To Protect Themselves Executors Should Ideally Maintain a Neutral Position, Ensure All Beneficiaries Are Treated Fairly and Consider Indemnity Insurance
A recent case, where executors were ordered to pay costs of over £1million, as a result of a successful conflict of interest claim, demonstrates the scale of risk and liability that executors face. The executors were ordered to pay costs themselves because the court concluded they had not acted in a neutral capacity and had favoured one group of beneficiaries over others.
There has been a substantial rise in disputes over estate management and executors should not only ensure they are acting in the best interests of all beneficiaries but consider protecting themselves with an indemnity policy such as executors’ insurance.
In this particular case, the Executors who were dealing with an estate with multiple beneficiaries, resisted an action against their removal by one of the beneficiaries, the daughter of the settlor, who had brought the claim alleging conflict of interest.
She argued that the executors were too closely aligned to one group of beneficiaries, the settlor’s son and children. The daughter believed that transactions that had happened during her mother’s lifetime, when she had reduced capacity, could not be fairly investigated by the executors because of their close relationship with her brother and his children, and that the estate had not been fairly managed to benefit all beneficiaries after her mother’s death.
The executors chose in the first instance to resist removal by defending the claim. If this had been seen as a reasonable action the executors would have benefited from an indemnity from the estate, meaning defence costs would have been covered by the estate. In this instance though both the trial and the appeal judges decided there was a genuine conflict of interest and it was unreasonable for the executors to act in defence of their own removal.
The executors later dropped their defence and changed to a neutral position but the two judges ruled that they were personally liable for all the costs relating to the initial defence, which was in excess of £1million.
The original trial judge referred to the Law Society’s Practice Note on Disputed Wills:
‘As an executor you are a fiduciary with duties to the beneficiaries of the estate, whoever they turn out to be. If you are partisan in the litigation, you risk a cost order being made against you personally… To avoid being at risk of costs you should therefore remain neutral and allow the beneficiaries of the will or next of kin to pursue litigation. Your only obligation in the proceedings is to provide information and preserve the estate.’
About the author
Guy has worked in the insurance profession for over thirty years, initially in the London Insurance market as a broker and subsequently as a Lloyd’s Members’ Agent. He set up private client insurance brokers Castleacre in 2005. Castleacre is the first company in the UK to offer indemnity insurance to lay executors – in direct response to clients who had become executors but could not find suitable cover on the market. If you have would like to know more about executor liability insurance or to contact Guy click here. If you wish to view the Executors Insurance blog click here.