If you have been appointed as the executor of a will in New South Wales, you have taken on a significant legal responsibility. While it is an honour to be entrusted with this role, it is also a serious duty. If not executed properly, you may find yourself personally liable.
Being appointed as an executor of a deceased estate in New South Wales imposes signification statutory and fiduciary obligations. The role extends beyond administrative functions an executor can be personally liable for missteps in estate management, even if acting in good faith. This article reviews the key areas of potential liability for executors.
Legal Framework
In NSW, the core legal instruments governing executors’ duties and liability include:
- Succession Act 2006 (NSW)
- Probate and Administration Act 1898 (NSW)
- Trustee Act 1925 (NSW)
- Common law and equitable principles applicable to fiduciaries and trustees.
Key Areas of Executor Liability
1. Mismanagement of Estate Assets
Executors owe a fiduciary duty to administer the estate prudently, which includes collecting, preserving, and where appropriate, investing estate assets. This duty is especially critical when balancing competing interests between beneficiaries such as a life tenant and remaindermen. Failure to exercise reasonable care and diligence in managing these interests may expose an executor to personal liability (Re Mulligan [1998] 1 NZLR 481).
The standard of care expected of an executor is that of an ordinary prudent person conducting their own business affairs. Executors must actively safeguard estate property and avoid imprudent or overly conservative decisions that may disadvantage certain classes of beneficiaries. This standard was affirmed by the High Court in Carter v Trustees Executors & Agency Co Ltd [1952] HCA 31; (1952) 85 CLR 167.
In New South Wales, the duty to collect and protect estate assets is also imposed by statute. Section 44 of the Probate and Administration Act 1898 (NSW) provides that the legal personal representative must, with due diligence, gather and administer the estate of the deceased. A failure to do so can give rise to claims from beneficiaries or creditors if loss is suffered.
2. Premature Distribution and Liability for Debts
Executors who distribute estate assets before all debts including outstanding tax liabilities are paid in full may be held personally liable for any shortfall. This risk is particularly acute where tax assessments are pending or known liabilities have not yet been finalised. This was the outcome in Re Z; Ex parte Deputy Commissioner of Taxation (2000) 49 NSWLR 639.
Executors are required to comply with all obligations imposed by the Australian Taxation Office (ATO), including lodging final income tax returns, resolving capital gains issues and dealing with tax on superannuation death benefits. Premature distributions made without resolving these matters can lead to clawback claims by the ATO or direct liability to the executor.
In New South Wales, section 92 of the Probate and Administration Act 1898 (NSW) requires that the estate be administered in accordance with law before any distribution is made. Non-compliance with this provision may not only breach statutory duties but also expose the executor to civil proceedings by creditors or beneficiaries for unauthorised or negligent distributions.
3. Delays in Administration (“Executor’s Year”)
Executors are generally expected to complete the administration of an estate within 12 months of the date of death, a timeframe commonly referred to as the executor’s year. While this rule is not codified, it is recognised at common law and sets a practical benchmark. Unreasonable delay in administering or distributing an estate may amount to a breach of duty, attract criticism from the court, or result in removal. This principle was considered in Re Saloumi [2005] NSWSC 1097.
Beneficiaries may seek remedies if an executor takes an excessive or unjustified length of time to act, particularly where the delay causes financial loss or hardship. In some cases, the executor may be ordered to pay interest or compensation from their own funds, or to be removed from office. Such outcomes were seen in Mason v Farbrother [1983] 1 NSWLR 515.
Although there is no specific statutory provision enforcing the “executor’s year,” courts may rely on general principles under equity and the Probate and Administration Act 1898 (NSW), including section 86, which permits claims for interest where there has been unreasonable delay in payment of legacies.
4. Improper Distribution Contrary to the Will or Law
Executors are under a strict duty to follow the terms of the will and, where intestacy arises, to adhere to the rules set out in Chapter 4 of the Succession Act 2006 (NSW). Failure to do so can expose an executor to personal liability. This duty ensures that distributions are made to the correct beneficiaries, in the correct proportions, and at the correct time, as stipulated by the will or the intestacy laws. Executors must also consider the rights of potential family provision applicants under the Act.
An executor was found liable for making unauthorised distributions and failing to make reasonable provision for a potential family provision applicant, contrary to the requirements of the Succession Act 2006 (NSW). The court held the executor personally accountable for not considering the rights of eligible persons under the family provision regime (Estate of Batten; Batten v Knight [2016] NSWSC 1680).
