Administration of an Estate information

  1. Introduction

If you have been asked to act as Executor on an Estate but do not know exactly what will be involved, this information is intended to explain what is involved and some of the terminology.

When a person dies all of their property is their Estate.

Administering an Estate describes the process through which:

  1. The property of the person who has died is collected in by the Executor;
  2. Any debts, gifts and taxes are paid;
  3. The legal Title or ownership to the remaining property is transferred;
  4. Any funds are distributed according, to the Will, to the beneficiaries. (Or the intestacy rules – when the deceased does not leave a Will).

Upon the death of a person all powers of attorney and signing authorities the person may have granted through their lifetime cease.

  1. Will or Intestacy

Will

2.1 The first thing to establish is whether they have left a valid Will. A Will must be signed under the formalities set out in the Wills Act 2007. A Will has no effect until death.

2.2 A Will deals with:

(a) how the Will-maker’s assets are to be disposed of on death;

(b) the appointment of one or more Executors. The Executor(s) must administer the Estate and make sure the property left by the person reaches the people to whom it is left, the Beneficiaries; and

(c) the appointment of a guardian to act for children under 18.

Intestacy

2.3 If someone dies without leaving a valid Will then an Intestacy arises. The person who has died is said to have died Intestate.

2.4 If no Will is left, or the Will does not validly appoint any Executors then the law sets down certain people entitled to administer the Estate. These are usually relatives of the person who has died and often Beneficiaries themselves. They are Administrators.

  1. Key Duties of the Administrator/Executor

3.1 The key duties of the Administrator/Executor are to:

(a) bury the deceased and pay the funeral account;

(b) make an inventory of assets to find out the value of the Estate;

(c) pay all tax, testamentary (Will or intestacy related) expenses and debts; (d) if there is a surviving spouse, advise them to seek independent advice (according to the Property (Relationships) Act 1976 – see below);

(e) pay specific gifts as set out in the Will;

(f) keep accounts; and

(g) distribute the remainder of the Estate (the residue) to the persons entitled.

3.2 The Administrator/Executor must act with due diligence and as reasonably quickly as they can.

3.3 An Administrator/Executor cannot acquire a personal interest in Estate assets (except as provided for under the Will) without the express consent of all the Beneficiaries.

  1. Grant of Probate

4.1 Unless the Estate is small the Administrator/Executor must obtain an Order from the Court which authorises them to deal with the Estate. This can be shown to anyone who wants proof that the Administrator/Executor may deal with the property of the person who has died.

4.2 Where there are Executors of a Will, this is a Grant of Probate. Probate literally means proof that a Will is valid.

4.3 In the case an Intestacy or where there are no Executors appointed under the Will, it is called a Grant of Letters of Administration.

4.4 For this explanation we will use the term Grant to refer to both.

4.5 In some cases where the Estate is usually under $15,000, the Personal Representatives can collect in the money of the Estate, pay the debts etc and distribute the money to the Beneficiaries without having to obtain a Grant.

4.6 The Grant is obtained from the High Court. The circumstances where the Personal Representatives might have to go to Court would be where there is a serious dispute in an Estate, for instance, over the validity of a Will.

4.7 To apply for the Grant the Personal Representatives must make an Affidavit. This is sworn or affirmed before a Solicitor or a Justice of the Peace. In the Affidavit the Personal Representatives explain how they are entitled to the Grant and promise to administer the Estate properly.

4.8 The Will and the Affidavit are sent to the High Court for the Grant to be issued.

4.9 The actual original Will signed by the person who has died is kept by the Court. It is a publicly available document once the Grant is made.

4.10 The Grant is the document which has to be obtained before steps can be taken to collect in the assets of an Estate and proceed with administering the Estate.

  1. The Grant

5.1 Copies of the Grant must be produced to all financial institutions, such as banks, finance companies and insurance companies, before they will release the money. There are often various claim forms and withdrawal forms which the Personal Representatives must sign to enable the money to be released.

5.2 Any assets owned by the deceased, such as land or shares, will be transferred into the names of the Executor(s). The records will show they are holding the property as the Executor(s) of the Estate.

5.3 Any assets the deceased may have owned jointly with someone else are not part of the Estate. Jointly owned assets by operation of law pass to the surviving owner.

5.4 Once the money comes in, it is normally handled by the Estate solicitor through the Solicitor’s Trust Account. Once the debts and expenses have been paid and provision has been made for Estate expenses, the Personal Representatives can pay/distribute the specific gifts made in the Will.

5.5 As far as specific monetary gifts are concerned, the Personal Representatives have one year from the date of death within which to pay them. This period of time is the Executor’s Year. If at the end of that year they have not been paid, then interest must be paid on the gifts until payment.

