Administering A Deceased Estate

Contributed by Emma Bragg, Tetlow Legal and current to March 2022. Based on the contribution of Charles Rowland.

Introduction to the Task of Administration

The law relating to estates is primarily governed by the Administration and Probate Act, the Wills Act, the Trustee Act 1925 (ACT) ('the Trustee Act') and the Court Procedures Rules 2006 (ACT) ('the Court Procedures Rules') Part 3.1 rr 3000 - 3120.

This section provides basic information on the procedures involved in administering a deceased person's estate. In the majority of cases however legal advice in relation to the administration of the estate should be sought.

The Person Responsible for the Administration: The Legal Personal Representative

The term ‘legal personal representative’ includes ‘executors’ and ‘administrators’ (refer to definition at Glossary of Legal Terms Used. It is important to distinguish clearly between the two roles. An executor is a person appointed in a will to administer the estate of the deceased person; an administrator is a person appointed by the court to administer the estate - usually because there is no will, or because no person appointed by the will is able or willing to undertake the role of executor.

The duty of the executor is, in principle, to protect the estate and to carry out the terms of the will in accordance with the applicable laws.

The duty of the administrator is to protect the estate and to administer the estate in accordance with the applicable laws, and to divide the net estate in accordance with the rules of intestacy (or in accordance with the will if there is one).

In special circumstances the court will pass over the executor named in the will. However, this is only done in most unusual circumstances, as the court will make strenuous efforts not to interfere with the testator's choice.

Do you have to Act as Executor?

A named executor who has not intermeddled in the estate has no duties in relation to the estate and cannot be compelled to act. The named executor can renounce; or reserve the right to come in and prove the will later; or, if another executor is appointed with them, allow that executor to take on the task of administration; or the executor can hand over the task of administration to a professional executor (such as the Public Trustee and Guardian). Ultimately, the executor can simply do nothing and wait for others to take control, though this course is unhelpful and is not advisable.

The situation is different if an executor has intermeddled in the estate. Intermeddling means acting in such a way as to show that the person has taken on the role of executor. Selling estate assets would normally be intermeddling. Even after intermeddling, the named executor cannot be compelled to act in the administration as a whole, but can be required to account for the property in relation to which they have intermeddled.

The limitation placed by the law on the intermeddling executor is that they are prevented by the intermeddling from renouncing the role of executor except with the consent of the Supreme Court. Note that any person who intermeddles in an estate is bound to keep detailed accounts of what they have done.

Insolvent Estates

If the deceased had more debts than assets (in other words, the estate is insolvent), the estate is usually made bankrupt (in much the same way as is done in the case of a living person who is insolvent) and is administered by a trustee in bankruptcy. If the estate is administered by a trustee in bankruptcy the executor named in the will or the administrator if there is no executor, plays no part in the administration of the estate.

The proceeds of life insurance policies are protected by statute from the insolvency and normally do not form part of the insolvent estate: s 205(1) Life Insurance Act 1995 (Cth).

Do you need a Grant?

The person who will wind up the estate will have to decide at an early stage whether it is necessary to apply for a grant of probate or letters of administration.

A person without a grant can effectively administer certain estate assets, and if the estate consists only of such assets, a grant is not legally required. Assets which can be administered without a grant generally include goods (such as motor vehicles, household goods, jewellery, paintings and so on), modest bank accounts and the proceeds of small insurance policies.

Assets in the estate which will generally require a grant include real property (land) (except where the deceased was a joint tenant), substantial bank accounts, insurance policies, most shareholdings and other interests in corporations. To determine whether a grant is required the legal personal representative, or their solicitor, should enquire with each institution concerned.

Other Factors for Obtaining a Grant

Other factors which would make it advisable not to proceed without a grant are:

• doubt about the whereabouts of a will;
• doubt about the validity of the will or its meaning;
• doubt about the right of the executor or the administrator to administer; and/or
• the possibility of litigation by or against the estate, or disharmony between the beneficiaries.

Litigation normally also requires a grant.

In the ACT, the executor should get a grant if there is a possibility of a family provision claim, because the time within which the application must be made (6 months after the grant) does not start to run until the grant is made: s 9 Family Provision Act. The advice of a professional should be obtained in these circumstances.

Risks and Liabilities of not obtaining a Grant

Some of the statutory protections available to the legal personal representative who has taken out a grant are not available to the person acting without a grant, and accordingly, the person acts at their own risk in administering the estate without a grant.

