How Can an Executor Avoid Personal Liability when Administering an Estate

Executors are responsible for administering the estate carefully and in the proper order. If they distribute too early, delay unnecessarily, mix estate money with personal funds or fail to keep records, they may expose themselves to personal liability.

An Executor Must Not Delay Administration Tasks.

Executors should aim to substantially administer the estate within one year of the will maker’s death, often called “the executor’s year”. This is not an absolute deadline, but unreasonable delay can lead to complaints, court applications and possible personal liability.

If there are genuine reasons for delay, such as difficulty selling property, tax issues or an estate dispute, the executor should explain those reasons to the beneficiaries and keep them updated.

An Executor Must Not Distribute the Estate too Early.

Executors should not rush to distribute estate assets. Before distributing, they should consider whether the family provision claim period has expired, whether notices to creditors have been dealt with, whether debts and tax liabilities have been paid, and whether any estate dispute remains unresolved.

If an executor distributes too early and a creditor, the ATO or a successful claimant later needs to be paid, the executor may have to cover the shortfall personally if estate funds are no longer available.

An Executor Should Never Mix Estate Funds with Personal Funds.

Estate money should be kept separate from the executor’s personal money. Funds should generally be held in an estate account, trust account or solicitor’s trust account, not in an account containing the executor’s own funds.

Executors should not use estate funds as a temporary loan, pay personal expenses from the estate, receive sale proceeds or rent into a personal account, or reimburse themselves for estate expenses paid out of their personal funds without receipts and proper records.

An Executor Must Keep Proper Records.

Executors must be able to account for how they have administered the estate. Beneficiaries may request estate accounts and, if accounts are not provided, the court may order the executor to provide them.

Records should include an inventory of assets and liabilities, valuations, bank statements, receipts, invoices, payments to creditors and beneficiaries, sale contracts, tax documents and distribution statements showing how each entitlement was calculated.

An Executor Should Invest Estate Funds Where Appropriate.

If there will be a significant delay before distribution, it may be prudent to invest estate funds appropriately. This is particularly relevant if a beneficiary is entitled to a specific cash gift, as interest may become payable if payment is delayed beyond the executor’s year.

Solicitors’ trust accounts do not generally earn interest, so executors should seek advice about whether funds should be transferred to an estate account and invested until they can be distributed.

Executors Should Obtain Legal Advice from an Experienced Lawyer before Distributing Estate Assets.

Administering an estate can be complex, especially where there are creditors, tax issues, family provision risks, delays or disagreement between beneficiaries. Executors should obtain legal advice before distributing estate funds or assets so they understand their duties and reduce the risk of personal liability.

O’Shea Dyer Solicitors can assist with as much or as little of the estate administration as you need. We offer a low fixed fee First Appointment of $330 including GST for estate enquiries, giving you the opportunity to speak with an experienced lawyer about the issues and laws that apply.