If it is almost inevitable that someone will be, need or receive something from an executor, you think we’d know a lot more about what an executor does.  Unfortunately, for many people, the first time they have to consider the duties of an executor is at the same time they are grappling with the emotional turmoil following the death of a loved one. 

The first steps

While it is an executor’s duty to organise the funeral, this is generally done by, or in conjunction with, the immediate family of the deceased.  The necessary funeral expenses are allowed to be paid prior to any other debts or charges the deceased may have had.  An executor does need to be aware that the funeral must be in keeping with the size of the estate – it would be a breach of the executor’s duties to arrange an extravagant funeral that exhausted the deceased’s estate, leaving no funds to meet debts or legacies due to be paid to beneficiaries under the will. 

Once the funeral has been conducted, the executor needs to start the process of winding up the estate.  The first step in most cases is to apply for a grant of probate.  This is the process whereby it is proved that the Will is the last and valid Will of the deceased.  As a part of this application, the executor will need to state all of the movable and immovable assets held by the deceased in his or her own name as well as the deceased’s own liabilities, together with respective values.  The kinds of immovable assets to be considered include real estate and land, while other assets such as personal possessions, motor vehicles, shares and bank accounts are considered movable. If you are unsure about the value of any asset, getting an expert valuation may be very useful.  For liabilities, consider mortgages, loans, credit cards and small debts such as telephone and utility bills. 

Example

Jim and Betty have been married for 35 years.  Jim recently passed away.  He and Betty owned a house as joint tenants and had a joint bank account. They also jointly owned all the furniture and household effects.  Jim owned $500,000 worth of Wesfarmers shares and a car which was registered in his name.  It is only the shares and car that need to be included in the grant of probate application as these are held solely in Jim’s name.  

To obtain a grant of probate, the executor, also called the applicant and the deponent in this part of the process, makes an application to the Supreme Court.  Because, in Jim’s and Betty’s case, Jim’s Wesfarmers shares cannot be administered until a probate is granted, it may be worth considering legal assistance with this step because the Supreme Court does have fees for making an application that may not be refundable if a serious mistake is made. 

 To accompany the application, you will need:

• The original Will and, if there are any, any original codicils;
• The original death certificate and a copy if you want the original returned; and
• An affidavit stating whether or not the deceased married or divorced after the Will was executed.

You will also need to provide the full names and current residential addresses for the witnesses to the Will and any codicils.  If you cannot locate the witnesses, you will need to state what you have done to locate the witnesses.  This is another area where legal assistance can prove useful. 

Administering the estate

The executor should start keeping detailed records of all steps taken in the administration of the estate.  Expenses incurred in administering the estate such as the costs of selling assets can be met by the estate.  As the executor will need to account to the beneficiaries for all of the estate’s funds, a prudent executor will keep track of all expenditure and income so that any questions the beneficiaries have can be easily answered.  An executor is in a similar position as a trustee and as such has a duty to perform the executor’s duties as an ordinary, prudent business person would. 

An important consideration at this stage is protection of the assets.  An executor takes responsibility for the deceased’s assets so it is very important to ensure that those assets are insured – an executor could end up personally liable to the beneficiaries if those assets are destroyed and insurance has not been renewed! 

While there is no death duty payable in Australia, there may be outstanding taxation owed by the deceased.  A taxation return will need to be filed with the Australian Taxation Office.  If money is owed, it is to be paid out of the estate, and any refund belongs to the estate. 

After the funeral and expenses relating to obtaining the grant of probate are met, the executor will need to pay all debts and other liabilities of the deceased.  Not all of the deceased’s assets will be available to the estate to satisfy the estate’s debts.  For example, if the deceased owned real estate as a joint tenant, then the surviving joint tenant will own the whole of the real estate under the survivorship provisions.  Life insurance and superannuation benefits may also be in a protected position.  If they are subject to a binding nomination (other than to the estate of the policy or fund holder), they will not available to the estate to satisfy the debts. 

Unless an executor is certain about the deceased’s debts, it would be prudent to advertise in a suitable newspaper for any of the deceased’s creditors to come forward to advise the executor of any debts.  If an executor does advertise and pays only those debts of which there is notice, the executor can distribute the estate knowing that he or she will not be personally liable for any other estate debts that are subsequently revealed. 

In order to meet the estate’s debts, it may be necessary to sell some of the estate’s assets or for the estate to borrow funds.  If assets are to be sold, it is important that the executor acts responsibly to ensure that the assets are sold at their market value.  Any sale of assets will need to comply with the appropriate processes so expert assistance may be useful at this stage. 

