Podcast: Legal principles underpinning an Executor’s role

Welcome to the iWills Legal Executive Insights and Case Studies podcast series. In each episode, we’ll walk you through the responsibilities of an executor, highlight common traps and pitfalls, and share practical tips and real case studies. Our goal is to equip you with the knowledge and tools you need to confidently carry out your role.

Rob Patterson: Welcome to iWills Legal Executives Insights podcast series. I’m Rob Patterson and joining me today on the podcast are Teresa Catalano, Managing Principal iWills Legal and Accredited Specialist in Wills and Estates, and Arianna Kim, Senior Associate of iWills Legal. Welcome. Teresa and Arianna.

Can you both provide my listeners with a brief outline of your backgrounds? We’ll kick off with Teresa first.

Teresa Catalano: Thanks Rob. So I started iWill’s Legal seven years ago. I’m an Accredited Specialist in Wills and Estates Law in Victoria. I was previously heading up a team at a top tier legal firm in the area of Wills and Estates and we help people in the area of estate planning, estate administration, and estate litigation. Cool, cool.

Rob: Thank you. Arianna? Hi everyone. This is Arianna, a Senior Associate at iWills Legal.

Arianna Kim: I started iWills Legal about a year and seven months ago and I’ve been predominantly practicing in Wills and Estates for seven years and I’ve recently completed my Master’s Degrees in Wills and Estates at the College of Law. Tremendous. Okay, well we’ve got two very qualified people to help us today.

Rob: All right, so the podcast series is designed to provide an insight into the responsibility of executors, highlight common traps and pitfalls, and share some practical tips. In this first episode we’ll be looking at key legal principles underpinning an executor’s role. So first question for you Teresa, what is an executor and how is this role distinct from that of an attorney or a beneficiary? It’s a good question Rob and often these two roles can absolutely be confused.

Teresa: So just to break it down, an executor comes into play when someone has died and they are the person that has been appointed in a will to carry out the wishes of the person who has passed away. Their role isn’t about doing what they personally think is best but their job rather is to make sure that the will is followed according to the terms of that deceased person’s will and where the terms of the will are insufficient then in accordance with what the law provides. Now it’s important to understand how this role is different from that of an attorney and that of a beneficiary.

So an executor’s powers only begin once the willmaker has passed away, whereas an attorney on the other hand, their powers are effective only while the person is still alive and they in fact seize when the person has died and that’s when the executor under a will comes into play. So to give you an example of this, under an enduring power of attorney, an attorney can manage someone’s financial or personal affairs during the lifetime of the person based on the commencement provisions of such document, for example when a person has lost capacity or immediately on the signing of such document. However, that authority, as I said before, then ends upon that person’s passing.

And then another example or another contrast is a beneficiary and what a beneficiary’s role is. And a beneficiary is someone named in the will to receive an inheritance. And often beneficiaries are also appointed as executors and also as attorneys actually under an enduring power of attorney while someone is still alive, but they don’t, since they already have an interest in making sure the process is handled properly, it can actually make sense to put them in that executorial or attorney role as well.

But being a beneficiary though doesn’t automatically make you an executor and they are legally distinct roles.

Rob: Okay, thank you. All right, so great start.

So now we’ve got an idea as to what an executor is. Arianna, can you lay out some of the key legal principles that apply to an executor?

Arianna: Yes, of course. So basically there are four key duties every executor needs to keep in mind.

So the first duty is to act in good faith. So an executor must always act in the best interest of the estate and the beneficiaries as a whole. This means that making decisions fairly, honestly, and without favouring one beneficiary over another.

The second duty is to follow the will and of course the law as well. So even if the executor personally disagrees with what’s written in the will, their responsibility is to carry out the actual terms in the will as long as it’s valid. The only exceptions are if a claim is brought against the estate, for example, or if there is a construction issue where the wording of the will needs clarification or rectification by the court.

So these are the exceptions. Thirdly, the duty to account and be transparent. So basically executors need to keep clear and accurate records of all money coming in and out of the estate.

So if a beneficiary, for example, asks for a copy of the account, the executor must be able to provide it. So transparency is critical in building trust during often a very sensitive process. Finally, the duty to act promptly by the executor.

So basically this means that executors, they can’t drag their feet. So the administration and distribution of the estate needs to be handled without unnecessary delays. Often there is a concept called the executor ear, which essentially means that creditors, tax obligations and beneficiaries are all sort of expecting the process to be wrapped up within 12 months unless there is a good reason for delay.

So in short, the executors must act in good faith, follow the will, be transparent and move things along quickly. Yeah, these are the cornerstones of an executor’s legal duties. Thank you.

