In preparing a Last Will & Testament, a personal representative with the title of Executor is usually named and appointed by the individual making the Will (“the testator”). The Executor, upon the death of the testator, then becomes responsible for managing or administering the estate of the deceased person. Administering the testator’s estate, usually requires that the Executor must i) collect and realise all the assets, ii) pay the just debts owed by the deceased and iii) distribute the remaining assets to the named beneficiaries under the Will.
In carrying out these responsibilities, the Executor must have regard to his duties owed to the estate of the deceased and the ultimate beneficiaries. These duties may be described as fiduciary in character because they arise out of the position of trust occupied by the Executor, who does not act on his own behalf but in the best interest of the estate as a whole and ultimately for those who must benefit from the estate. Importantly too, where an Executor fails to observe these duties he may be sued by any affected beneficiary and held personally liable.
Though the origins of trust differ from that of administration of estates, the Wills Act, Trustee Act and other related legislation dealing with the distribution of assets of a deceased person, often times provide that the duties attached to the office of a trustee also extend to the office of a personal representative.
If you are named as an Executor under a Will then you are said to be appointed, however, the act of accepting that appointment is usually demonstrated through applying for a Grant of Probate from the court. An Executor, however, who begins to collect the assets of the estate by taking possession or control of them, pay out debts or distribute assets belonging to the estate may be said to have accepted the appointment through his actions even before applying for probate.
Ideally, an Executor should await the Grant of Probate before taking steps to assume control of the assets belonging to the estate, though there might be circumstances which may require the Executor to assert himself earlier, whilst he awaits the completion of probate. In any event, once the probate is obtained and the Executor has collected the assets of the estate, his next responsibility is to pay the just debts of the deceased.
Paying the debts of the deceased should be done with utmost due diligence and care and usually within the executor’s year, being the period of one year from the testator’s death. The first assessment to be made before paying out any debt is whether the estate is solvent, meaning are there more assets than liabilities, or is the estate insolvent, meaning there are more liabilities than assets. This determination is critical because depending on the answer to that question, the Executor will know how to deal with the estate and the order of payment to be used in paying the estate’s debts.
Where an estate is solvent, there will be a surplus of assets which can then be distributed to the beneficiaries. It is important to note, therefore, that assets devised or bequeathed under a Will may never in fact pass to the beneficiaries if after calling in the assets, there is simply insufficient assets to settle the estate’s debts and leave any excess for distribution. Alternatively, there might be a case whereby a particular asset intended to pass under the Will had to be used as part of settling the estate’s debts which means that the intended beneficiary will never realise that asset.
The Executor in dealing with a solvent estate must nonetheless adhere to the order of how assets are selected to pay the estate’s debts and liabilities or they might be personally liable to affected beneficiaries. This order is usually either contained in legislation (e.g. Barbados and Belize) or otherwise based on common law rules, being the order applicable in England prior to the coming into effect of the UK Administration of Estates Act 1925. Notwithstanding this order, the courts allow a testator through what is described as “testamentary freedom”, being the freedom to dispose of assets as the testator sees fit and as expressed in his Will, to vary the order of how assets are applied in a solvent estate to the settling of debts and liabilities.
If an estate is insolvent, the Executor must pay attention to the applicable order in such circumstances for paying of the estate’s debts or they again might be personally liable and required to actually pay those debts themselves. In some territories there is legislation governing this process (e.g. The Administration of Insolvent Estates Act, 1887 in Antigua and Barbuda), whilst in other Commonwealth Caribbean territories without express statutory provisions, the administration of insolvent estates may either be: (a) by the court, (b) with the supervision of the court or (c) subject to the relevant bankruptcy laws in the jurisdiction.
Another absolutely critical aspect of paying the just debts of the estate is the very act of determining what those debts are and the creditors of the estate. In some jurisdictions, statutory provisions require advertising for claims against the estate to be submitted, prior to distribution of assets and in other jurisdictions where the UK Trustee Act of 1925 still apply, there is also a similar provision for such advertising. The purpose of advertising is to give notice of the intention to distribute the estate and to give interested persons a chance to inform the Executor of any potential claims which they may have.
At common law, Executors are liable for debts even if they had no notice of them when they distributed the estate, provided there were sufficient assets.* In fact, an argument can be made that even in the absence of any express legislation requiring advertisement for claims from creditors before distribution, that an Executor should advertise to reduce their exposure to personal liability for any future claims of which they might be unaware at the time of distribution. Furthermore, inherent to the Executor’s office is the duty as a matter of due administration of the estate to pay the just debts with due diligence, so that a failure to advertise may be reasoned as falling short of the standard of due diligence required in the observance of this duty.
In conclusion, Executors should determine for themselves whether they are up to the task before accepting appointment under a Will and where they do accept, they should ensure that once the assets of the estate are called in that they settle all the debts and liabilities of the estate, utilizing all due diligence as necessary to mitigate against their exposure to any personal liability, before distributing any gift to any beneficiary.
*Norman v. Baldry (1834) 6 Sim 621; 58 ER 726