role but it comes with risks. Here’s why.
By Katerina Peiros TEP and Ian Raspin FCPA
In the late 1800s, high society New Yorker Ward McAllister said: “A dinner invitation, once accepted, is a sacred obligation. If you die before the dinner takes place, your executor must attend.”
His words ring true even today, because when a will-maker dies, the executor must administer the estate in accordance with their powers, rights, duties and obligations deriving from common law, statute, the will itself and common sense.
Immediately on death
Key responsibilities include familiarisation with the terms of the will and organising a funeral for the deceased. If another party becomes involved, there are core risks, as an executor is personally liable for everything that party does in the executor’s name.
An executor must promptly secure the deceased’s assets and ensure all the deceased’s contractual and legal obligations are complied with. This could be as straight-forward as notifying the house and contents insurer that the policyholder has died, securing all locks and redirecting mail.
On the other hand, it could involve overseeing the sale of a property, relocating pets, keeping a business open, cancelling flights, adjourning imminent court hearings, along with a plethora of other matters.
The funeral itself
The difficulties involved can be compounded by a lack of transparency in the general funeral sector.
Recent research into the death-care and funeral industry in Australia by University of Sydney Business School and supported by CPA Australia, titled “It’s Your Funeral”, reveals that the funeral industry is currently worth around $1 billion.
However, like a number of previous studies and inquiries into the sector, it concludes there is a real need for increased scrutiny and information about the goods and services it provides.
“It is a topic of social and regulatory significance,” the study states. “Transparency in pricing is required.”
Indeed, it found that in 2016 the average price for a basic funeral in NSW was $5758, which represents an increase of nearly $1000 – or approximately 21 per cent – since 2009.
Further, it notes that the legislative environment of the funeral industry in Australia is fragmented and primarily limited to regulations that govern transport and disposal and financial products. Therefore, most aspects of death-care exist in an unregulated environment and provide an opportunity for both predatory pricing and marketing by operators.
After the funeral
Before a formal death certificate is issued, the executor must ascertain the deceased’s assets and liabilities. Given these may include multiple bank accounts, interest, annuity, real estate, motor vehicles, personal chattels, shareholdings, insurances, superannuation and so in different jurisdictions, it can be a tedious task.
Only Australian real estate and private shares can be identified from registers. In identifying assets, regard must also be made to equitable and trust principles, not just legal ownership.
Any debts owing to the deceased are estate assets and the executor is obligated to recover them. Conversely, in instances where the deceased was a joint borrower, the estate remains liable.
After that, an executor has to decide whether the estate is solvent or insolvent, which in itself may not be straight-forward as certain assets such as jointly-held property, superannuation and life insurance may not form part of the estate. Superannuation and life insurance, even if they are part of the estate, may not be available to settle debts.
If an estate is insolvent, the executor may choose to administer it in accordance with the Bankruptcy Act 1966 (Cth).
The executor should fully understand the will and identify the needs and entitlements of beneficiaries, especially if they are minors, mentally incapable, bankrupt, non-resident, or financial dependents.
On receipt of the death certificate
Once a death certificate is issued, the executor should promptly file the probate application which, essentially, must satisfy the court that the will-maker has died, the will is the last valid will and the executor is capable of discharging their duties. However, probate is not always required, depending on the nature of assets and debts.
The executor needs to disclose to the court all documents which may be testamentary and seek the court’s ruling on what forms the will. Testamentary documents can include emails, text messages, video recordings, computer files, and the like.
It is not unusual for an application to be contested or for the court to raise requisitions. These can relate to a deceased’s testamentary capacity, the will-making process, and will’s validity. Such matters may be resolved by affidavit, mediation or court hearing.
Grant of probate
A grant of probate entrenches the executor’s authority and protects those transacting with the executor. From this point, the executor must swiftly and smartly collect the assets, pay the debts and prepare the estate for distribution in accordance with the will.
While this might be as simple as closing bank accounts, redeeming a nursing home bond or placing public shares in the name of the executor, it could just as well entail preparing a property or business for sale, negotiating with third parties, attending auctions, claiming insurance benefits, taking appointment as trustee or director of a self-managed super fund or trust, and so on.
Notably, all online subscriptions and activity needs to be cancelled, including eBay, PayPal, Facebook and other accounts.
Further, authorities such as Medicare, the Australian Taxation Office and all licensing bodies need to be informed. The executor also has responsibility to ensure the deceased’s spouses and minor or dependent children are provided for.
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Terms of the will
If there is any ambiguity in a will, the executor may need to bring a construction application about its meaning. Common cases involve identifying the correct recipient of a gift – for example, does “children” include step-children? – and interpreting otherwise unclear clauses.
Although jurisdictional timeframes differ, creditors and dissatisfied beneficiaries have set periods to state their case after death or probate.
The executor must act in the best interests of beneficiaries, so on one hand needs to defend the estate and uphold the terms of the will, while on the other giving claimants opportunity to present and settle their case.
Although only a small percentage of wills are contested, the cases with an independent executor are the most likely candidates because independent or professional executors are appointed where the will-maker cannot appoint a close associate.
If the dispute is expected to be protracted, the executor must invest the estate in order to comply with the duty to maximise it.
The executor must take professional advice in all aspects of estate management, where an answer is not clear, the executor may seek judicial advice which will protect him on that question.
Distributing the estate
After the claims period and having collected or liquidated assets and paid any debts (including tax returns), the executor can distribute the estate in accordance with the will or as varied by the court or beneficiaries. Throughout administration, the executor has an ongoing duty to communicate and cooperate with beneficiaries, while remaining independent.
All assets are distributed at net – rather than market – value. In compliance with the duty to maximise the estate, distributions must be optimally tax-effective with a view to asset and beneficiary tax statuses, bearing in mind also that assets such as rare collections, unusual real estate and some niche businesses are difficult to dispose of.
Having completed all of the above, the executor may seek a release and an indemnity from beneficiaries to protect themselves from future claims. Beneficiaries are not obliged to provide it.
Generally speaking, the rule is that an executor has a right of indemnity from estate assets for expenses incurred on behalf of the estate but that right is lost if the executor acts improperly or in bad faith.
One imagines that having been completed an estate administration involving this level of work and care, the executor would be discharged. Alas, an executor remains liable till the end of time.
Shortcomings, shortfalls, missed payments, incorrect distributions or innocent mistakes may become a personal liability of the executor.
Recently, an executor misunderstood the terms of a will and distributed a deceased beneficiary’s share to an unintended person. The executor sued that person for return of the distribution, and following a successful mediation the person repaid 48 per cent. The executor had to pay the balance to the correct beneficiary from his own pocket.
It is not unusual for executors to spend 20-to-30 hours a week over the first three-to-four months after a death administering a standard estate, then another 10-to-15 hours a week over the following three-to-six months.
Clearly, if executorship is not their main vocation, it can have a serious impact on one’s professional livelihood.
In addition to the high degree of diligence, skill and time investment, executors must be kind, respectful, empathetic, good managers and leaders in order to duly and promptly administer the estate.
Katerina Peiros TEP is the founder of Hartwell Legal and Ian Raspin FCPA, TEP is the Director of Estates and Trusts at BNR Partners. Peiros is an accredited Wills and Estates Specialist and runs a specialist practice in this area. Raspin specialises in the taxation of deceased estates and trusts, working with both trustee companies and legal practitioners. Both Peiros and Raspin are published authors in this space.
When accountants cross the line to wills and estates