Acting as Executor: Risks and Considerations
When someone appoints an executor in their will, they are appointing someone who is to be responsible for the “administration” of the willmaker’s estate upon their death. This role usually includes paying the debts of the estate and distributing the assets in accordance with the will.
An administrator has the same job as the executor, except this term is used when the deceased did not leave behind a will.
Whether acting as executor or administrator, doing so can be a complex and time-consuming task, and it is not something to be taken lightly. When a person takes on either role, they have certain obligations and open themselves up to risk, even where there is no risk of challenge to the will. This article will go over some of the risks of taking on the role so that anyone who is appointed is aware of them and knows how to mitigate them.
Challenges to the will
If someone believes that the deceased’s will is not valid or that it does not accurately reflect their wishes, that person may contest the will in court. As an executor, you may be called upon to defend the will and prove its validity. This can be a time-consuming and costly process, and it may result in delays in the distribution of the estate assets.
There are several grounds on which a will can be challenged in Queensland, including lack of capacity, undue influence, fraud or that the will was not validly executed. To defend against a challenge to the will, you may need to provide evidence that the deceased had the mental capacity to make a will, that they understood the nature and extent of their assets and the effect of the will, or that they were not influenced by anyone else to make their will in a specific way.
A challenge to the will can be brought by anyone with an interest in the estate, including beneficiaries, creditors, and dependents. If the challenge is successful, the will may be declared invalid, and the estate will be distributed according to the rules of intestacy. Read more about the rules of intestacy in our FAQ question: “What happens if I die without a will?”.
Conflicts of interest
As an executor or administrator, you are expected to act in the best interests of the estate and its beneficiaries. However, if you are also a beneficiary, you may be faced with a conflict of interest. In such cases, it is important to disclose the conflict and seek legal advice to ensure that you are properly fulfilling your duties as an executor.
For example, if you are a beneficiary of the will and you also have control over the distribution of the assets, other beneficiaries may fear that you become tempted to favour your own interests over their interests. This could lead to resentment and disputes among the beneficiaries, and it may even result in a challenge to the will.
Taxation
Executors are also responsible for paying any taxes that are owned by the estate. This includes income tax and capital gains tax. The executor is also responsible for filing the necessary tax returns and paying any taxes that are due. If a tax return does not need to be lodged, the executor should notify the Australian Taxation Office.
If an executor fails to pay the taxes, they may be held personally liable for any penalties and interest that are incurred.
The tax treatment of the assets of the estate depends on their nature and the circumstances of the deceased. For example, if the deceased owned a business, the business assets may be subject to capital gains tax when they are sold. If the deceased owned rental properties, the rental income may be subject to income tax. It is the responsibility of the executor to determine the tax treatment of the assets and to pay any taxes that are due.
Debts
The executor is responsible for paying any debts owed by the estate. This includes any outstanding bills, mortgages, loans, and taxes. The executor has a legal obligation to pay the debts of the estate before distributing assets to the beneficiaries.
The executor has several options for paying the debts of the estate. They may use the assets of the estate to pay the debts, or they may need to sell assets to generate the necessary funds.
Timeliness
If the beneficiaries believe that you are not fulfilling your duties as an executor in a timely manner, they may apply to the court for an order requiring you to take certain actions or to provide an explanation for the delay. If the court determines that you have failed to fulfil your duties as an executor, you may be required to pay any damages or costs that result from the delay, including the payment of interest on any unpaid gifts.
If the creditors of the estate believe that you are not paying the debts of the estate in a timely manner, they may take legal action to recover the debts. If the court determines that you have failed to pay the debts of the estate, you may be personally liable for the debts.
Personal Liability
If you make a mistake or are negligent in your duties, you may be held personally liable for any losses or damages suffered by the estate or the beneficiaries.
For example, if you fail to pay the deceased's taxes on time, you may be held personally responsible for the resulting penalties and interest. If you distribute the assets of the estate to the wrong beneficiaries or in the wrong amounts, you may be required to reimburse the estate or the correct beneficiaries for any losses.
You may also be held personally liable for any legal issues arising from your actions as an executor. For example, if you fail to properly distribute the deceased's assets and this leads to a dispute among the beneficiaries, you may be held liable for the legal costs and damages associated with the dispute.
The best way to mitigate these risks is to seek legal advice before accepting the role of executor. A lawyer can help you understand your duties and responsibilities and provide guidance on how to fulfil them. It is also a good idea to seek the advice of a financial professional, such as an accountant or financial planner, to ensure that the estate's assets are managed and distributed in a tax-efficient manner. For customised and experienced advice on how best to administer an estate, book a consultation with Direct Lawyers today.