When creating a Will, a person must elect an executor to administer their estate when they pass away. If you are asked to take on the role of executor under someone’s Will, it is something to carefully consider. An executor must undertake legal and administrative processes during what is often an emotional time, and also take on a degree of personal liability.
We have observed that executors are often not aware of the personal liability that comes with the administration of a deceased estate. By understanding your responsibilities as an executor, you can make an informed decision to accept or decline this role.
Responsibilities of an Executor
Executors have several responsibilities as the legal personal representative when acting in the administration of the estate of a deceased person. On a high-level overview, these are as follows:
- Taking steps to identity and protect the deceased’s assets;
- Paying any liabilities either owed by the deceased, or are incurred when administering the estate; and
- Distributing the estate in accordance with the terms of the Will or, in the absence of a Will, in accordance with the rules of intestacy or by Court Orders.
In our experience, it is common for executors to be unaware of their responsibilities when it comes to the liabilities of the estate.
Dealing with Liabilities
The liabilities of an estate generally fall under two categories:
- Liabilities owed by the deceased at the time of their passing; and
- Liabilities incurred in administration of the estate (typically fees for legal or financial advice, or for the ongoing maintenance of real estate such as council rates, water and mortgage repayments).
An executor is liable to pay the debts owed by the deceased from the assets of the estate, including any taxation liabilities. The executor is not personally liable for these debts in most cases; however, there are some exceptions to this rule.
If there are insufficient assets to discharge the liabilities, then the estate will be administered in bankruptcy. In this case, payment of expenses will be made as per the priority order outlined in the Succession Act 1981 (Qld).
That said, there are some liabilities that are personal liabilities of an executor.
An Executor’s Personal Liability
An executor is personally responsible for any liabilities incurred in the course of administering the estate. However, the executor is indemnified from the deceased’s estate if the debts were properly incurred. That is, the executor is entitled to a reimbursement of reasonable expenses involved with administering the estate – for example, reasonable legal and financial advice obtained in respect to the administration of the estate.
An executor is also personally liable beyond the assets of the estate in some instances. For example, where:
- an executor pursues activities which result in the estate becoming insolvent; or
- an executor distributes the assets of the estate after being provided with notice containing an undisputed debt.
As such, it is important that all liabilities incurred in the administration of an estate are adequately accounted for.
In addition to this, there are circumstances in which the ATO will hold the executor liable for outstanding taxation liabilities. To avoid this liability executors must ensure that all taxation matters are attended to, including those relating to:
- The deceased personally – including income tax returns or superannuation obligations; and
- The estate – including taxation returns of the estate, any transfer duty or capital gains tax liabilities from the disposal or transfer of assets dealing with any entity interests, or the corresponding taxation implications of the estate in relation to winding up of companies or dissolution of partnership or business, like the assessable income of the estate.
What You Should Do
Depending on the complexity of the estate, an executor’s role can be difficult and come with a significant risk of personal liability. To ensure you discharge your duties as an executor to the full extent, particularly if you are uncertain of your responsibilities, engage the assistance of an experienced estate administration lawyer.
Contact our Succession Planning Team to find out more or to discuss your circumstances.