Issues when an Executor is also a Beneficiary
The Executor/s appointed by a Will are often the child/ren of the Will maker. When this is the case, the Executor/s appointed are usually also beneficiaries under the Will entitled to receive part of the estate. The Executor/s then have two separate capacities, one being Executor and the other as beneficiary.
An Executor has a fiduciary duty imposed by law which states that they can never place their self-interests above the interests of the estate. This responsibility can at times be hard for an Executor to meet, especially when the Executor is also a beneficiary. An Executor has a responsibility to secure the deceased’s assets and realise (sell) them. The reason why this particular responsibility can be challenging at times, is when the assets which the Executor has an obligation to sell, belonged to their loved one and understandably, the Executor will likely have some sort of emotional connection to them. Sometimes. “letting go” of assets is difficult.
An Executor failing to meet this fiduciary duty and placing their self-interests above the interests of the estate are considered negligent, engaging in self-serving acts and can be held personally liable should the estate incur a financial loss as a result of the Executors failure. In addition to being held personally liable, an application to remove and appoint a new Executor can be made to the Supreme Court due to misappropriation by the Executor. Examples of self-serving behaviours include:-
1. The deceased’s Will does not provide for specific bequests (gifts).
When a deceased’s Will does not distribute gifts, on a strict reading, any and all of the deceased’s assets (personal belongings etc) should be sold. This includes jewellery and furniture, if saleable. The problem that we deal with a lot is when an Executor wants to keep an asset, because of the sentimental value it has to them. When the Will does not gift the asset, the Executor has an obligation to sell it and cannot place his interests as beneficiary (wanting to keep the asset) above the interests of the estate.
If an Executor wants to retain an asset, they should be purchasing the asset as they have an obligation of ensuring that the value of the estate is maximised for final distribution to the beneficiaries. An Executor should proceed with the following if purchasing an asset:-
1.1 arrange a valuation of the asset to determine an appropriate purchase price; and
1.2 obtain consent, preferably in writing from all beneficiaries of the Will, consenting to the Executor purchasing the asset for a specified sale price.
In some instances, the beneficiaries may have agreed for an asset to be distributed to the Executor for no consideration. If this is the case, it would be appropriate for the Executor and the beneficiaries to enter into a Deed of Family Arrangement to formalise the agreement made to alter distribution under the Will. If a Deed of Family Arrangement is not entered into, the Executor risks the beneficiaries making a claim against them.
2. Undisclosed financial transactions or “playing favourites”.
An Executor is responsible for managing the deceased’s money, but it is not their personal “piggy bank”. If an Executor arranges the sale of estate assets, the proceeds are to be held on trust by the Executor on behalf of the estate. The proceeds form part of the residuary estate and get distributed in accordance with the terms of the Will.
If an Executor sells an estate asset and pockets the sale proceeds into their own wallet or uses the proceeds for personal use without the knowledge of the beneficiaries, they are engaging in self-serving behaviour. An Executor should be keeping an accurate accounting of any and all assets that have been sold and for how much and this information should be disclosed to the beneficiaries.
Further, if an Executor plays “favourites” with certain beneficiaries over the others, this is considered as self-serving behaviour. This may include distributing estate funds to one beneficiary, but not the others, or choosing to disclose certain information relating to the estate to certain beneficiaries but not to all. An Executor should be transparent with all beneficiaries and when making distribution of the estate, should be distributing simultaneously to all beneficiaries, unless the Will specified otherwise (such as a beneficiary attaining a certain age).
3. Sale of the deceased’s real property.
If a deceased dies leaving real property and the Will provides for all assets to be sold and converted into money, the Executor has an obligation to sell the real property. Where an Executor is required to sell the real property, they should be:-
3.1 arranging the property to be sold via public auction; or
3.2 if being sold via private sale, obtaining a valuation to determine an appropriate sale price and obtain consent, preferably in writing from the beneficiaries, to consent to a specified sale price.
The Executor may decide they want the real property and choose to sell it to themselves, at a reduced price. This is self-serving behaviour. If an Executor wants to purchase the deceased’s property, they should either be bidding at auction, or when being sold via private sale, making an offer for an amount equal to or higher than the valuation and with the written consent by the beneficiaries.
4. Executor’s obligation to claim Superannuation Death Benefits
Superannuation does not automatically form part of a deceased estate and is often handled separately to the administration of an estate.
Where a deceased person has died, leaving a valid Binding Death Benefit Nomination (BDBN), the Trustees of the super fund has an obligation to pay the death benefit to the nominated beneficiary/s of the BDBN. However, where the deceased did not leave a valid BDBN, this creates uncertainty as to how the death benefit will be paid, which ultimately is at the discretion of the Trustees of the super fund. The Trustees of the super fund will ascertain all potential claimants and will seek applications from each of them, to record their intentions on whether they intend to, or do not intend to, make a claim for the deceased’s death benefit. There is a conflict of interest when the Executor/s is also a potential claimant.
As mentioned above, an Executor has an obligation of maximising the value of the Estate. When the deceased has died without leaving a valid BDBN, the Executor has the opportunity to make a claim, on behalf of the Estate, for the death benefit to be paid into the Estate and thus increasing the funds available for distribution to the beneficiary/s. When the Executor is also considered a potential claimant by the Trustees of the super fund, the Executor cannot make a claim in any other capacity, other than as Executor on behalf of the Estate. If the Executor makes a claim in a capacity other than as Executor, and the Trustees were to exercise their discretion to pay the death benefit payment in favour of them in their personal capacity, they may be held personally liable to account to the beneficiary/s of the Will, who would have been entitled to the death benefit, had it have been paid to the Estate. This would have to be paid out of their own pocket.
Therefore, if there is no valid BDBN and the Executor/s is also a potential claimant, the Executor has an obligation to make a claim for the death benefit in no other capacity other than as Executor/s on behalf of the Estate.
It is so important for an Executor to understand all of their fiduciary duties to ensure that they are meeting all of their obligations and administering the estate in accordance with the law. If they fail to meet their fiduciary duties, they can be held personally liable for the financial losses the Estate incurs. When Executors fulfil their obligations and act in the best interests of the Estate, this provides the beneficiaries with relief in a time that would be very distressing and emotional for them.
Seeking legal advice as to who to appoint to be the Executor/s of your Will is important to ensure that your estate is administered in accordance with your Will and the law.
If you require advice as to who to appoint to be your Executor/s, or you are an Executor and require assistance administering an estate, please contact our office on 9707 1155 or via email at admin@wslegal.com.au.