Acting as an executor – a cautionary tale – Wills/ Intestacy/ Estate Planning

Key takeaways

• It is the responsibility of an executor to make sure a
  person’s will is administered properly.




• An executor can become personally liable for unpaid bills and
  even legal damages if they distribute a deceased estate
  incorrectly.




• Engaging a professional early can save you from unnecessary
  headaches.

When someone dies, it is common for the executor of their will
to seek out professional advice and support, such as lawyers and
accountants.

But what about when the deceased’s affairs are simple and
straightforward, do you still need a lawyer then?

As the scenario* below illustrates, even a ‘simple’
probate can take a turn for the worse if you don’t know what to
look out for.

John’s story

John is the executor of his late mother Susan’s will. Her
will gifts her assets as follows:

• I leave my property at 123 Pitt Street, Sydney to my second
  husband Greg.




• I give $40,000 to my daughter Nicole.




• I give all my shares in the Popular Company Limited to my
  friend June.




• I give the balance of my estate to my son John.

A few things have changed since Susan made her will.

Firstly, Susan sold her shares in the Popular Company after they
reached $100 a share (she had bought them back when they were still
only $5 each) and used the windfall to go on a lavish cruise.

Susan and Greg also separated shortly after the will was made.
John remembers his mother telling him she was applying for a
divorce and after searching online, John has found that after a
divorce, a gift to an ex-husband is no longer effective.

John figures this does not matter much anyway, as he sold the
Pitt Street property whilst acting as his mother’s attorney to
help her move into aged care. All the sale proceeds were put into a
single bank account from which fees were paid. This account still
had $500,000 in it when Susan died and is the only asset in
Susan’s estate.

As his mother’s affairs seem simple enough, John decides to
administer the estate himself, rather than engage professionals to
help him. John applies for a grant of probate with the Supreme
Court and soon has access to his late mother’s bank
account.

He pays off some small bills he found in his mother’s mail
and hand delivers a cheque for $40,000 to his sister at a family
birthday party. John uses the rest of the money to go on a Hawaiian
getaway and pay off his mortgage.

The problem

John soon returns home from Hawaii to a full letterbox.

The first letter he opens is from Greg’s lawyers. They have
seen a copy of Susan’s will. It turns out Greg and Susan
started the divorce process but never actually went through with
it. Greg is still Susan’s legal husband.

Greg’s lawyers also say that because John sold his
mother’s house in his capacity as attorney, the gift to Greg is
still valid and he is entitled to the $500,000 sale proceeds. They
give John 21 days to pay Greg.

John opens the next letter. It is from the Official Trustee in
Bankruptcy advising Nicole was made bankrupt last year. Any money
given to her in the will must be re-directed to the trustee or John
will be personally liable instead. John calls Nicole to give him
back the cheque, but she tells John she has already spent it.

John looks at the final letter. Surely, he thinks, it cannot get
any worse.

He opens the envelope. It’s from the Australian Tax Office
(ATO).

Susan made significant capital gains on her shares in the
Popular Company but failed to file a tax return before she died.
The ATO has calculated the amount owing and has asked John when
they can expect payment given that they are a creditor and should
be paid before any distributions under the will are made.

John wonders how fast he could get back to Hawaii.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.