Duties of an Executor

Careful consideration should be given by a layperson prior to agreeing to act as executor to an estate. They will have onerous and time consuming responsibilities that include:

Locating the will
Assuming the responsibilities of administration
Identifying the assets
Application for the Grant of Probate or Letters of Administration
Transmission of assets
Management of the assets
Defending the will
Tax
Distributions
Administration of trusts

 

Locating the will

As a professional trustee company, Equity Trustees has established internal systems for identifying when someone whose will we hold dies. Often though, we become aware that someone has died who has appointed us as executor when we are notified by the family or friends of the deceased.

Where people have not left their will in the custody of an appropriate professional, or in the care of a trusted family member or friend, locating the will may depend upon relatives or other person finding the will amongst the deceased’s personal possessions.

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Assuming the responsibilities of administration

Executors have the discretion to pay funeral expenses (if funds permit) and have a limited power to pay creditors and receive money for the purposes of protecting the estate prior to the Grant of Probate. If there is no will, or if there is no executor appointed by the will willing or able to act, then the next of kin may apply to act or apply to appoint a professional trustee company to act.

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Identifying the assets

The executor/administrator commences to identify and confirm the assets of the deceased in preparation for obtaining the Supreme Court’s authority to distribute the estate.

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Application for the Grant of Probate or Letters of Administration

Administrators require the permission of the Supreme Court to administer the estate of a deceased. This is called a Grant of Letters of Administration. Executors require the Court’s ratification of their appointment. This is called a Grant of Probate.

The legal personal representative is required to place a notice in a daily newspaper giving 14 clear days notice of their intention to apply for a Grant.

Unless there is a dispute as to the authenticity or legal effect of a will, the application is comparatively straight forward, and is dealt with by the Court on the basis of document provided to it (including a Notice of Motion, affidavit of Executors with a Statement of Assets and Liabilities of the estate, and an Affidavit of Publication and Searches), rather than requiring a Court hearing.

In cases without any complications there is usually a period of six to eight weeks between the date of death and the Grant of Probate (or Letters of Administration).

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Transmission of assets

Once Probate or Letters of Administration are granted, the assets of the deceased may be transmitted into the legal custody of the legal representative to be managed by them for the purposes of the administration of the estate.

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Management of the assets

There is a six month statutory holding period following the Grant of Probate or Letters of Administration during which claims may be made against the estate.

During this period the legal personal representatives are required to advertise in newspapers and the Government Gazette calling for creditors having claims against the estate to give notice of the claim within two months. If notice is given of a claim by a creditor, and the estate disputes that claim, the legal personal representative is required to advise the creditor they have three months within which to commence proceedings against the estate.

Other claims against the estate (such as claims by people who challenge the ownership of assets by the deceased, challenge the legal effect of the will, or challenge the adequacy of the provision for them made in the will) may be commenced within six months of the making of the Grant.

The legal personal representative has the responsibility of ensuring that assets are available to meet such claims and to respond to and resolve the claims where appropriate. It is only after this six months has elapsed that the estate can be finally distributed, (although a legal personal representative is not required to distribute the estate before 12 months have elapsed from the date of the deceased’s passing).

Prior to the final distribution the legal personal representative has a fiduciary duty to manage the assets to protect the interests of all parties concerned.

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Defending the will

Sometimes claims against the estate cannot be resolved by negotiation and court action is required. Where this occurs the legal personal representative defends (and has the power to compromise) the proceedings on behalf of the estate. The existence of such proceedings can cause significant delay in the final distribution of an estate, as the legal personal representative is required to retain sufficient funds in the estate to meet any potential claim together with the legal costs and other expenses associated with the proceedings.

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Tax

The estate is required to submit income tax returns for income earned by the deceased up to the time of death. In addition, the legal personal representative is required to lodge income tax returns on behalf of the estate for the period of the estate administration. Generally the estate pays tax on income earned up to the completion of the formalities of the estate administration (that is until the estate is ready to be distributed to the beneficiaries). The beneficiaries pay the tax on the income earned on estate assets after this date in proportion to their entitlement to the income.

At Equity Trustees, our taxation department provides beneficiaries with a tax advice note with the amount of income (if any) they will need to include in their personal income tax return at the completion of the administration.

Capital Gains Tax (CGT) may be payable by the estate on assets sold by the estate as if they had been sold by the deceased. This includes assets sold for the purposes of cash distributions.

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Distributions

Once the statutory six month holding period has passed (see management of the assets above), any claims against the estate resolved and the estate’s taxation responsibilities and provisions have been determined, the executor may proceed to distribute the estate in accordance with the will. Assets may be either sold by the executor and the proceeds of sale divided, or they may be transferred directly and proportionally to beneficiaries. Where assets (particularly real estate or share) are transferred directly to beneficiaries there may be complex capital gains considerations.

As noted above, the estate is generally liable to pay income tax on the income earned by the assets up to the end of the estate administration. The residuary beneficiaries will be responsible for tax on the income earned on the portion of the estate paid to them.

Legacy Distribution - It is only on the expiry of the six months statutory holding period that we are able to carry out the distribution of any legacies gifted in the will and we aim to make any such distributions shortly after this period.

Interim Distribution - We aim to distribute the majority of the estate as soon as practicable after the conclusion of the statutory six month holding period. The executors may hold back a portion of the estate to meet taxation liabilities, any outstanding claims, estate legal fees and the executors’ fees and commissions. This is called the interim distribution.

Final Distribution - Once all claims are concluded and paid, and the fees of the administration of the estate are paid, the remainder of the estate is then distributed in accordance with the will.

Where a beneficiary is under the age of 18 his or her entitlement must be held on trust until they turn 18, however in certain circumstances the will and/or the Trustee Act 1958 may allow for advances of income or capital to their guardian to meet the child’s needs prior to them turning 18. If you have any questions regarding this issue please contact your Estate Manager.

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Administration of trusts

Many wills provide for the creation of trusts for the benefit of family members, friends or for charitable purposes. That is to say the will creates an ongoing obligation for certain property to be managed (by the trustee) for the benefit of other (the beneficiaries).

Such trusts include life tenancies in real estate where one person has the right to reside in, use and enjoy property during their lives, but where the property is then distributed according to the will following the death of the life tenant. Other common trusts involve the settling aside of funds for investment, with the income to be applied for the support of surviving spouse, or descendants, or the benefit of charities.

Usually the will stipulates who is to be appointed trustee, and usually the trustee will be the same as the executor. Although they may be the same person or entity, the responsibilities of the executor and those of trustee differ, and the trustees’ responsibilities in relation to property only commence once the executor’s have ceased.

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