Rob: That’s a really good overview. So now we know what an executor is. We know what the legal principles are.

Teresa, can you lay out for listeners perhaps what an executor actually do day to day?

Teresa: Sure. Look, Rob, there’s no hard and fast rule about what executors do day to day and it can depend on many factors, including, you know, the complexity of that deceased person’s estate, you know, the quantum, the size of their estate and, you know, the beneficiaries involved and who they’re dealing with. But just to give a guide to the listeners today, these are some of the day to day duties that an executor would carry out.

Obviously, they are entrusted with the role of locating the will, arranging the funeral. In some circumstances, the executor will need to apply for probate to actually get rubber stamped in that role as the executor. But essentially, that probate process is the court’s formal way of approving that person as the executor of that deceased person’s will and sanctioning their authority.

But in many smaller states, you don’t need a grant of probate. And to give you an example, in Victoria, you only need a grant where there’s an interest in land, in real property, partly solely owned by the deceased person, or if there is a refundable accommodation bond due from an accommodation facility, or there are bank accounts, which cumulatively are usually less than $50,000, some even less, depends on that particular financial institution’s requirements. But having probate can actually protect an executor from personal liability when things can go wrong, so it’s not a bad idea.

In terms of who the executors should contact, they should contact financial institutions of the deceased person, such as that person’s, you know, any banks they might have held accounts with, the accountant, any super funds, government institutions such as myGov, Medicare, the Australian Tax Office, the Australian Electoral Commission, Ambulance Victoria, Seniors Card where it’s applicable, VicRoads and Centrelink. Also, the utilities and service providers such as gas, water, electricity, phone and internet, insurance providers, home and contents, car, private health and life insurance, other subscriptions such as social media and email account providers. So in essence, the executor’s role is also to ascertain the assets and liabilities of the deceased and to collect, pull in, sell any assets such as bank accounts, property, shares, personal items, obviously in accordance with what that will dictates and provides.

They also are to lodge the last tax return for the deceased where applicable and then any estate’s tax return moving forward depending on the income that might be derived by the on the investment of the estate assets, to pay any debts of the deceased including tax, loans and expenses, to distribute the estate to the beneficiaries again in accordance with what that will provide subject to any claim and to where it might eventuate to defend any claim by a creditor on the estate or a claim pursuant to family provision. So in other words, that’s where someone might contest the will. So it’s a pretty big and responsible role and I think that it’s important for the listeners to understand that the executors are essentially people that you trust to make decisions and hopefully to make appropriate considered decisions in this role but they’re not left necessarily to their own devices.

They can engage accountants, financial advisors, investment advisors and lawyers to assist them in this role and those fees are payable from the deceased person’s estate.

Rob: Okay, well there’s a fair bit on the executor’s plate day-to-day. Just a quickie and off the script, what happens if you can’t locate the will or how? Is there often difficulty in locating the last will?

Teresa: Yes, Rob, that’s a very prominent issue that we and no doubt other wills and estates lawyers face daily.

So there is no central register and there’s no requirement to register your will anywhere. So often people don’t know where that deceased person’s will is or if there was a will done later in time that may have revoked or superseded an earlier will. So we often go through a process of asking clients to obviously check in the deceased person’s home where applicable and in any safe they might have filing cabinets etc, with their accountant because often they have that trusted loyal relationship with the accountant they may know or any financial advisor.

If they had any legal relationships to check with those lawyers, other family members may know. Otherwise we can do an advertisement to the world at large and put it in various media publications to say does anyone know about the whereabouts of the will and if not you may then need to actually just assume that that person died without a will or without a valid will and then proceed to obtain a grant on intestacy and that’s where depending on which state or territory that person was considered to be domiciled at the time of their death, different laws apply in each state and territory as to the distribution of that person’s estate. And again if a will is then found after that grant is made on the basis that there was no will, that can also always be brought to the attention of the court at a later date but that can have implications as you can appreciate Rob, especially if the estate’s already been distributed in accordance with that government formula or subject to any claim that might have been brought on the estate.

So yeah, it is quite concerning. I mean they do talk about introducing these national will registers but yeah, I don’t see it happening at this stage.

Rob: All right, so an executive better make sure they’ve got the latest version of the will.

Arianna, what other types of challenges do executors commonly face?

Arianna: Yes, of course. So as you can say, being an executor can be an honour but it’s also a very heavy legal responsibility. So for example, executors are caught in the middle of family disputes as you can imagine and on clear wills or even claims against the estate such as a testator’s family maintenance claim.

