The Executor is the person appointed to administer the Estate.
More than one Executor can be appointed. If one Executor is appointed, provision should be made for the appointment of another in case that person dies.
The best practice is always to name a person who has agreed to take on the role as Executor.
What does the Executor do?
The Executor administers the Estate. This includes:-
- obtaining Probate (if necessary);
- gathering in all the Deceased's assets;
- paying the Deceased's debts; and
- distributing the balance to the beneficiaries.
From a legal point of view, the only requirements are that each Executor must be at least 18 years of age and of sound mind.However, it must be realised that the position of Executor involves great responsibility. It can also involve a considerable amount of work.
Should a friend or relative be appointed?
Many people appoint a relative or friend as their Executor. In doing so, they usually don't understand the amount of work that will be involved and its complexity.
Some Problems That Can Arise From Appointing a Friend or Relative as Executor
The Executor might die before the Testator, leaving the Deceased's Estate without an immediate Executor.
The Executor might be under family or business pressures which affect his or her ability to properly carry out the Executor's duties.
The Executor might be under family or business pressures which means he or she cannot make sound financial decisions.
The Executor might not be impartial.
The Executor might be away when required to act
A further point to note that is that Executors can be held personally liable if an Estate is not properly managed.
So, it is very important that whoever is chosen to take on this role properly understands the responsibilities involved and is capable of carrying them out.
One option is to appoint a Lawyer to act as Executor. Another is to appoint a Lawyer with provision for advice input from a family member or friend, or another option is to appoint a Lawyer to act jointly with a family member or friend in administering the Estate.
The Estate is made up of any assets the Deceased owned and was able to dispose of at the date of death.
An important point to note is that some types of property cannot be disposed of by Will, e.g.:-
- property owned by a Company;
- property owned by a Trust;
- property owned as Joint Tenants, e.g. a house owned as Joint Tenants or Bank Accounts in joint names.
- Superannuation; and
- Life Insurance Policies.
In most cases, a person cannot dispose of an interest in a Superannuation Fund by Will.
This is because it is usual for the Trust Deed which governs the Fund to leave this up to the Trustees. They must decide to whom death benefits are paid.
Even so, most Superannuation Funds encourage members to "nominate a beneficiary". That is, the member nominates and advance the person to whom he or she would like any death benefit paid.
A person's "Nomination of Beneficiary" is an important document which Superannuation Fund Trustees must take into account when choosing to whom a death benefit is paid.
Clients should regularly review their "nominations".
If clients cannot remember where they have nominated anyone, or who they have nominated, you can easily obtain this information from the relevant Superannuation Fund.
Generally, a "Nomination of Beneficiary" can be changed at any time.
Life Insurance Policies
Normally, if a person owns a Life Policy, he or she can dispose of it by Will.
An exception is where a beneficiary has been nominated by the Policy. In this case, on death of the life insured, the Life Office will automatically pay the policy proceeds to the nominated beneficiary.
If you intend life policy proceeds to go to someone other than the nominated beneficiary, the Nomination must be changed.
If you cannot remember whether you have nominated anyone, or who you have nominated, this information can be obtained by us from the relevant Life Office.
The Nomination should be changed if it is no longer appropriate.
Family Provision Legislation
Family Provision Legislation gives the families of deceased persons the right to claim a share of a Deceased Estate.
The most frequent reasons for a Will to be challenged are that the Deceased's spouse, children or other dependent grandchildren or members of the Deceased's household consider that they have not been adequately provided for by the Will.
The Court has power to give these persons something if it decides that the Deceased should, in the circumstances, have made better provision for them.
Tax Liability of Executor
The Executor is personally liable for any income tax liability of the Deceased Estate.
This means if the Estate does not pay its tax liability, the Executor must pay it out of his or her own personal funds.
To protect against this personal liability, an Executor should either:-
- actually pay the tax bill for the Estate; or
- retain an amount that would be sufficient to pay any future tax liability of the Estate, before paying out the beneficiaries.
Capital Gains Tax was introduced in 1985.
It applies to any capital gain made on the disposal of an asset which a person acquired on or after 20th September 1985.
An understanding of Capital Gains Tax is crucial to Estate Planning.
Careful attention to capital gains tax must be made when administering an estate. We will work closely with your accountant to maximise the Estate and beneficiaries positions in respect of capital gains tax.