Executors of an estate may not use estate assets improperly. Executors of an estate have an obligation to engage in the due administration of the estate. Enormous obligations are cast upon an executor to gather in the estate, pay all testamentary debts and expenses and to distribute the estate in a correct and legal way.
A common error made by estate executors is to sell or use estate assets improperly. An executor can’t sell assets to themselves or a relative without the consent of all beneficiaries of the will affected by that sale.
The overarching duty of an executor is to in engage in the due administration of the estate. In the execution of these duties, an executor has some power. Duties of an executor include obtaining control of the assets of the estate, discharging the debts of the deceased, obtaining probate for the will (where required) and following the will’s instructions.
An Executor Using Estate Assets Improperly
Max and Florence had two children, and Florence died at the age of 70, leaving Max and their two adult children, Shirley and Gary. Only a few years later, Gary died. When Max died, Shirley was the only surviving child, and so she was made the executor of Max’s estate. The will was pretty straightforward, and she didn’t think she’d need any help. She was one of the beneficiaries of the will, as were her two children, Steve and Cameron, and her niece Leah, who lived in another city.
Like many adult children who care for an aging parent, Shirley had moved back into her father’s home to look after him during his final illness. After he died, she continued to live there, because it needed to be fixed up a bit.
One evening, Steve came over for dinner and noticed that his grandfather’s relatively new four-wheel drive ute was sitting idle in the garage. He asked Shirley if she’d mind if he drove it around, since his car was much older and in worse shape.
Shirley thought that it was better to use to car than just have it sitting in the driveway, so she agreed and Steve left later that evening driving the ute.
A while later, Cameron and his wife came over to help to some maintenance to the property. Cameron liked the property and asked Shirley if there was any chance he could buy it. He and his wife were looking for a house in the area.
Shirley thought that she’d better sell the house to Cameron at fair market value, and she organised for a valuation of the property. Cameron agreed to buy the house at the valuation figure. Cameron proceeded to organise finance with his bank and Shirley began to make preparations to move out of the house.
Two weeks later, she received a solicitor’s letter from her niece, Leah. She had been named as a beneficiary in Max’s will, but she hadn’t yet received her inheritance. The letter requested that Shirley, as executor, engage in the due administration of the estate and that she provide a full accounting of the estate.
Shirley sent a letter back to Leah, explaining the arrangements she’d made with her sons. But Leah’s lawyer picked up on a glaring error:
Shirley had not obtained the formal consent of all beneficiaries when making the arrangements with Steve and Cameron.
Furthermore, Leah produced a valuation of the property that Shirley had sold to Steve, and it’s figure was $100,000 more than the valuation Shirley had received.
Shirley has put herself at great risk. Through her own ignorance, she didn’t realise that as an executor, she has breached her duties. Leah may apply to the court to have the transactions Shirley has completed with her sons set aside, or she could make a claim against Shirley for the $100,000 difference in house valuations. In both instances, Shirley is personally culpable for any loss suffered by the estate.
Shirley may protest that she simply didn’t know that what she was doing was a breach of her duties, but ignorance is not an acceptable defence. She may still be found to be negligent by the court, because negligence is decided upon conduct, not upon intent. Shirley did not intend to do the wrong thing, but her conduct fell short of the acceptable standards for the executor of a will.
Shirley should have sought legal advice right from the start. Being an executor is a high risk proposition for anyone who doesn’t know this area of the law well. You can mitigate that risk by seeking and following advice from a specialist in wills and estates.
Bryan Mitchell is an Accredited Specialist in Succession Law (Wills & Estates). You can contact him for a free, 10-minute phone consultation.