Executors often do not realise how time consuming probate can be and underestimate its complexity. Executors often do not release the extent of their personal and financial liability when administering an estate when they start the process, and this can be a shock later on when something goes wrong.
When you have been given the responsibility of being an executor it is important to understand what your role involves, what your duties and responsibilities are and how it will affect you personally. Once you have fully understood the work involved you can make an informed decision as to whether you are willing and capable to undertake the role.
The law states that executors must exercise reasonable care and skill in the administration of an estate. An executor can be held personally financially liable for loss to the estate due to the executor’s actions or lack of action, which affects one or more beneficiaries, which could have been reasonably avoided.
In England & Wales an Executor can be held personally and financially liable for any loss to the estate that was due to a breach of their duty, even if the loss was caused by a genuine mistake.
Before undertaking the estate administration, it is important to understand the work you are undertaking and what you will be held personally and financially liable for. If you do not feel confident or do not wish to administer the estate yourself, you should seek the help of a professional.
Liability when an executor makes a mistake
When tackling the administration for the first time or on your own it is almost inevitable that you will make a mistake during the probate process. Unfortunately, a genuine mistake can sometimes snowball into a much bigger and often expensive problem that can be very complicated to resolve.
The executor of an estate can be held personally liable for a mistake that results in a loss to the estate. If something goes wrong but you can prove that you acted with reasonable care you may be allowed to settle the financial loss through the estate. However, if the value of the assets in the estate is not enough to cover the costs you will be held financially liable to pay the shortfall.
As an executor you should do your research and take the necessary precautions to protect the estate and yourself. This can be by obtaining insurance that will cover you in case something goes wrong or taking the advice of someone with the relevant knowledge and experience to help avoid making a mistake in the first place.
Another executor’s mistake
Having someone to share the responsibility and workload with can be a blessing, unfortunately, being a joint executor can also have its disadvantages.
If you’re fellow executor is failing to perform their role or performing their role in a negligent manner and their actions or inaction causes’ loss or harm to the estate, you could be held jointly responsible if you did not make reasonable effort to monitor their conduct.
If your joint executor is not taking reasonable care to perform their role due to an inability to do so or because they do not wish to, it may be in the estates and beneficiaries’ best interest to ask them to renounce their responsibilities as an executor. This means that they will no longer have the authority to take part in the administration eliminating the risk of loss to the estate that may have happened if they continued to act. There is nothing legally forcing an executor to renounce if they do not want to if they wish to still be involved in the administration but not take an active role they could take power reserved.
If you believe your joint executor’s actions are causing risk of loss to the estate and you are unable to come to an agreement about conduct, work distribution and administration it may be beneficial to use an impartial third party. A solicitor will ensure that the correct practices are being followed and reasonable care is taken to protect the executors from liability.
If you have concerns about the conduct of a co-executor, it is recommended to seek the advice of a professional.
The mistakes of someone who is not named as an executor but acting on the executor’s behalf
It is the responsibility of the executor to protect and administer the estate, as the executor you are held responsible and financially liable for allowing another person* to take part in the administration when they do not have the qualifications to do so.
If a person* other than the executor undertakes any tasks, in any form that is the duty and responsibility of the executor, the executor is held liable for their actions and any repercussions that occur due to their actions. This includes but is not limited to completing the probate and inheritance tax forms, obtaining, and handling the deceased’s assets and distributing the estate.
The results of this are often seen when an elderly relative is named as an executor on a will but does not want or feel capable of applying for probate themselves. Another person, family member or friend will come forward, with the best intentions, to “help” them with the application and estate administration to avoid the cost of legal fees. If this person does not formally become the executor, this may be because they do not have the right to become an executor; it would be the named executor who is held liable for any mistake they were to make. In this case that would be the elderly relative that allowed them to undertake the work on their behalf. Unfortunately, we see this scenario all too often and it is very distressing for all involved.
*Please note this does not refer to solicitors that are instructed by the executor. Solicitors are qualified professionals acting on the behalf of their client and must abide by certain standards and are liable for the work that they perform.
Not protecting the assets resulting in loss to the estate
It is the responsibility of the executor to ensure that the estate’s assets are properly protected and insured. If they fail to do this and a beneficiary’s inheritance was to be affected the executor would be held personally and possibly financially liable.
You should take care to ensure that all of the deceased’s assets are properly secured and insured if they are able to be. It is an executor’s duty to protect the estate this includes liquid assets as well as physical assets. If reasonable actions are not taken the executor can be held liable for the loss to the estate.
Something that is surprisingly often neglected by executors, most commonly by executors who themselves or another family member had power of attorney over the deceased’s financial assets, is informing financial institutions of the person’s death so that any accounts in their name can be frozen. Power of attorney becomes invalid when the person passes away meaning you no longer have authority over their financial affairs, to continue to access and remove money from the deceased’s accounts can result in serious consequences for both the person using the power of attorney and the executor. If the executor has not taken action to have the bank account frozen, they have not taken reasonable care to protect the estate and its assets.
Another example of failing to protect the estate’s assets would be neglecting to correctly insure the deceased’s empty property. If it were to be vandalised or broken into the executor may be held liable for the cost of repairs or the value of the stolen assets as they failed to take reasonable care and insure the property.
