Ruth Pyatt, of Birketts, explains why a testator may choose to appoint a professional to administer their estate – and the pitfalls of not having this expert assistance.
One of the most important decisions to make when writing a will is who to appoint as an executor. Recent press coverage about this has principally focused on the potential costs involved where a professional executor administers an estate.
However, given that a reported one in three wills written in England includes the appointment of a professional executor (either to act alongside a family member, or on their own), it is worth looking at why people writing wills (testators) are willing to accept the costs involved, even if this is going to have an impact on the legacies that they leave to their heirs.
Why do testators appoint professional executors?
To prevent additional stress
A common reason for appointing a professional executor is that the testator wishes to allow their family to grieve, rather than be burdened with the responsibility of administering the financial affairs of a deceased loved one.
Some of us are not natural organisers and don’t cope well in a crisis. It can be of great comfort for a testator, especially one who is already ill and has gauged that their families are going to struggle with loss, to be able to nominate a professional to relieve the family of what they predict will be an unwelcome burden at a stressful and emotional time.
Where a trust is involved, a testator will often opt to have a professional executor (and trustee). There may be ongoing family trusts or trusts for minors or vulnerable beneficiaries (which can continue long after the remainder of the estate has been settled). Many trusts are simple and require little professional input, but where matters are more involved, a professional trustee in the form of a trust corporation can assist with longevity and continuity.
Sometimes a testator will appoint a professional executor because they are accustomed to delegating their complex affairs and have lifelong (or career-long) relationships with their advisors. Complex affairs can mean cross-border matters (such as domicile or overseas assets), tax (whether it be the taxation of an individual or an individual’s interest in a business), or because of the need to ensure that a business will continue to operate after the death of a key member. Professional advisers can be best placed to act as executors in these circumstances.
Whether an estate is complex or not, if a testator knows that there is likely to be conflict following their death, a professional executor can be appointed to act as an impartial or neutral party. They can make decisions objectively and at a necessary distance from emotional complications.
Families may have longstanding disputes, or a testator may be aware that a dispute is likely to arise on their death, whether in relation to 1975 Act claims, claims of lack of capacity, undue influence or because, for example, an executor has been directed to take an action under the terms of the will that is likely to prove unpopular.
If a testator’s affairs are less complex on the whole, but there is an area of complexity for which a testator has always sought advice, professional executors can be appointed to deal with these matters, with the remainder of the deceased’s affairs being left for the family to manage.
Typical examples of this restricted executor role involve executors appointed specifically to deal with digital assets, a literary estate, intellectual property and/or assets abroad. Testators can also appoint separate executors to take over, on their death, the administration of an estate for which they themselves are acting as an executor.
In a similar vein, if a testator is aware that their (non-professional) executors will need to appoint professionals to provide advice, their own choice of professional can be appointed. This can be an important motivator.
Why might a lay executor need to seek professional advice?
There are a variety of tasks involved in the administration of an estate that a non-professional (lay) executor may find difficult to carry out or may even overlook. Such tasks include:
- opening and operating an executor’s bank account to hold estate funds during the administration of the estate
- insuring unoccupied properties
- arranging access to funds or obtaining bridging loans for the payment of inheritance tax payable before probate is obtained
- advertising for creditors in The Gazette and in a newspaper local to the deceased
- paying debts and estate expenses in the correct order
- calculating and paying interest on unpaid legacies after 12 months of the death
- carrying out bankruptcy searches against beneficiaries before payment is made
Carrying out these tasks is important, because executors can find themselves personally liable if they’ve not been addressed and things go wrong later.
Why might executors find themselves personally liable?
Executors might find themselves personally liable to parties in a range of circumstances.
Executors can find themselves personally liable to beneficiaries and creditors. Where an executor acts in some way that a loss is caused to the estate, this is known as a wasting of assets (in legal terms, a devastavit). This might occur if, for example:
- a legacy is paid where there are insufficient funds to pay a debt
- an executor delays pursuing a claim on behalf of an estate which is subsequently time-barred (or a limitation defence arises)
- an executor pays funds to the wrong beneficiary, or distributes the estate within six months of the grant of probate, having not adequately made enquiries as to whether there is a likely claim under the 1975 Act
- an executor encashes an investment that was gathering interest without good cause
In the case of these and other cases of maladministration and/or negligence, an executor can find that they are personally liable to make good the loss from their own funds.
Executors can also find themselves personally liable to third parties. Where penalties and interest for inheritance tax are payable to HM Revenue & Customs, these payments might not be recoverable from the estate. If sums are paid to a bankrupt beneficiary, the executor is personally liable (on behalf of the bankrupt person’s creditors) to the bankrupt’s trustee in bankruptcy for the funds made over. If the estate is distributed and then the Department for Work and Pensions request a repayment of the deceased’s pension credit or other means-tested benefit, an executor may have to make the repayment from their own funds.
According to annual statistics from the Royal Courts of Justice, claims against executors are on the rise, but it is not clear from figures how many of these claims are against professional executors and how many are against non-professionals.
What if the executor can’t pay?
For beneficiaries, creditors and third parties, there can be peace of mind where a solicitor is appointed as a professional executor, as solicitors have professional indemnity insurance to cover these sorts of claims occurring.
Although specialist executor insurance is available for lay executors to buy, it is unlikely to have the same level of cover, and because few non-professionals understand the level of responsibility and challenges of being an executor, the availability of such insurance is limited, and uptake is currently relatively low.
(Author: Ruth Pyatt)