What actually are an executor's obligations
Introduction
In the vast majority of estates beneficiaries enjoy a positive and productive relationship with the executor. But sometimes dealing with executors can be frustrating or even concerning. Some executors may be innocently unaware of their obligations. Others may be overwhelmed and unable to focus on their responsibilities. And there are those who are struggling with a conflict of interest or choose to deliberately deviate from their obligations at your expense. Knowing what you are entitled to expect from an executor (or a Personal Representative to whom the same principles apply) can help you to judge when you should intervene.
Accepting the role
Once an executor has intermeddled, they are deemed to have accepted the role and certain consequences kick in.
An executor does not owe any particular obligations to the deceased’s estate, its beneficiaries or the creditors unless / until they take steps in relation to the estate, known as intermeddling. However, once an executor has intermeddled, they are deemed to have accepted the role and certain consequences kick in.
a) They are deemed liable for the assets which have come into their possession (section 28 of the Administration of Estates Act 1925).
b) They are deemed liable for the inheritance tax (IHT) due on the assets they have handled (section 199(4) of the Inheritance Tax Act 1984).
Grant of Probate
Technically, an executor could administer an estate without a grant but, in practice, executors need a grant to prove title.
Providing an account to HMRC
If an executor wants to obtain a grant, they have to produce one of the following:
- an IHT account, certified to show that the tax has been paid or that none is payable, or
- necessary information to show that it is an 'excepted estate', ie one where a full IHT account is not required because the gross value of the estate is less than the nil rate band (which is currently £325,000), the estate is exempt or the deceased was non-UK domiciled.
Therefore, an executor needs to gather the necessary information about the deceased’s estate and, where an IHT account is required, deliver that information to HMRC (using form IHT400), and pay any tax due (section 226(2), IHTA 1984).
an executor needs to gather the necessary information about the deceased’s estate and, where an IHT account is required, deliver that information to HMRC (using form IHT400), and pay any tax due (section 226(2), IHTA 1984).
If no account is required because the estate is excepted, the executor should use form IHT205 to submit the information (and, where there is a claim to transfer the deceased's unused nil rate band, form IHT217).
Where an estate is not an excepted estate, the executor must deliver the IHT account within twelve months of the end of the month in which the deceased died or within three months of taking up his appointment (section 216(6) of the Inheritance Tax Act 1984). Penalties may be chargeable if this time limit is not met.
Where the executor reports a taxable estate after the six-month period beginning from the end of the month in which the deceased died, interest is added to any IHT due, beginning on the first day after the six-month period has elapsed.
However, HMRC will often show leniency where there is legitimate reason for delay, such as a particularly complicated estate. In such circumstances, an executor should communicate with HMRC, and potentially file an incomplete IHT account with a covering letter explaining the circumstances, to avoid interest and penalties accruing.
Delay in obtaining a grant
There is no liability in negligence for delay in obtaining a grant (Re Stevens [1897] 1 Ch 422 (Ch); [1898] 1 Ch 162 (CA)).
But, where an executor has taken some steps relating to the estate (known as intermeddling) but, six months after the death, has still failed to take steps to obtain a grant, anyone with an interest in the estate can issue a citation under rule 47(3) of the Non-Contentious Probate Rules 1987. If the citee fails to enter an appearance or to comply with the citation, the citor can apply by summons to a district judge or registrar to ask:
- That the citee be required to take a grant in a specified time, or
- For a grant to the citor or some other person specified in the summons.
Citations may not be appropriate if the executor has a legitimate reason for the delay, for example a particularly complicated estate. Where the delay is unreasonable, or there is reason for suspecting that the citee may delay further in the administration or may commit a devastavit (a wasting of estate assets) in the process, it may be more appropriate to apply to pass over the executor under section 116 of the Senior Courts Act 1981 or section 50 Administration of Justice Act 1985.