Once the debts are paid and there are no known challenges to the Will, the assets can be distributed to the beneficiaries.  Gifts under a Will may be specific or general.  A specific gift is one that is described in the Will and can clearly be identified as separate from the rest of the estate such as “my piano”, “the grandfather clock in the hallway” or “my 500 preference shares in XYZ Ltd”. By contrast, a general gift is something which can be provided from the estate such as “$10,000 to Mary”. After all other legacies are set aside or provided for, and the liabilities of the estate are met, the remainder of the estate, or residue, can be distributed to the residuary beneficiaries. 

When legal advice should be sought

• If an executor considers that the task of administering the estate may prove overwhelming, the cost of using a solicitor to administer the estate instead would be a worthwhile expense and reasonable legal costs can be paid from the estate funds.
• If an executor feels under pressure from one or more of the beneficiaries to deal with the estate in a particular way, engaging a “neutral” solicitor may ensure that each beneficiary feels they are being dealt with fairly.
• If the estate is particularly complex, such as an estate that involves the deceased’s business, or a family trust.
• If it seems that the estate might be insolvent, then the executor should get legal advice as there may be special provisions under federal bankruptcy legislation that applies to the estate.
• If the executor is aware that the deceased has left someone out of the Will who might be expected to be a beneficiary, such as the deceased’s child or de facto spouse, then it is possible that the excluded person might make a claim against the estate under the Inheritance (Family and Dependants Provision) Act.  It may be prudent to seek legal advice to ensure that the estate is able to defend such an action.

Dementia affects estate planning and estate administration in various ways. 

With respect to estate planning, although a client is generally presumed to have capacity, having dementia rebuts this presumption and can make estate planning very difficult.  In cases where a client is suffering from dementia or where an estate planning lawyer suspects a client might be suffering from dementia, as with all estate planning, an estate planning lawyer should consider carefully whether the client has testamentary capacity.   Whether or not a client has testamentary capacity is a legal question, but medical evidence is highly relevant. 

Among other factors, the following matters should be considered when assessing a person’s testamentary capacity: 

• whether or not the client understands the nature of making a Will and the effect of the document;
• whether the client knows the nature and extent of assets of which he or she is disposing under the Will;
• whether the client understands the “moral” claims which he or she should consider when leaving his or her estate, for instance, the claims of his or her spouse or children when deciding who should benefit from the estate.  A person does not necessarily need to leave the estate to these individuals, but the individual should be able to show that consideration has been given to these individuals and, ideally, to provide an explanation as to the reasons for what might be regarded as potentially unusual estate planning choices; and
• whether the person could be suffering from any delusions. 

If a person who suffers from dementia wishes to make a Will, and is able to pass the legal test, then it is prudent for his or her estate planning lawyer to contact that person’s doctor to request a medical opinion as to whether or not, in the doctor’s opinion, the client has the necessary capacity to make a Will.   However, even if the client passes the test and obtains positive medical evidence, there is still no guarantee that having such evidence in place would prevent the Court from later declaring the Will to be invalid, but the evidence is likely to go some way towards supporting the validity of the Will.  

The existence of dementia on the death certificate as a contributory cause of death can lead to problems for the executor in obtaining a grant of Probate of the Will as, unfortunately, doctors often fail to specify for how long a person was suffering from dementia.  A Will is only valid if, amongst many other things, a person had the relevant level of testamentary “capacity” on the date on which he or she gave instructions to make and then sign the Will.

When considering the contents of an application for Probate of a Will where dementia appears on the death certificate, even if it is only as a contributory cause, third party evidence from both the witnesses to the Will and from the deceased’s general medical practitioner will often be required by the Supreme Court to support the contention that the Will is valid.

For more information on this matter or estate planning generally, please call either Sarah Walton (direct line 9420 7166) or Rob Durey (direct line 9420 7105).

From the perspective of estate planning/estate administration, potential problems may arise when people hold assets in different names; for instance, where an individual has changed his or her name as a result of a divorce, marriage or because of a personal preference. 

Whilst the individual and the individual’s family may well be aware of the person’s not so “secret” identities, banks, share registries and other asset holding organisations may not be. 

Accordingly, problems may arise when it comes to administering a person’s estate and either Letters of Administration or, alternatively, probate of a person’s Will is granted in only 1 or 2 names as the relevant organisations might not know the deceased  by that name or names.  Because copies of these Supreme Court-issued documents are often required by organisations before releasing a person’s assets, it would make the administration of an estate much more straightforward if the name under which the person holds the asset marries up with the name appearing on the Court-issued document.