If they cause any loss to the estate, that person is personally liable and has no right to indemnity, except to the extent that they are protected by advertising their intention to distribute: ss 64, 65 Administration and Probate Act. This may not be of concern if there is no risk of liability, for instance if the estate is solvent, and the person acting without grant is the sole beneficiary.

Effect of a Grant

The grant constitutes recognition by the court of the legal personal representative's right to administer the deceased's estate. The grant also vests the estate assets in the legal personal representative.

After a grant the legal personal representative has full authority to act in relation to the estate, and with the grant, the legal personal representative will be able to deal effectively with all estate assets. After the grant, the legal personal representative has valuable statutory and common law protections.

The Task of Administration – A Checklist

Overview

In outline, the legal personal representative has the task of administering the estate after the deceased's death.

The main elements in this task are to carry out the following duties:

• deal with funeral arrangements in consultation with the family;
• decide whether or not the will has to be formally proved, that is, whether it will be necessary to apply for a grant of probate of the will;
• advertise his or her intention to apply for a grant of probate of the will or for letters of administration (if this is required) - the advertisement will ask creditors to notify the executor of claims against the estate;
• ascertain the assets and liabilities of the estate;
• make an inventory and keep detailed accounts;
• gather in the assets and protect them;
• pay the debts of the estate; and
• distribute the net assets according to the will or the intestacy rules as the case may be.

Arrange the Funeral

The executor named in the will is the proper person to arrange the funeral. This should be done in consultation with close relatives, and any decision should be governed, as far as possible, by the known wishes of the deceased. In appropriate circumstances a close relative or even a stranger is entitled, even before grant, to arrange for the disposal of the deceased's body (for further information on Funerals see Possession of the Body and Moving the Body).

Protect the Assets

The named executor (or the person who will become the administrator) should take steps to protect estate assets urgently should this become necessary. However, as a person who intermeddles in the estate may lose the right to renounce, caution should be exercised (for further information see Do You Have To Act As Executor?).

Obtain a Grant if Necessary

If a grant is required, the person who will be applying for it should get ready to do so: on the need for a grant see Do You Need a Grant? and on getting a grant see Obtaining a Grant of Representation - Some Practical Tips.

Take Control of the Assets

This means to make an inventory and to be prepared to exhibit it to the court, and to take care of and to get control of the assets. For example, this may mean recovering (by legal action if necessary) debts due to the deceased.

The legal personal representative is under a duty to open an estate account and put money paid to the estate into this account, and not into the legal personal representative's own personal account. This reflects the fact that the legal personal representative is a fiduciary.

Pay the Duties, Administration Expenses and Debts

We are concerned here with solvent estates: if the estate is insolvent it should be administered under the Bankruptcy Act 1966 (Cth). Professional advice should be sought, and the work of administration is done by the trustee in bankruptcy rather than the executors. Proceeds of life insurance policies are generally protected against creditors of an insolvent deceased estate (see Insolvent Estates).

A. Funeral accounts

Banks will, before grant, apply funds held by them to funeral accounts on production of the account, a copy of the will and a death certificate.

B. Payment of debts due by the estate

The legal personal representative is obliged to pay the deceased's debts as well as debts which the legal personal representative incurs during administration.

Taxation

A. Responsibilities of the Legal Personal Representative

Upon obtaining a grant of representation, Australian tax laws place the legal personal representative in the same shoes as the deceased. That is, the legal personal representative has the same taxation rights and obligations as the deceased. As such, the Commissioner of Taxation is empowered to recover tax and penalties from the legal personal representative personally. For this reason, it is essential that as part of the administration of the estate, the legal personal representative ensures that the tax affairs of the deceased and the estate are finalised prior to distribution of the estate.

As part of the ordinary course of the administration of the estate, the legal personal representative should:

• notify the Australian Taxation Office of the deceased’s passing;
• prepare and lodge any outstanding tax returns of the deceased – these could include Income and Business Activity Statements;
• prepare and lodge a ‘Date of Death’ tax return (also sometimes referred to as the ‘Final Tax Return’) which covers the period from 1 July of the current financial year to the deceased’s date of death;
• if a Final Tax Return is not required; then a Non-Lodgement Advice should be submitted to the Australian Taxation Office which is clearly marked as a ‘Final Return’;
• cancel any of the deceased’s ABN’s and/or GST registrations once the assets attached to these registrations have been dealt with;
• apply for a new ABN and GST registration on behalf of the estate if the estate continues to conduct a business owned and operated by the deceased;
• if a tax return is required for the estate; apply for a new Tax File Number for the estate (often referred to as an ‘Estate Tax File Number’);
• prepare and lodge any estate tax returns; and
• pay any outstanding tax obligations.

