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Executor Liabilities

Personal liability

It can come as a shock to the first-time executor or administrator to learn that they can be held personally financially liable for mistakes made administering the estate. There are three main ways in which an executor can become personally responsible:

  1. Any losses caused by the executor which affect one or more beneficiaries and which could reasonably have been avoided could become the personal representative’s responsibility
  2. Fines or interest imposed by the Inland Revenue are the Personal Representative's responsibility
  3. Expenditure which is normally reclaimable out of the estate (funeral expenses, estate agent's fees etc.) will fall to the executor if there are not enough funds in the estate to pay them.

The list of potential pitfalls is quite long and is often used on solicitors' and probate service providers' websites to try to scare potential customers. Awareness of these pitfalls is important if the individual is to avoid them. Equally, knowing when your own expertise is lacking and when to employ the services of a professional is important. There are many potential pitfalls which we gave covered below and in the regular blogs on this site by Guy Everington of Castleacre Insurance. The key pitfalls as follows:

  • Neglecting to properly insure the assets of the estate if it suffers a claim
  • Diminishing the estate through imprudent investment and inadequate book keeping
  • Failing to pay the correct taxes on the estate
  • Selling an asset without the agreement of all the executors involved with the estate
  • Engaging in an action which constitutes a conflict of interest without declaring or disclosing your interest to all relevant parties
  • Improperly delegating a decision to someone who has no legal authority over the estate
  • Paying or distributing goods, chattels or assets to the wrong beneficiary and then failing to recover those assets or monies to the detriment of other beneficiaries
  • Failing to identify a creditor who subsequently makes a claim after the estate has been distributed
  • Missing an overseas bank account relating to the estate which subsequently comes to light and results in a tax fine after the estate has been distributed

Care and skill

A Personal Representative is required to look after the estate assets with an appropriate degree of care and skill. For instance if large sums of money are involved - entirely likely if a house is involved - you are expected to invest the money appropriately and with a safe degree of diversification. You should ensure, if possible, that interest earnings and capital growth are balanced to minimise tax. Full advantage should be taken of each tax year that the administration period covers. You are allowed to take professional advice on these matters and to charge the estate for the advice. Equally, if the cost of advice is likely to be expensive relative to the sums involved then it makes sense to make your own decisions.

Assets should be kept secure and insured if appropriate. If a house with its contents is left unoccupied it would be sensible to remove valuables and keep the property locked. The house should be insured and the insurers informed that it is unoccupied. It may be that the deceased had not taken out insurance on the property so the executor may need to do this - don't assume that it is insured. It is worth looking around the house to try and locate an existing house insurance policy, and checking the deceased's bank statements for insurance premium payments.

Once a Grant is obtained you need to distribute bequeathed assets and convert other assets into money in a timely manner. If a loss occurs because you were shown to be too slow then you may have a responsibility. Examples would be selling a house which falls in value or failure to pay a debt leading to penalty charges.

Misappropriation

Clearly if you steal from the estate then your liability to repay is unlimited. If interest is earned on estate monies make sure it is properly accounted for in a way that you can explain if asked.

Taxes

As an executor you have a responsibility to pay inheritance tax, if due, and to complete tax returns covering the administrative period. If you miss deadlines you will be liable for both interest and penalties and these cannot be claimed from the estate.

Gifts that the deceased made within seven years of their death may be liable to tax. The recipient of the gift is responsible for paying this tax within six months of the death. If they fail to do so then it becomes the executor's responsibility to pay it. The tax can be claimed out of the estate but if you have distributed all the assets then you could end up paying it out of your own pocket.

In a similar vein, if you do not make reasonable efforts to enquire about lifetime gifts you could find yourself responsible if they subsequently come to light.

Distribution

If you misinterpret the will and overpay one of the beneficiaries you may need to make up the difference to the other beneficiaries. If one of the beneficiaries is bankrupt then his creditors must be paid by you, as executor, before anything is given to the beneficiary. Even if you were not aware of the bankruptcy you will still be liable if you get this wrong.

Although you can make interim or staged distributions as appropriate, you must make sure that all debts, including taxes, can be paid out of the estate.

Executor liability insurance

You may want to consider taking out Executor Liability Insurance. This can protect you against errors carried out during probate and the appearance of unknown beneficiaries and would include legal cover and financial reimbursements. The period of cover can usually be extended to suit and the premiums are a legitimate expense which is chargeable to the estate.

For further details of this insurance cover click here. See also the blogs by Guy Everington of Executors Insurance by using the tab above.

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