Executors must be cautious when distributing estate assets, especially within the first six to twelve months following the deceased’s death.

What are the legal requirements and risks of distribution?

Distributing the assets of a deceased estate within a reasonable time is one of the executor’s primary responsibilities. However, this is accompanied by significant risks, particularly if there is unwarranted delay in making distributions or they are made prematurely. Understanding the legal requirements and potential pitfalls helps the executor avoid becoming involved in disputes and incurring personal liability.

General principles

In addition to obtaining a grant of probate or letters of administration (where required), executors or administrators must settle all debts and liabilities of the estate. This includes funeral expenses, outstanding taxes incurred by the deceased or during estate administration, and any other debts the deceased had.

One of the most critical considerations are potential family provision applications. These claims are made by eligible persons (including children, spouses, or financial dependents) who believe they have not been adequately provided for in the Will. It is crucial that executors are aware of the statutory time limit for these claims.

Family Provision applications

Family provision applications must be filed within twelve months of the deceased’s death. Executors must also publish a notice of their intention to distribute the estate, allowing creditors and other interested parties to notify executors of a potential claim, or any outstanding liabilities. Distributing the estate before these requirements are met can expose executors to personal liability.

What are the risks of an early distribution?

Distributing an estate prematurely can have severe consequences. Executors who distribute assets before the statutory time limits may be required to personally repay any amounts needed to satisfy successful claims or to pay legitimate liabilities that they were aware of. This risk is particularly high in cases where family provision claims are likely.

Can an executor be compelled to make an interim distribution?

While executors are generally not obligated to make distributions before completing the administration of an estate, beneficiaries can compel an interim distribution when the administration is delayed due to complex affairs or legal proceedings.

In Gonzales v Claridades (2003) 58 NSWLR 188, the court determined that an executor might have a duty to make an interim distribution if:

• There are assets that can be distributed according to the Will or intestacy rules.
• There is no realistic prospect that the distribution could be affected by unresolved administrative tasks; and
• The remaining administrative tasks are unlikely to be completed soon.

In Angius v Salier [2018] NSWSC 995, the deceased left a significant estate. Her daughter initiated family provision proceedings and her former husband commenced separate proceedings to enforce a separation agreement. Acs a consequence, the estate’s administrator was unable to make substantial distributions. The deceased’s son, the sole beneficiary under the Will, applied for an interim distribution of $1 million, largely to cover medical costs.

The court took a conservative and cautious approach towards the son’s application, emphasising that sufficient funds needed to remain in the estate to satisfy the maximum potential claims of the deceased’s former husband and her daughter. Ultimately, the Court authorised the interim distribution, finding that if the distribution was made the unresolved claims could still be met.

Takeaways

To mitigate these risks, an executor should:

1. Pay Liabilities: Executors should ensure that all of the deceased’s legitimate debts or debts incurred during estate administration are paid before any distribution;
2. Tax Returns: Executors should before distribution engage an accountant to prepare tax returns for the deceased and the estate and ensure that any tax liabilities are paid;
3. Wait for statutory periods to lapse: Executors should ensure that the twelve-month period for FPAs has passed before distributing;
4. Publish notices: Executors must carefully follow the legal requirements for publishing a notice of intent to distribute the estate.
5. Consider if interim distributions are appropriate: while executors have the right to take the time required to administer the estate properly, they must also consider beneficiaries’ needs. Delays in distribution can cause beneficiaries financial hardship and frustration, particularly if they have immediate needs. Executors should communicate transparently with beneficiaries about the status of the estate and any potential delays.

Following these guidelines will help an executor to minimise the risk of personal liability and distribute the estate efficiently and fairly.

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