What is estate administration?
After an executor is legally empowered to deal with the assets of a deceased person’s estate, usually after receiving a grant of probate or letters of administration, the assets and interests held by the deceased can be called in and distributed. This process is commonly called administration.
Administration of an estate takes time and it is important that it is completed correctly.
The executor has a responsibility to ensure the estate is administered in accordance with law. As a trustee, they also owe a fiduciary duty to the beneficiaries to act in their best interests. Careful attention must be paid to ensure the estate does not suffer loss and that the estate is ready to be distributed when appropriate.
Beneficiaries are often anxious to receive all or part of their interest in a deceased estate and executors are often keen to finalise the estate. It is important for both the beneficiaries and the executors to recognise that if the estate is not administered correctly, and issues arise later, the time and cost associated with fixing those issues is far more significant. In some cases, personal liabilities can arise if there is any mal-administration.
Distribution of the estate
When and how an estate can be distributed will depend on a number of factors, including:
- What the terms of the will provide;
- What sort of assets exist in the estate, such as real property (land), bank accounts, shares or investments;
- What is required to call in or liquidate any assets, for example some assets may take a long time to sell or convert into cash;
- How the assets are to be transferred or distributed, for example to be sold and the proceeds distributed or for the asset to pass in specie (in its current form);
- Whether all of the beneficiaries can be identified and are capable of receiving a distribution;
- Whether it is in the best interests of the estate for an asset to remain invested for a period of time. For example, shares in a company may be retained if they are worth a small amount now, but a change in the market is expected that will increase the value of the shares at a later time. In such circumstances, it is important to obtain and consider financial and taxation advice;
- Whether there are any claims or risks of litigation that may affect how the estate is to be distributed;
- Whether any assets are to be retained on trust for various reasons including for minor beneficiaries, to maintain an income for the estate for ongoing administration costs or to ensure there are funds available to pay future testamentary expenses like legal costs, taxes and other estate debts.
In general terms, an estate is best kept liquid and with funds readily available to the executor to satisfy any legitimate estate expenses. Any funds remaining when the estate is to be finalised are able to be distributed in accordance with the terms of the will. Often, these funds will form part of the residue of the estate.
The estate should not be distributed before 6 months from the date of death has expired, subject to certain limited exceptions. In the event the estate is distributed and a creditor or other beneficiary claims against the estate, compliance with the rules may save the executor from personal liabilities. For this reason it is advisable that a notice of intention to distribute the estate is advertised on the Supreme Court of NSW’s website prior to the estate being distributed (see s92 of the Probate and Administration Act (NSW) 1898). Such a notice will not protect the estate from legitimate claims, however, legitimate claimants can “follow the assets” into the hands of the persons who have received a distribution of the estate (see s95 of the Probate and Administration Act (NSW) 1898). This can mean it is ultimately the beneficiaries who become involved in either defending their share of the estate or they may have to repay some or all of what they received back to the estate. It is best to try and avoid the multitude of issues that can result if the estate has been distributed prematurely or without proper regard to creditors or potential claimants by ensuring that experienced legal advice is obtained and followed.
A common rule of convenience also applies to the administration and distribution of an estate which is known as “the executor’s year”. This allows the executor, in general terms, 12 months from the date of death to administer and distribute the estate without any liability for claims for interest or delay. This is only a general rule, however, and does not apply to all situations.
If an executor or trustee is acting unreasonably, or is delaying distribution without adequate justification, action can be taken in order to protect a beneficiary’s rights.