And also what many people don’t realise is that executors don’t automatically get paid for their work. So unless the will specifically allows for such remuneration or the court approves the commission, the executor’s role is essentially unpaid. And also if the estate is mismanaged by the executor, then as you can see, the executors can be personally liable for any financial loss incurred by the estate.

Rob: Oh wow, okay. So yeah, it’s quite an onerous task and it’s also maybe unpaid. So goodness.

Okay, so part of this series is we’re looking to provide some practical guidance for executors. So what I’d like to now do is turn our attention to a couple of case studies that perhaps illustrate the everyday aspects of the executor’s role.

Theresa, our first case study involves an executor who got caught in the middle of a family dispute. Can you explain a bit further? Thanks.

Teresa: Sure, Rob. So this particular case involved an executor who was not blood-related to the deceased person who arranged the funeral for the deceased, but the beneficiaries later claimed that the costs of the funeral were excessive in nature. They even demanded that the, or the beneficiaries that is, even demanded that the executor personally pay for half of those funeral costs rather than the estate wearing those costs.

Now, the law says an executor is responsible for arranging the funeral, as you heard me talking about before, and the estate usually therefore covers that expense and there’s no requirement, obviously, on the executor needing to personally cover it. However, in the absence of any direction in the will enabling certain expenses, and more often than not, Rob, these funeral clauses contained in wills are quite poor if they’re even there, to be honest, because sometimes they’re not there. But if they are in the will, they’re quite general and generic in nature, so they’re not very prescriptive or helpful sometimes.

But in the absence of any direction in the will enabling certain expenses, the costs must be reasonable and proportionate to the circumstances of the particular deceased and with consideration of the estate’s beneficiaries’ needs as a whole. So that needs to be considered by the executor in sort of determining what sort of financial outlay they’re going to incur for that or in arranging that person’s funeral and associated expenses. And if the executor had been properly advised at that time about what the law considered to be a reasonable funeral expense, the dispute could have then been avoided.

So often, unfortunately, executors or family members are arranging a person’s funeral prior to getting any form of legal advice or support, and it can sometimes mean then that they weren’t aware of these particular nuances and might then be personally liable.

Rob: Oh wow. So is there any guide in, is there a monetary guide or is it just sort of what’s reasonable in the circumstances?

Teresa: Yeah, unfortunately, there’s no fixed sort of monetary guide or prescriptive formula, just really based on the facts of that particular matter.

Like I guess if, just to use another example, if someone was quite high profile and there was a certain expectation that a certain amount of people would attend the funeral and that their funeral would be dictated or presented in a certain way, I guess, and including any weight that might occur after the funeral, then that might warrant or justify more considerable expenses. However, in the average case, if the estate was quite small and the person didn’t have a high profile, then you would have to tread with caution and be more modest in the funeral that was arranged. So it is quite difficult and quite discretionary, unfortunately.

Rob: Cool, cool. All right. We’ll move on to another case study.

Arianna, I understand that a common pitfall for executors is distributing the estate too quickly. Can you provide an example of this?

Arianna: Yeah, of course. So in Victoria, executors are usually advised to defer distribution of the estate for six months.

This is because during this time, an eligible claimant can come forward for seeking further provision from the estate. So in this case, it’s just so unfortunate that just a week later, the executor was served with a notice of claim from the diseased, alleged defector partner who was seeking further provision from the estate. So as you can imagine, by that point, the beneficiaries had already got their inheritance, unfortunately, and that left the executor personally exposed, meaning the executor can now be forced to pay the claim out of his own pocket if the defector partner was successful.

This is why it is so critical that the executors have to wait for at least six months after the grant of probate before making any forms of distribution, including interim. Yeah.

Rob: Okay, and is there any maximum time within which they have to distribute the funds, or might it be prudent just to wait a little bit longer?

Arianna: Yeah. So as I have briefly covered, we’ve got that executory of 12 months. So executors, they are usually expected to distribute the funds within that executory hour. However, depending on how far they have ascertained the liabilities of the estate and what have you, it can take more than 12 months in practice.

Rob: I imagine there’s probably a little bit of pressure from the beneficiaries to get it rather than later, but yeah.

Arianna: Yes, yes, of course. Yeah.

Rob: All right. Well, I think we’ve given a pretty good overview of who an executor is, what their responsibilities are, some of the pitfalls, and some really good case studies.

So that wraps up our podcast for this month.

Our next podcast will deal with a sudden, unexpected death, and we’ll be joined by an executor who will run through some of the challenges that they experienced, including an operating business.

Please ensure you follow iWills on your favourite platform so you don’t miss an episode. Thank you so much for listening.

Thank you, Teresa. Thank you, Arianna.

Teresa & Arianna: Thank you, Rob.

Rob: See you next month.