Acting as an Executor of an estate - Its all in the details

In this article, we will address your potential liabilities and other options that will enable you to be involved in the administration of your client’s affairs either on incapacity or death.

Personal liability

An Executor’s liability is non-delegable and non-transferable, meaning that an Executor cannot have another person perform their role.

As such, an Executor holds personal liability for all decisions, actions, inactions, omissions and errors that are made during the administration of the Estate. Executors are also accountable to beneficiaries for the manner, speed and quality of Estate administration.

For example, an Executor can be found to be personally liable for a shortfall created by early distribution of Estate funds. In this example, an Executor makes an interim distribution to beneficiaries prior to the finalisation of the tax affairs of the Estate. If the Executor has not left enough funds to cover the Estate’s tax liabilities, the Executor may be personally liable for the shortfall.

Early distribution of the estate can also make an Executor liable if there is a transfer of estate assets before 6 months from the date of death, being the expiration of the period in most states of Australia when a family provision claim can be brought. If there is a successful family provision claim, Executors can be found liable if there is not enough assets left in the estate to meet a claim or pay legal fees

Executors can also be personally liable if they are found to have acted negligently, dishonestly or fraudulently while performing their duties.

For these reasons it is most important that you check your professional indemnity insurer before you accept nomination as an Executor.

Because of the risk of liability, it is recommended that the financial planner or accountant be appointed as a joint Executor either with a member of the client’s family or, preferably, with a legal practitioner that can be guided in the management of estate assets including taxation considerations such as CGT.

Other options

It is only natural for a client to ask you, as their trusted advisor, to be involved in the management of their estate upon death. If you are either prevented by your AFSL dealer group from holding the office of Executor or concerned about your personal liability, consider asking your Inherit nominated lawyer to insert a clause in the Will along the following lines:

"I DIRECT that before my Executor(s) and Trustee(s) exercise any power or function in the administration of my estate and the trust created thereunder, that they shall engage the firm of {name of firm} and seek the professional advice, guidance and direction of my {financial planner/accountant }{ name} or otherwise the principal if that firm without being bound to do so"

If you have elderly clients holding SMSFs assets, you should consider the option of being appointed as the client/ member’s "Fund Guardian" ( if permitted by the deed) or holding the power of veto under a special purpose SMSF power of attorney.

Both of the options above allow you to be actively involved in the administration of your client’s affairs on incapacity or death without holding the legal responsibility or fiduciary obligations of Executor or attorney under an Enduring Power of Attorney.