An executor usually delays the distribution of a deceased estate for a year while finalising the estate administration. Sometimes an executor gives the beneficiaries some money from the estate as an interim distribution before this time. The Supreme Court of NSW can also order an interim distribution from a deceased estate.

The rules of early distributions can be confusing. Making interim distributions can also expose the executor to personal liability.

Administering an estate

An executor is responsible for administrating an estate according to the instructions in a will. In NSW, an executor needs to wait twelve months after the testator’s death before giving out bequests. This delay allows an eligible person to challenge the validity of the will or claim against the deceased estate. The executor will also discharge any liability or debts of the estate during that time.

However, a beneficiary can ask the executor for an interim distribution under certain circumstances. A beneficiary can also apply directly to the court if the executor is unwilling to make this distribution.

What is an interim distribution?

An interim distribution is an interim or provisional payment to a beneficiary before the final distribution of the deceased estate which cannot exceed the beneficiary’s total entitlement under the Will. An executor typically makes an interim distribution because a beneficiary has an urgent need, such as insecure housing, medical bills or other pressing financial liabilities.

The executor may also need to make an interim distribution if they cannot finalise the estate within the expected period. Delays can occur because of a neglectful executor, ongoing contested Will proceedings, or the size and complexity of the estate. In that case, the executor may not finish the estate administration within one year. As a legal battle over a Will can stretch on for years, it may be appropriate to make an interim distribution. It may also be necessary if the beneficiaries were financially dependent on the testator. Without the interim distribution, the dependents may struggle to meet their living expenses.

Can an executor make interim distributions?

An executor can make interim distributions even when they have not completed their administrative duties. The conditions applying to interim distributions are set out in the Probate and Administration Act 1898 (NSW), which are that:-

1. Sec 92A(1): an executor can make an interim distribution to a beneficiary who was at least partially reliant on the deceased at the time of death. This is often the case with the deceased’s minor children;
2. Sec.s 92A(2) and 92A(3): an executor can make an interim distribution in good faith for a beneficiary’s proper support, maintenance or education.

However, making early distributions from the estate carries risks. Delaying the distribution until the end of the year protects the executor from liability if they give away property that might end up belonging to someone else. Executors must consider the wisdom of providing early access to entitlements, given the likelihood of claims against the estate. Early distribution is less risky for an executor if the estate is straightforward with no prospect of claims against it.

Should an executor make interim distributions?

Before making an interim distribution, the executor should determine whether the estate has sufficient funds to cover:-

1. all outstanding debts (including tax liabilities);
2. all pecuniary (i.e. money) bequests; and
3. the size of the final distribution of the estate less the interim distribution.

An executor who distributes an estate prematurely without accounting for these debts and bequests can be held personally liable for any shortfall due to giving out an interim distribution.

Takeaways

Beneficiaries are often impatient to receive their entitlement, and executors are usually keen to finalise their duties as quickly as possible. However, executors should cautiously approach making a possible interim distribution, as they can jeopardise the administration of the estate.

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