B. Capital Gains Tax

It is important to obtain suitably qualified taxation advice when dealing with the administration of a deceased estate as the disposal of certain assets may trigger Capital Gains Tax.

The legal personal representative should be conscious that even assets that may have been exempt from Capital Gains Tax prior to the deceased’s death may subsequently become the object of Capital Gains Tax after death. An example of this is the deceased’s primary place of residence. During the deceased’s lifetime, this may have been exempt from Capital Gains Tax. There is however a requirement, subject to certain exceptions, that the interest in the property needs to be disposed of, and settled, within two years from the date of death in order for Capital Gains Tax to then not apply.

There may also be implications for a beneficiary who receives a particular asset which may be, or later become, the subject of Capital Gains Tax. For example:

• a beneficiary who receives an asset which was subject to Capital Gains Tax prior to the deceased’s death will inherit the cost base of that item from the deceased; or
• a beneficiary who receives an asset which was not subject to Capital Gains Tax, for example, it was a pre-Capital Gains Tax asset, then the subsequent disposal of the asset by the beneficiary may trigger Capital Gains Tax. The relevant cost base in this example to the beneficiary would be the market value of the asset as at the date of the deceased’s death. A pre- Capital Gains Tax asset is an asset which was acquired by the deceased prior to 20 September 1985.

Taxation is complex and the advice of a suitably qualified tax professional should always be sought.

Distribute the Net Estate

Once provision has been made for debts, or they have been paid, the legal personal representative is under a duty to distribute the net assets to the beneficiaries or to trustees as the case may be. The legal personal representative will be personally liable for an incorrect distribution, and, if they pay improperly, they will not be indemnified unless they have acted strictly within the terms of the ss 63, 64, 65, 66 and 67 Administration and Probate Act, s 21 Family Provision Act (if appropriate) and s 60 Trustee Act . These sections require that the legal personal representative advertise their intention to distribute.

The legal personal representative may distribute property mentioned in the will as specific gifts, and even proportions of residue before payment of debts, if it is clear that creditors will not be prejudiced and the legal personal representative has sufficient assets in hand to cover all claims. It follows that there will often be more than one distribution to beneficiaries. However, prior to distributing assets or funds from the estate, the legal personal representative must be quite sure that:

• the asset(s) will not be needed for the payment of debts;
• the distribution is in accordance with the terms of the will or the laws of intestacy as the case may be;
• the asset(s) will not be needed to satisfy a claim for family provision; and
• the required notice of the legal personal representative's intention to distribute has been published in advance.

The legal personal representative does this at their own risk. If it turns out that the legal personal representative paid a beneficiary (or creditor) too much, then the legal personal representative will be personally liable for the resulting shortfall.

Account for the Administration

Any person interested in the estate can require the legal personal representative to provide an itemised account of the administration to date. The exercise of this right is not dependent upon an allegation of fraud or other breach of trust.

The legal personal representative does not have to submit accounts to the Registrar unless required to do so, or if they are applying for commission.

Departing from the Terms of the Will

In principle, the duty of the executor is to carry out the terms of the will, and it is generally a breach of trust to do otherwise. This is true even if the terms of the will are onerous and inconvenient. There are, however, a few situations in which the terms of the will may properly be departed from:

• where the condition or provision in the will is legally void or unenforceable;
• where the terms of the will express no more than a wish;
• where the court authorises a departure from the terms of the will; or
• where all the beneficiaries are of full age and capacity and consent to a distribution different from that provided for in the will. This agreement is called a ‘Deed of Family Arrangement’.

In all these situations professional advice should be sought.

Payment of Executors (Commission)

The Supreme Court is empowered to allow a commission or percentage to executors, administrators and trustees for their pains and trouble. Applications for commission are heard by the Registrar (on notice of motion), who will award commission at their discretion up to a maximum of 5 per cent of the gross assets (that is, the value of the assets before deducting debts): see s 70 Administration and Probate Act. Section 70 as read with r 2748 Court Procedures Rules makes it clear that commission will not (without a special order of court) be awarded until the applicant has had the estate accounts passed by the Registrar. Having the accounts passed can be a long, arduous and expensive process.