Payment of debts
Handling a deceased’s debts is a task that a lot of executors get nervous about and when handling debts it is best to be overly cautious. An executor that incorrectly identifies the estate’s debts, liabilities and potential future claims can be held personally liable if a creditor were to come forward after the estate has been distributed. An executor should act with reasonable care when assessing the estate’s debts, identifying creditors, and paying them off using the estate’s assets.
In an attempt to prevent future claims an executor should place notices under Section 27 of the Trustee Act 1925 in The Gazette and local newspaper. This allows creditors 2 months from the date of publication to register a claim against the estate, after which the executor can distribute the estate and only have to take into regard the creditors that come forward before the expiry date.
If an Estate’s debts are more than the value of the assets, then it is known as an insolvent estate. Insolvent estates should be handled with extreme caution, and it is strongly advised to seek professional advice and take the necessary actions to protect yourself as an executor.
There are some debts that should take priority over others if as executor you fail to correctly identify and pay debts in the correct order you risk making yourself financially liable. The estates Priority debts such as Inheritance tax should be paid first. The remaining money should be split between the remaining creditors. Remaining debt that cannot be paid because there is nothing left in the estate will be written off. If an executor were to pay off non-priority debts first and not be left with enough or any to pay a priority debt, for example a mortgage, they could be held liable for incorrectly distributing the estate.
However, every estate is different and therefore so will the type of debts, this can make it hard to establish the correct priority if you do not have the relevant knowledge and experience that’s why it is recommended to speak to professional.
It is important to note that solicitor’s fees are counted as a priority and if there is money available these fees will be paid before other types of debts.
Income Tax liability
It is the duty of the executor to pay any outstanding tax that the deceased owed to HMRC. This includes any outstanding income tax from before their death. Failure to correctly identify, calculate and pay income tax that the deceased owed can result in a penalty or fine from HMRC. The executor of the estate can be held financially liable for this as they failed to properly fulfil their role.
Inheritance tax liability
Executors are responsible for ensuring that HMRC are provided with the correct information about the estate. This includes the correct valuations of assets which will contribute to your inheritance tax liability. Failing to provide the correct information which would have resulted in a loss to HMRC can result in costly penalties on top of paying the amount that was underpaid to them.
HMRC do acknowledge a difference between a mistake that was made on purpose and a mistake that was made by accident but may still fine you for a genuine error.
An executor can also be held liable for loss to the estate that was a result of interest collecting on inheritance tax that was not paid to HMRC within the designated time frame. If interest was incurred due to an error by the executor that could have easily and reasonably been avoided the executor can be held liable.
If an estate is subject to inheritance tax it is strongly advised that you seek the advice of a professional.
Welfare benefit claims DWP
If the deceased was receiving Pension credit or another form of means-tested benefit payments, the DWP will often check to ensure that there have not been incorrect payments made to the deceased. It can take some time for the DWP to assess what is owed to them and make a claim. You should wait to distribute the estate to the beneficiaries until you know if they will claim and the amount, they will claim so that you can prevent the money owed to the DWP from being distributed.
If the executor distributes the estate and does not have enough left to pay a claim made by the DWP they can be held financially liable for the repayment.
Liability to beneficiaries
Something that a solicitor would do as standard practice is a bankruptcy search to establish if there is any risk of making a payment to a bankrupt beneficiary. Executors handling probate themselves are often unaware of the importance of a bankruptcy search or never knew in the first place that they should undertake one. If the executor was to make a payment to bankrupt beneficiary, they can be held personally liable to the Trustees in bankruptcy for any money that the trustees are unable to recover.
Not being able to locate a beneficiary can cause major delays to the estate administration and become a bigger complication later on. As an executor, if you do not show a reasonable effort to locate a beneficiary you can be held personally liable for the inheritance they were entitled to if they were to later come forward.
One way to reduce the risk of a beneficiary appearing after the distribution is to seek the help of a professional search agent with knowledge and experience in locating people who seem to have disappeared.
Executors can also obtain missing beneficiary indemnity insurance to protect themselves and the other beneficiaries if someone was to come forward after the distribution of the estate.
If you believe the beneficiary may have passed away you should search for their obituary, this can be done online by searching their name with the word Obituary.
An executor must keep clear and transparent accounts as it is their duty to be able to provide all known information about the estate and its assets. If there is incorrect distribution due to unorganised or incoherent accounting the executor is liable for the loss or penalty incurred.
If unorganised accounting leads to incorrect information being provided to HMRC or incorrect tax calculations, the executor may be held financially liable for any penalty or fine incurred as a result. This is because they failed to correctly perform their role and keep clear and coherent accounts.
Liabilities to third parties
During the estate administration, you may need to enter into a contract with a third party, for example, a clearance company or estate agent. You are held personally liable when you sign a contract with them agreeing to use their services, as it is you personally entering into a contract with them.
If something were to go wrong, you would need to show that you acted reasonably and entered into a reasonable contract for the expenses to be claimed from the estate. However, if there are not sufficient funds in the estate to cover all or any of the costs as the person who entered into the contract you would be held personally liable for the outstanding costs.