To avoid such an issue, before making a Will, it is worthwhile always double checking in what name you hold assets and, if necessary, amending the title to these assets to your correct legal name.  Alternatively, raise the fact that you go by another name, or indeed several names, with your estate planning lawyer, so that he or she can make reference to these names in your Will.

When considering what is an alternative name, the presence or absence of a middle name is not normally treated as an alias, nor is the use of a diminutive i.e. if a person is known by the name Sam and his full name is Samuel. 

For the purpose of administering an estate, if it becomes apparent that an individual holds assets in several names, it is prudent to apply for a grant of Probate of a person’s Will or Letters of Administration in all of the individual’s names. 

For more information on this matter or estate planning generally, please call either Sarah Walton (direct line 9420 7166) or Rob Durey (direct line 9420 7105).

“Life interests”, “life tenancies” or “life estates” may be created in personal or real property.  It is most commonly used as a term to describe an interest in property for the term of a person’s lifetime.  

Generally, the life tenant will have a right to possess and enjoy an asset for the duration of his or her lifetime or until he or she violates a condition of the tenancy.  Once the life tenant dies or violates the relevant condition, the ownership of the asset is transferred to the “remaindermen”, who are those persons who are entitled to the ownership of the asset after the life tenant’s death.  

The terms of the life interest are commonly set out in a person’s Will or in a deed.  Overall, life interests are often seen as a good way of allowing a party to provide for his or her current spouse, via the life interest, while preserving capital for a future generation. 

In addition, life interests appear to becoming more popular as a result of more people buying property as tenants in common – that is, each party owns a distinct share (eg 50% or 30%) which he or she can “gift” under his or her own respective Wills.  Unlike a joint tenancy, this distinct share does not pass automatically via survivorship to the other owner upon the first owner’s death.  

However, life interests are not something that should be entered into lightly and careful thought should be given to a number of aspects of a life interest.  The “mechanics” of establishing the life tenancy are fraught with potential difficulties.

For instance:

(a)  who should be the legal owner of the property during the currency of the life tenancy?  Should it be the executors rather than the life tenant?  Should the life tenant be one of the executors of the Will?

(b)  what happens if the life tenant needs to sell the property (let’s say, to go into a nursing home)?  Can the life tenant (or the executor of the Will on the life tenant’s behalf) use part of the proceeds towards payment of the residential care home bond or would the life tenancy be deemed to terminate?

(c)  does the life tenant have a mere right of residency in the property only or does the life tenant have a “real” life tenancy which allows he or she to enjoy all of the fruits of the tenancy, including receiving the net income received from the property by leasing it to a third party if he or she is not able to, or does not wish to, reside any longer in the property?

(d)  can the life tenant (or the executor on the life tenant’s behalf) sell the property to purchase a smaller and more manageable property?  If so, what happens to any excess funds?

(e)  who is to pay for the upkeep and maintenance of the property, in particular, careful thought should be given to whether or not the deceased’s estate (generally, the residuary estate) is to pay for any of the rates and taxes or bills associated with the property.  Should there be a separate fund in the Will to pay for these contingencies?; and

(f)  are the chattels (personal possessions) in the property to form part of the life tenant’s interest and will items of specific value, such as family antiques, remain in the property?

All theses issues must be considered and the consequences of each decision considered carefully when considering whether to include a life interest or life estate in a Will.

Unfortunately, life interests have a number of serious disadvantages associated with them, including that a life interest can lead to longstanding frustrations between the life tenant and the remaindermen.  Life interests can also create considerable uncertainty, in that the remaindermen may never know when they may ultimately receive the benefit of the asset.  Life interests may often also add costs and delays to the finalisation of the administration of the estate.   Further, life interests can often cause conflicts between the life tenant and remaindermen if the persons who will ultimately receive the property feel it is not being maintained adequately by the life tenant.

The potential negative capital gains tax consequences of life interests should not be overlooked.  Typically, the general tax position is that the estate will be entitled to the main residence exemption if the property was the deceased’s home and the property is sold and settlement of the sale of the property takes place within 2 years from the date of the deceased’s death.  However, a life tenancy significantly complicates this position and the position becomes even more complicated if the life tenant decides during his or her lifetime to surrender his or her interest in the property and the life tenant and the remaindermen decide it would be best to sell the property.  In both cases, significant capital gains tax consequences may flow from a disposal of the property.