Liability can arise in several situations, including:
- Paying the wrong beneficiaries: Executors must ensure that distributions are made according to the will or the applicable law in the event of intestacy. If funds are distributed to the wrong individuals, the executor may be required to repay the estate.
- Distributing contrary to the law of intestacy: Where no valid will exists, executors must distribute the estate in line with the rules of intestacy as outlined in the Succession Act 2006 (NSW).
- Failure to identify or locate all beneficiaries: Executors must make reasonable efforts to locate and notify all beneficiaries entitled under the will or intestacy. Failing to do so may result in liability for any misdistribution of estate assets.
5. Failure to Respond to Family Provision Claims
Under Part 3 of the Succession Act 2006 (NSW), eligible persons have the right to claim provision from the estate if they believe they have not been adequately provided for. Executors must be vigilant in ensuring that such claims are addressed and that the estate is not prematurely distributed before the expiration of the 12-month limitation period for making family provision claims (Section 99 of the Succession Act). If an executor ignores or fails to delay distribution pending the resolution of such claims, they may be personally liable.
Executors are required to assess whether a claim for provision may be made and, if necessary, retain sufficient funds to meet any potential family provision awards. Distributing the estate before the limitation period expires, or without securing appropriate legal advice, exposes the executor to the risk of having to repay portions of the estate, or to personal liability for claims made against it. Executors must also take steps to investigate potential claims, even if no formal application has been made by the 12-month deadline.
In Smith v Smith [2010] NSWSC 797 the executor distributed the estate despite being aware of a potential claim from a family member under the family provision provisions of the Succession Act 2006 (NSW). The court found the executor personally liable for the shortfall in the estate caused by this premature distribution.
6. Executor’s Duty to Act Impartially
Executors are required to act impartially and fairly when administering the estate. This means they must avoid favouring one beneficiary over another, unless explicitly directed by the terms of the will. Executors must manage the estate for the benefit of all beneficiaries, considering their individual entitlements and needs. Failure to do so can lead to claims for breach of fiduciary duty.
For example, an executor may be accused of breaching their duty if they make a distribution that favours one beneficiary over another without justification, or where there is a conflict of interest, such as an executor also being a beneficiary. Executors must also remain neutral and avoid allowing personal interests to influence their decisions regarding the distribution of assets.
In Re Trusts of the Will of John Ewen [2012] NSWSC 1607 thecourt found that the executor had favoured one beneficiary over another, which was contrary to their duty of impartiality. The executor’s personal interests in the matter led to a breach of fiduciary duty, and they were held personally liable for the loss caused by their actions.
Mackenzie v Coulson [1993] 2 Qd R 457, a Queensland case reinforced the principle that an executor must not prefer themselves or one beneficiary to the exclusion of others. The executor was found to have acted improperly by prioritising their own interests in the distribution of the estate.
7. Breach of Duty to Keep Accounts and Provide Information
Executors have a statutory duty to keep accurate accounts of the estate administration process and to provide beneficiaries with information upon request. This duty is essential for ensuring transparency and accountability in the administration of the estate. Executors must keep detailed records of all transactions, including income, expenditures, and distributions, and must make these records available to the beneficiaries when requested.
Failure to maintain proper accounts or to provide information to beneficiaries can lead to claims of misconduct or breach of fiduciary duty. For instance, in Re Estate of Argyll [2011] NSWSC 1307, the executor was found liable for failing to provide detailed accounts to the beneficiaries, despite multiple requests. The court held that the executor’s failure to communicate effectively and maintain proper records amounted to a breach of their fiduciary duty, and personal liability was imposed.
Moreover, beneficiaries are entitled to be kept informed about the progress of the estate administration, particularly when significant periods of time have passed or when there is a lack of communication from the executor. In Donoghue v Donoghue [2009] NSWSC 1154, the court ruled that an executor’s failure to keep proper accounts and to provide beneficiaries with information about the estate’s administration constituted a breach of the duty of care and transparency owed to the beneficiaries. As a result, the executor was ordered to account for the estate’s funds and provide the requested documentation.
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Author: Carolina Reveco, Principal of Sydney City Legal Practice
This article is to serve as a general information source only. This publication contains opinions, examples, words, and extracts from legislation and other sources; it should not be used as a source of legal, financial or tax advice. To obtain personalised legal advice tailored to your needs that can be relied upon, please reach out and speak to our legal team
