Most people are familiar with the terms ‘executor’ and ‘beneficiary’ in the context of a will.
Put simply, an executor is someone who is chosen by the person making the will to identify their property, assets and liabilities, pay any relevant taxes, and to distribute the estate in line with the terms of their will. Executors are subject to certain core duties and obligations. They are primarily to act in the best interests of the estate and to avoid placing themselves in a position in which that duty conflicts with their own interests. These core duties are designed to protect the beneficiaries of the estate.
Beneficiaries are those chosen to receive some benefit under the will, be that money, personal possessions or property. They may be entitled to receive their benefit as soon as practicable after the testator’s death. In other cases they might have to wait, for example until a minor beneficiary reaches a certain age, or until after the death of someone else who is entitled to enjoy assets, property or income first – this is often known as a ‘lifetime interest’.
In a simpler will, then, where there are no conditions attached and no-one in line ahead of you to benefit first, the estate will usually be distributed as soon as possible amongst named beneficiaries, which may or may not include the executor(s). If there is no dispute about the validity of the will, the estate is straightforward and the executor acts diligently and promptly, there is perhaps limited scope for allegations about conflicts of interest or breach of duty. Even if the executor is also among the named beneficiaries, their duties to administer the estate in line with the will is not usually at odds with their interest as a beneficiary. As a result, it is commonplace for a family member to be named as an executor and also to get a share of the estate.
When things get messier …
Things can become more complicated when the person who is named as an executor also happens to have acted as an attorney for the testator during their lifetime, to look after their interests in relation to their property and money.
Somebody acting as an attorney must at all times act in the best interests of the donor of the power. If, on the donor’s death, there is any question or doubt about whether they have upheld that duty, for example because there is expenditure of the donor’s money which cannot be explained, there will be good reason to oppose that person being appointed as an executor in the testator’s estate. Their duty to act in the best interests of the estate, by identifying and gathering in all money assets and property, including any money misappropriated during the testator’s lifetime, will be in conflict with their own interests as a former attorney. Wearing that hat, they will be keen to demonstrate that they have acted properly and are entitled to retain any money received by them while acting as an attorney. If they can do so, there may be no good reason for them not to act as an executor.
Another example might be a person named as an executor who had been in business with the testator. On the testator’s death, it transpires from business accounts that there are a series of drawings from the business in favour of the now-executor, which cannot be satisfactorily explained. That person’s fundamental duty as an executor to act in the best interests of the estate is in direct conflict with their own self-interest to retain the drawings from the business for their own personal use.
Keeping family interests in the family
Take another example of someone who acted as an attorney for a parent. They are also the director of a family-run company in which the now deceased parent was one of a number of shareholders, and a beneficiary raises concerns about the calculation of a director’s loan accrued during the attorneyship and now owed by the company to the parent’s estate. To make things messier still, the director-executor also happens to act as a trustee of their late father’s will trust in which their other parent had a lifetime interest. The person in that scenario will need to consider and weigh in the balance their duties to act/have acted:
- In the best interests of the testator during their lifetime as their attorney
- In the best interests of the testator as the lifetime beneficiary of the will trust
- Having had due regard to the interests of any ‘capital’ beneficiaries – meaning the people who will benefit after the life interest ends
- Now, in the best interests of the beneficiaries of their estate
- For the benefit of the shareholders of the company overall, as well as a plethora of other duties and obligations a director owes to the company to promote its success and to prefer the interests of the company over their own.
There is the potential for a whole host of overlapping, interlinked and conflicting duties and obligations, some of which do not sit comfortably together and which, ultimately, aren’t always capable of being accommodated.
What can you do to avoid or minimise the risks of these conflicts arising?
It is not unusual for the same people to be chosen to act as an attorney (for property and affairs, for health and welfare, or for both), as well as an executor. They are often chosen for those roles because they are reliable, trusted individuals. They are often relatives. Such selections can also be informed by the hope that it secures continuity. If someone acts as your attorney for property and affairs, they will usually have a good grasp of your financial affairs, placing them in an advantageous position when it comes to dealing with your estate. So, while there is no need to dismiss plans along those lines for fear of placing your chosen person in a difficult position, it’s crucial that they keep full and detailed records of every step they take while acting under a power of attorney, and a clear record of each and every transaction. Ensure your attorney knows what their duties are and understands, for example, when customary gifts can be made without the approval of the Court of Protection, and when consent is required.
If you have an interest in a family business or a company and you are considering naming a business partner or co-director has an executor, take advice on the possibility of appointing alternative executors or trustees – such as a trusted professional advisor or a professional trustee. While there might exist perfect trust between you and no concerns about your business partner’s conduct or probity, concerns might be advanced by others after your death which might make it difficult for the executor to take office, however blameless they may be. This is particularly worth considering where there is a second family and one part of the family has a direct link to or role in the business, and the other doesn’t. Giving up the executorship (known as renouncing) is one option if done early enough, but problems or allegations which emerge later down the line could lead to expensive litigation seeking the removal and replacement of an executor and/or a trustee. It is often difficult to resist an argument that the appearance or possibility of a conflict is alone enough to justify the removal of an executor and/or a trustee of a will trust. The court has the power to order that the costs of a removal application should be borne by the estate.
Testators naturally wish to preserve as much of their estate as possible for their beneficiaries. Getting early advice about how the potential roles certain individuals might be called upon to perform, and how they might interact with existing their roles as, say, attorneys, business partners or trustees, is likely to help you to identify where potential conflicts might crop up. In so doing, it’s possible to plan around and mitigate them and the costs which can arise in a dispute.
If you are an executor, a trustee, or a beneficiary and find yourself with concerns about conflicting duties and obligations in any combination, our Contentious Trusts and Probate Team can help. Renouncing or being removed as an executor in favour of an independent professional is not always inevitable and may not always be the only option. In some modest estates, it won’t be justifiable from a costs perspective. For advice on anything arising out of this article or any other contentious probate matter, contact Bernadette Baker, Jenny Howe or another member of our specialist Contentious Trust and Probate Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2022.