Overall, life interests should never be seen as an easy answer to a complex estate planning situation.  Whether or not a life interest is appropriate to your circumstances, and the potential repercussions of a life interest, should always be carefully considered by your estate planning lawyer.

For further information please contact our Principal in charge of Estate Planning, Rob Durey at rdurey@talbotolivier.com.au or Sarah Walton at swalton@talbotolivier.com.au .

 Joint Tenancy is where each owner is jointly entitled to the whole property.  By necessity, joint tenants must hold their interest jointly so that their interests in the property are unified.  On the death of a joint tenant, the interest of that joint tenant automatically passes to the other surviving joint tenant or tenants (if more than one) by survivorship and without reference to any intention that the deceased person may have indicated in his or her Will. 

For example, if a husband and wife hold a property as joint tenants and the husband dies, the wife is automatically the owner of the property.  The terms of the Will of the husband would not matter.

Tenancy in common is where two or more individuals hold property in any shares they choose.  Unlike with a joint tenancy, the owners own separate shares in the property eg 50/50 or 30/70.  When an owner dies that owner’s share of the property passes in accordance with his or her instructions as set out in his or her Will. 

So what type of tenancy should you choose?

Asset Protection – If one of the owners is exposed to greater financial risk or to the threat of bankruptcy, there are pros and cons as to the type of holding.  Please discuss with your solicitor or accountant before you buy a property and decide how to hold it.

Family Law considerations – If the financial contributions to the property are not equal, it is important to record correctly and accurately the extent of your particular contribution so that the other party, (your spouse) does not receive more than he or she is entitled to receive or more than you would like he or she to receive.  A tenancy in common may be the more appropriate way of holding the property in that case.  

Estate Planning – Consider this scenario – A husband (the “first husband”) and wife, who have 2 children, own a home.  The husband dies leaving his widow as the sole owner of the property.  She finds a new husband (the “second husband”) but wants this property to go to her 2 children from her first marriage.

If the first husband and his wife had held the property as tenants in common and the husband’s Will had been properly drafted, he could have left his share of the property under his Will in such a way that it would be held for the benefit of his 2 children.  For this to be possible, the property must be held by the first husband and wife as tenants in common.  If the property were held by them as joint tenants or if the first husband had left his share of the property under his Will outright to his wife, then after her death the widow’s second husband might be entitled to the property even though it was never the intention that that be the case.

Can I change my mind?

If you choose one particular tenancy over the other, it is possible to alter the holding to the other type.  The most common example of this is the severing of a joint tenancy in favour of a tenancy in common.  However, before embarking on this course, it would be very important to consider both the stamp duty and capital gains tax consequences (if any) of a change to the tenancy.

For further information or advice on this topic, please contact Russell Morley, Senior Lawyer, by email at rmorley@talbotolivier.com.au or Rob Durey, Principal, by email at rdurey@talbotolivier.com.au.

Being of sound mind, or in legal speak “possessing the necessary mental capacity”, essentially means that the will maker must:

1. Understand his or her acts, the nature of those acts and the extent of the dispositions being made under the Will.
2. Comprehend the various claims of relatives, friends and others to a share of the estate.
3. Not be influenced by any insane delusion.

The will maker does not need to understand each provision in the Will, comprehend the technical legal language in the Will or recall each specific piece of property mentioned in the Will.  However, the will maker must understand that he or she is executing his or her own Will, know and approve of the contents of the Will and possess a general idea of the property which forms his or her estate.

The fact that the will maker is of advanced age, physically frail or beginning to suffer the effects of senility or dementia will not necessarily mean that they are not of testamentary capacity.  For example, a person suffering from dementia may have difficulty in his or recollection, but still possess the ability to understand the nature and effect of what he or she is doing.  Each case will be determined on its individual circumstances. 

Where there is doubt about a person’s mental capacity, it may be prudent to have him or her examined by a medical practitioner.  If so, the practitioner should address the matters referred to in paragraphs 1 to 3 above.  The person who drafts the Will on behalf of the will maker should make his or her own assessment of the testator’s mental capacity, both at the time of taking instructions and the time of executing the Will.

If a person does not possess the required mental capacity, recent amendments to the Wills Act 1970 (WA) have given the Supreme Court the power to make a Will on that person’s behalf in certain circumstances.

For further information or advice on this topic, please contact Chris Dunnell, Senior Lawyer, by email at cdunnell@talbotolivier.com.au or Rob Durey, Principal, by email at  rdurey@talbotolivier.com.au