The Liability of Executors and their Protection

When making a Will, some people choose friends or family members as their Executors. Others prefer to select professional Executors such as Spratt Endicott. 

This page aims to advise private Executors of their responsibilities and liabilities in accepting the role.

Your liability to beneficiaries

An Executor who causes loss to the estate will be liable to the beneficiaries for wasting the assets.  It is not at all uncommon for private Executors to make mistakes in an administration, especially if they are not professionally advised, and for the beneficiaries thereby to suffer loss.

An obvious example is where an Executor misinterprets a Will, and makes a payment to a beneficiary that is beyond what the beneficiary is entitled to, so that others suffer.

Occasionally, Executors might misappropriate assets from the estate, and use them for their own purpose. Clearly they will then be personally liable, without limit, for the loss suffered by the beneficiaries.

Your statutory duty to exercise care and skill

The Trustees Act 2000 has imposed on all Executors a statutory duty to exercise care and skill in the administration of the estate.  Professional Executors will be tested more rigorously than lay Executors, which (whilst comforting for the lay Executors) may make beneficiaries uneasy.

The Act imposes particularly onerous responsibility on Executors, to review investment performance and keep agents on their toes, when delegated any of the Executors’ powers.

Your liability to third parties – the facts

Executors who make contracts with third parties, (for example estate agents) in the course of administering an estate are directly liable to them under contract law.  The Executors can recoup the cost from the assets of the estate, where they entered the contract in the proper course of the administration. 

However, their liability is not limited to the extent of the assets of the deceased’s estate.  If the third party claims more than the value of the assets still held by the Executors, the Executor will be personally liable for the shortfall.

Acts and omissions – what can happen?

Executors may also be liable for their acts or omissions in administering the estate.  For example, an Executor might libel a third party.  Where it can be shown that the Executor was acting in the reasonable management of the estate, he will be entitled to be indemnified (in other words financially covered) out of the assets of the estate. 

However, even then, if the claim exceeds the value of those assets then the Executor will be personally liable for the shortfall.  Where the Executor incurred the liability otherwise than in reasonable management of the estate, he will not be entitled to any such indemnity.

A word about outstanding debts

Finally, there will be debts incurred by the deceased that are still outstanding at his or her death.  If the Executor has inadvertently distributed the assets of the estate to the beneficiaries, without making a sensible reserve, then the creditor may pursue the Executor personally. 

Executors have to take care not to distribute all assets to the beneficiaries until they are certain that all known or likely liabilities have been discharged.

About your liability to the Revenue

Executors are personally responsible for completing self-assessment tax returns during the administration of the estate, and for payment of assessed tax.  The tax may be payable after the administration is concluded, and it is essential such liabilities are allowed for in distributing the estate. 

Delay in lodging returns, or in payment of tax, and especially under declaration of income or gains, can now lead to significant penalties. These may not be recoverable from the assets of the estate.

Don’t forget about inheritance tax

In addition, Executors have a statutory responsibility to the Revenue to advise them of all circumstances which might lead to the payment of inheritance tax.  They are expected to make appropriate enquiries about possible lifetime gifts made by the deceased. 

Failure to account to the Revenue can lead to severe penalties. These fall on the Executors personally and are not usually recoverable from the estate, unless they can be shown to have done all they could to uncover taxable gifts.

What about liability to beneficiaries’ creditors?

Executors may be personally liable to creditors of a bankrupt beneficiary, if they pay the beneficiary direct and cannot recover it from him. 

Is there a duty to account?

Yes. Executors are required to keep clear and accurate accounts of their dealings with the estate, and beneficiaries are entitled to inspect them.  Where an Executor has no experience of the preparation of accounts, he is under a duty to delegate the task to a competent person.  Otherwise, the Court might intervene and demand an account.

How does protection against liability work?

It is frequently difficult to be sure that all debts have been paid.  Executors can protect themselves by advertising notices under Section 27 of the Trustee Act 1925 in the London Gazette and in local newspapers in the area where the deceased owned any land.  In practice, it is best to advertise whether land is owned or not.

The notice specifies a two month period for claimants to contact the Executors. Once that time has expired, the Executors are permitted to distribute the estate having regard only to those claims of which they have actual notice (or “constructive” notice i.e. they ought to have known).  A creditor who is too late can, however, pursue the beneficiaries who have received distributions from the estate.

Is there any relief from liability?

The court, on application, has power to relieve the Executor from personal liability for any breach of trust or duty. However, it is not wise to place over reliance on this, especially in the light of the Trustee Act 2000.

What about missing beneficiaries?

A particular area of risk for Executors is the case where a beneficiary exists but the Executor is unaware of this.  Section 27 of the Trustee Act 1925 will usually protect Executors, where they do actually know or believe that the beneficiary exists, but are not aware of his whereabouts and therefore omit him from distribution.   Special techniques are available to protect Executors who are placed in this difficult position.

Getting in touch

To learn more about how we can help you with these liability issues, please contact David Endicott on 01295 204005 or email dendicott@se-law.co.uk