Executors' administrative duties
On obtaining a grant, an executor (under section 25 of the Administration of Estates Act 1925) takes on the following duties:
a) Collect and get in the real and personal estate of the deceased and administer it according to law.
b) When required to do so by the court, exhibit on oath in the court a full inventory of the estate and when so required render an account of the administration of the estate to the court.
c) When required to do so by the High Court, deliver up the grant of probate or administration to that court.
These duties only extend to the property covered by the grant. Therefore, if an executor obtains a grant of probate relating only to the English estate, they will not have a duty to collect in, or give an inventory of, any foreign property.
Statutory duty of care
In addition to the specific duties set out in section 25 of the Administration of Estates Act 1925, executors are also bound by the same statutory duty of care as trustees (section 35(1) of the Trustee Act 2000). Therefore, when exercising any power listed in Schedule 1 to the Trustee Act 2000 (which includes investing, acquiring land, insuring, delegation, amongst others), unless the will modifies the duty of care, an executor must:
"exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience that he has or holds himself out as having, and if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession".
(Section 1 and paragraph 7 of Schedule 1 of the Trustee Act 2000)
Estate Accounts
Although section 25(b) of the Administration of Estates Act 1925 is framed in terms of providing an inventory or account to the court, executors are expected to keep estate accounts and make these available for inspection to anyone with an interest, a potential interest or a contingent interest in the estate.
An inventory generally contains a full list of all of the assets (including chose in action) and their values due to the estate at the date of death. An account looks at the steps taken by the executor in the administration of the estate.
Executors may charge for reasonable copying costs.
Distribution of assets
… a personal representative is not bound to distribute the estate of the deceased before the expiration of one year from the death.
Section 44 of the Administration of Estates Act 1925 states,"… a personal representative is not bound to distribute the estate of the deceased before the expiration of one year from the death".
This is known as the "executor's year". This means that an executor cannot be forced to distribute before the executor's year is up irrespective of what is said in the will about distribution within a shorter period of time.
Even after the year’s end, a court will not order distribution if the executor can show that there are good reasons for retention and the executor is acting honestly. This is the case even if the value of the asset falls during the period when distribution is postponed; that is unless there was wilful default (Re Chapman [1896] 2 Ch 763, at page 782).
But this does not mean that an executor must retain assets needlessly just because the year has not expired. If the estate is ready to be distributed (either because the debts are paid or a sufficient sum is set aside to pay them), the sums remaining should be paid out to the beneficiaries.
An executor must generally provide an explanation to the beneficiaries if distribution is delayed after a year. But this is not the case if the will specifies that assets can be retained or conversion postponed. In those circumstances, it seems that the executor must have acted in bad faith to be fixed with liability (see Re Norrington (1879) 13 Ch D 654).
A common reason for delay is to allow for the possibility of a claim being brought in relation to the estate. An executor will often be unwilling to distribute within 10 months of a grant because of the possibility of a claim under the Inheritance (Provision for Family and Dependants) Act 1975. When an executor is refusing to distribute your charity may want to consider whether an indemnity would be appropriate.
Conflicts of interest
Individuals are permitted to act as executor in estates from which they benefit, can give rise to a conflict of interest. Executors are not allowed to prefer their own interests over the interests of the other beneficiaries.
Limitations
Until the assets in an estate are vested in a beneficiary (ie distributed), the property is entirely owned by the executor. An executor does not need to act on beneficiaries' instructions.
Entitlement to information is governed by the nature of your interest: If you are entitled to a particular item or a small gift, you should be given information relevant to your legacy. But you will not usually be privy to other terms of the Will or to wider details of the estate's assets.
If you are due to receive the residuary estate rather than a particular item / cash legacy you have a stronger claim to information.
Executors are entitled to retain legal advisors to assist them and it is for the executor, not the beneficiary to police the costs of doing so. A beneficiary is entitled to be satisfied that fees charged to the estate relate to the estate, but it is more difficult to challenge the quantum or reasonableness of costs. That is for the executor to do.
Key contact
Sarah Aughwane
Partner | London