Administering an estate can be complex. There are duties and obligations imposed on an executor and trustee of an estate which are often overlooked.
Many of the same duties that apply to trustees of trusts under the Trusts Act 2019 also apply to an administrator of an estate under the terms of the Administration Act 1969.
The Trusts Act 2019 (learn more here) imposes mandatory duties, which are modified for estates where necessary:
- You must know the terms of the will
- You must act in accordance with the terms of the will
- You must act honestly and in good faith
- You must hold or deal with estate property and otherwise act for the benefit of the beneficiaries, in accordance with the terms of the will
- You must exercise your powers for a proper purpose
In addition to the above mandatory duties, there are default duties that must be performed by a trustee unless modified or excluded under the terms of the will.
Those default duties include:
- You must invest prudently
- You must not exercise a trustee power for your own benefit
- You must actively and regularly consider your exercise of powers
- You must avoid a conflict of interest between your interest and the interests of the beneficiaries
- You must act impartially in relation to the beneficiaries
- You must not make a profit from your trusteeship
- You must not take any reward for acting as a trustee
- If there is more than one trustee, the trustees must act unanimously
Complications with these duties can arise when administering an estate.
Many will makers appoint a family member as an executor and trustee. That family member will often also be a beneficiary of the estate. The will maker can modify the default duties under the Act to permit this situation and authorise the family member to act as executor despite that conflict of interest. However, in practice that can be problematic and can lead to difficult situations. One example of that is in a blended family situation where a step-parent is appointed executor and with a right to use or benefit from certain assets, and adult step-children from the deceased’s prior relationship are also to be provided for. That can give rise to complicated decision-making, and challenge the ability of the step-parent to follow their duties as executor.
As well as the challenges of conflicts of interest, in exercising their duties an executor must also follow the other duties on them which include being impartial between beneficiaries and not profiting from the role.
A recent example of where an executor and trustee of an estate was found in breach of her duties is the High Court case of Tata v Abrams1. In that case, the deceased passed away in 2008 and two executors were appointed under the will. One of the executors and trustees passed away a number of years later when the estate was still active, leaving the daughter of the deceased as sole executor and trustee. The primary asset of the estate was the deceased’s home. The home was occupied by a relative during his lifetime, until he passed away in 2019. After the relative passed away property appraisals were obtained from real estate agents placing the home’s value over $1 million. Despite that, the executor arranged for the home to be sold to her son for $760,000, with a gift made from the estate to the grandson for the difference of around $300,000.
The executor son’s purchase was funded with bank lending. Following default on repayments by the purchaser, the property was sold at a mortgagee sale for over $1 million. The surplus funds after repayment of the mortgage and costs was around $165,000.
The executor’s siblings who were beneficiaries of the estate filed proceedings claiming the executor had breached her fiduciary duty to the beneficiaries of the estate by selling estate property at undervalue to her son.
The executor died before the hearing took place and the court hearing proceeded on limited grounds. The Court confirmed that an executor must act fairly toward estate beneficiaries and must not act in self-interest. It found that the estate’s sale of the house to the executor’s son at significant undervalue, and gifting $300,000 to the son who was not a beneficiary of the estate, was a breach of the executor’s basic duties. That executor was found liable for the $300,000 (plus interest and costs) loss to the estate arising from that breach.
If you are doing a new will you should give careful thought to the duties that a family member executor and trustees will have to the beneficiaries of the estate. In the circumstances of your will instructions, it may be that things like conflicts of interest can be effectively managed, where the default duty under the Trusts Act is amended in the will to authorise it. However, it may also be that choosing a different executor and trustee who is not conflicted, or adding a professional independent executor and trustee alongside that family member, would be a good idea.
Leaving a family member in a situation where their personal interest and executor role conflict with each other, or they are left to make decisions about the interests of different family member beneficiaries which they may not be impartial over, is a recipe for problems, greater expense in administering an estate and potentially even breakdowns in family relationships.
So when doing a new will we recommend that you:
- Do not forget about the application of the Trusts Act 2019 to your estate planning
- Turn your mind to the default duties under that Act
- Consider appropriate modifications or exclusions of those duties under your will
- Understand the effect of the duties and how it could impact on your estate plan under your will.
Special thanks to Solicitor Katrina McDonald for preparing this article.
If you have any concerns about your will or an estate you are administrating, or have queries in regard to the above, please contact a member of our private client or trusts team.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