  1. How Long Does it Take to Administer the Estate?

6.1 The time it takes to wind up an Estate depends on several factors, including how clear the Will is and the nature of the assets held by the person who has died. If the assets only consist of money in bank the Estate can be wound up quickly.

6.2 If, however, a house must be sold but a buyer cannot be found, it can take time. It can also take a long time if, eg, Beneficiaries cannot be found.

6.3 The administration of the Estate may also be more complicated if the deceased ran a business which has to be sold or there are assets abroad.

6.4 The distribution of the remainder of the Estate, the residue to the Residuary Beneficiaries, will normally not occur until the administration of the Estate has been completed and the time period for making claims against the Estate has elapsed (Claim Period). If a distribution is made from an Estate before six months from the date of the Grant and a claim against the Estate is successful, the Personal Representative may have to personally pay such claim.

6.5 The Personal Representative may decide to make an interim distribution to Beneficiaries before the end of the claim period.

6.6 Once the Estate has been fully administered, the residue will either be transferred to the Residuary Beneficiaries or continue to be held on any trusts that have been established in the Will or Intestacy.

  1. Trusts

7.1 Sometimes a Will or the intestacy rules may create ongoing trusts rather than outright gifts.

7.2 For example, a share of the Estate may be held until a child becomes entitled to it on reaching the age of 20.

7.3 Quite often if there are continuing trusts, the Executors are also appointed as Trustees. They have a continuing duty to look after the money for the Beneficiaries who are eventually entitled to it and in the meantime, to invest it in the best possible way.

7.4 If there are trusts there will also be a need to keep accounts and complete tax returns each year. It may be that the duties of a Trustee will not cease with the end of the period of administration but may continue for some years.

7.5 Solicitors can help with all the day to day running of such trusts, to reduce the amount of time the Trustees themselves need to spend on these matters and to make sure that all obligations are met at the right time.

  1. Claims Against the Estate

A claim may be made against the Estate under the following Acts. Note that multiple claims can be lodged and claims can be made under more than one Act.

8.1 Family Protection Act

8.1.1 Under the Family Protection Act 1955 certain categories of people may make a claim against the Estate that insufficient provision has been made for them under the Will of the deceased.

8.1.2 Normally, if someone wishes to make a claim under this Act, Court proceedings must be issued within 12 months from the date of the Grant of Probate or Letters of Administration. There may be circumstances in which the Personal Representatives will be advised not to make any payments to the Beneficiaries of the Estate until the period of 12 months after the date of the Grant of Probate has passed. If they distribute money before six months after the Grant and a claim is later made the Personal Representatives can become personally liable to the claimant to the extent of the assets they have already distributed.

8.1.3 If a claim does proceed, the Personal Representative/Estate takes a neutral role in the proceedings. The Personal Representative will be required to appear in Court through the Estate’s lawyers and has a duty to provide information to the Court.

8.2 Testamentary Promises

8.2.1 If the deceased has made a promise to make a gift to someone in their Will in return for that someone doing something for the deceased, and no such provision has been made, a claim can be made under the Law Reform (Testamentary Promises) Act 1949.

8.2.2 In testamentary promises claims the Personal Representative must actively represent the interests of the Estate in defence of the claim.

8.3 Property (Relationships) Act 1976 (PRA)

8.3.1 This Act deals with the way couples can inherit from their deceased partner’s Estate.

8.3.2 Regardless of what the Will says or intestacy law provides, the surviving partner can choose instead to share relationship property on the same basis as if the relationship had broken up rather than their partner dying.

8.3.3 The legislation presumes that all property owned at the date of the deceased partner’s death by the deceased partner and by the surviving partner is relationship property and is to be shared equally unless there is evidence to the contrary. The surviving partner can therefore choose to:

(a) take half of all relationship property owned by the couple (which includes relationship property owned by the surviving partner). The other half goes into the deceased partner’s Estate and is generally distributed to the subsequent Beneficiaries named in the Will as if the surviving partner predeceased the deceased partner; or

(b) take under the Will.

8.3.4 Some property such as gifts and inheritances which have not been used as family assets are not presumed to be relationship property. If the parties have signed any contracting-out agreements in their lifetime, generally the intention of the agreement takes precedence.

8.3.5 If a surviving partner chooses to divide relationship property instead of taking what the Will provides, they will have to sign a formal document to do so (Option A) and must have the effects and implications of that choice explained to them by a lawyer, who must certify that this has been done. Once the Option A document is signed, it cannot be withdrawn except by permission of the Court. The choice must be made within six months of the Grant, or six months of the date of death if no Grant is required. If the choice is not made within that time, they are treated as having chosen to accept what the Will has left them (Option B).

8.3.6 The Personal Representative must advise the surviving partner to seek independent legal advice on their rights under the PRA.