It’s common for service professionals like accountants and financial planners to be asked to serve as executors on the estate of a client. Clients feel that their estate will be in the good hands of a finance and estate professional and that you will handle any problem effectively. Because there is already a relationship of trust between you and the client, and you know their financial situation and often even the family situation, you’re in a unique place to offer your services as the executor of their will.
But be warned: there is grave danger in finance professionals agreeing to act as executors on the estates of their clients.
If you’d like to learn how to lose your business and your reputation simultaneously, read on; but if you’d like to avoid this possibility altogether, then this is for you.
Should accountants and financial planners act as executors?
CASE STUDY: Accountants As Executors
Graham is an accountant and has been looking after his client, Olive, for over thirty years. He helped her particularly when her husband died and his business had to be sold. Olive has a healthy estate worth over $2 million when she dies, and because she has always trusted Graham, she has appointed him as her executor.
Graham knows Olive’s family well, and doesn’t believe there will be any disputes. Olive has a son, Will and a daughter, Amy who both get along well. Will is single and never married, and Amy is married with children.
Graham begins his task as executor and the instructions seem straight-forward. The residence in which Olive lived is to be sold, and everything split equally between Will and Amy. Then Will visits Graham and explains his situation.
He’s been renting all his life, and he’d really like to move into the home in which he’d grown up. He asks Graham if he could receive the house, and his sister Amy receive all the other assets – cash, shares and other investments. She has no interest in the house, because she already owns a home.
Graham can see that this looks like a reasonable deal – the house is worth about a million, and the rest of the estate is worth about a million, so it seems fair.
He agrees, and this is how he finalizes the estate. Everything seems well until he receives a visit from Amy. There are several legitimate reasons for her concern: she didn’t agree to the deal between Graham and Will, but even worse, she has a property valuation in her hand.
The family home has been independently valued at $1.5 million, having increased in value significantly in the last few years. The shares she’d received hadn’t enjoyed the same capital growth. The result for Amy is that her brother received a house worth $1.5 million, and her share of the estate is worth only about $800,000.
The will was clear, she tells Graham. We were to receive the estate in equal shares.
Graham has two significant problems.
Executors have certain obligations when administering an estate.
Failure to administer the estate appropriately may result in the executor being personally liable for their oversights. In this case, Graham didn’t administer the estate as he should have by not following the instructions of the will, and one beneficiary has suffered a loss of $700,000. Graham could be held responsible for this loss if the court finds that he did not perform his duties as required.
Can Graham afford to repay Amy the $700,000 she lost because of his deal with Will? Probably not. He would have to sell everything he owned, including his business and home, to settle the debt. There’s also the costs of the litigation she commences against him, and the bad publicity he receives as a consequence of the legal proceedings.
Does his professional indemnity insurance cover his actions?
Couldn’t Graham claim the $700,000 on his professional indemnity insurance? There’s just one problem with that: he may not be covered. His professional indemnity insurer is presently arguing with him that his conduct as executor is not covered by his policy – as it has nothing to do with being an accountant. Now he’s not only lost $700,000 of his own money because his insurance won’t cover the loss (unless he can get a lawyer to sue his insurer), but he suffers a great loss to his reputation.
Graham has experienced financial loss and reputation loss in one fell swoop.
What could Graham have done differently?
The most important thing Graham could have done differently was to recognize the limits of his expertise. Succession Law is a complex area of the law. Graham should have sought the advice of a specialist in Succession Law, and followed that advice carefully.
Solicitors who aren’t Accredited Specialists in this area of the law themselves can be subject to litigation because a beneficiary has suffered a loss. Last year, a solicitor on the Gold Coast was sued for nearly $800,000 for giving negligent estate planning advice. The suit claimed that the solicitor failed to give proper advice that might have protected the estate from a claim from an estranged family member.
That’s why receiving expert advice is critical.
The moral of this story is: always seek the advice of an Accredited Specialist in Succession Law (Wills & Estates). You’ll save both your wallet and your reputation.
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