How To Protect Yourself When Administering An Estate

Personal representatives (PRs) are required to make numerous decisions when administering estates and, when doing so, must adhere to the duties under the will and in law.

If you’re a PR you will likely be met with demands, and sometimes met with claims, by beneficiaries. Disaffected beneficiaries may seek to claim that you may not have administered the estate properly and that, in some way, you acted in violation of your duties; for example, a breach of duty to administer the estate, known as devastavit, or a breach of trust).

In those circumstances, it is natural for you to want to protect your position.

Claims for devastavit, breach of trust or fiduciary duties can be defended on the facts in the usual way. It may be that the beneficiaries’ claims are unfounded and lack merit, in which case you can deny any alleged breach and loss. However, there may also be other defences available to you, as a PR.

Are there exclusion or exemption clauses in the will?

A will may contain exclusion clauses limiting a PR’s liability, such as that the PRs or will trustees that succeed them (although these are often one and the same), are not responsible except in acts of fraud, dishonesty or wilful default.

Many wills contain STEP Standard Provisions which include a limit on liability, except where any loss was caused by their fraud or negligence. However, it is worth noting that a court can interpret exclusion clauses restrictively, and they will not directly protect you, as a personal representative, from claims by third parties, e.g. creditors.

Protecting yourself from claims by creditors or unknown beneficiaries

Although a court will not directly protect you from claims by third parties, Section 27 Trustee Act 1925 Notices are useful in protecting you against claims by creditors, as well as unknown beneficiaries.

Notices have to be advertised for at least two months in the Gazette and a local newspaper(s) to any land in the estate, as well as another other appropriate place. Upon expiry of the two months, if no claims have been made, you can look to distribute, and you will get the same protection as if you distributed under a court order.

It’s also worth noting the six-month deadline from the date of the grant for any claims to be made under the Inheritance Act. Where notice of a claim is received after the expiry of the two months, but before distribution, you still need to consider the claim.

It is important to remember that:

• the notices do not stop the claimant from tracing the assets distributed into the hands of the recipient beneficiary;

• the notice may not offer protection for you where you have not taken sufficient steps to investigate any missing beneficiaries/those entitled on intestacy;

• it also does not offer you protection if you did not have the right to administer the estate; and

• adverts must be placed promptly.

Distributing an estate when a lease is involved

Under Section 26 of the Trustees Act 1925, if you are liable for rents, covenants or indemnities under the terms of a lease then you have power to convey the property in question and distribute the estate without personal liability under the lease.

However, you must have satisfied all liabilities under the lease which have accrued and claimed up to the date of the conveyance and, if necessary, retain a contingency fund to cover any claims.

Is there a time limit for bringing a claim?

Creditors

Claims by creditors for any so-called devastavit claim (i.e. loss caused by the PR to the value of the estate) are likely to be barred after six years.

Beneficiaries

If a beneficiary is bringing such a claim it is likely to be barred after 12 years, but they will not be able to claim interest after six years. This doesn’t apply if you (as the PR) have concealed the right of action that a claimant beneficiary may have (in which case it is from the point the beneficiary discovers the right of action, or could reasonably have discovered it), or where there has been an exercise of a power by fraud.

Similarly, if the action is made as a consequence of a mistake then time starts to run on discovery of the mistake.

Where a beneficiary is under a disability, lacks capacity or is a minor, time does not start to run until the end of the period of minority, or until the person which a disability has passed away (section 28 (1) Limitation Act 1980).

Residuary beneficiaries

For residuary beneficiaries, time starts to run when the administration is complete. There is a distinction between executors (where there is a will) and administrators (in intestate estates). Both are referred to as personal representatives (PRs)

Where an executor’s title to property dates from the testator’s death, the title of an administrator is from the date of the grant of letters of administration (subject to the exception that limitation fore actions to recover land in the possession of the deceased runs from the date of death).

Where there is no limitation period under statute, a beneficiary may be prevented from bringing a claim under the doctrine of laches. This can be pleaded where there has been considerable time which has elapsed and the circumstances are such that either the beneficiary complaining has effectively waived any breach, or neglected in pursuing any remedy and it would not be reasonable for a PR to compensate for the breach.

If the beneficiary consents to or acquiesces in a breach of trust then he/she cannot subsequently complain about it. A release may be inferred from conduct.

Demonstrate that you have acted reasonably and honestly

Under s61 of the Trustee Act, if you can satisfy a court that you have acted honestly and reasonably and ought fairly to be excused, not only for a breach of trusts but also for failing to obtain the court’s directions on the matter in question, then the court has the power to relieve you from liability in whole or part.

To show that you have acted honestly and reasonably, it is important to show that you have obtained proper advice. A higher standard of care is expected of professional PRs.

Court directions and orders

If you have distributed the estate in accordance with a direction made by the court then, provided that you have brought the relevant facts to the attention of the court, you will not be held liable to a creditor or other claimant.

Directions under Civil Procedure Rule 64 to distribute on a footing are that:

• all reasonable steps have been taken to trace a beneficiary, or the missing beneficiary is dead (known as a Re Benjamin order). On this point it is also worth considering missing beneficiaries insurance and indemnity from known beneficiaries, or a contingency fund held back for unknown beneficiary’s share (bearing in mind limitation as referred to above);
• all debts have been determined; or
• without regard to a contingent liability.

If you aren’t certain how to distribute the estate due to some difficulty or ambiguity with the will, you can apply to the court for it to determine the true construction/interpretation (rather than distribute on an assumption which may otherwise lead to claims being made by those disentitled but who may have expected entitlement).

S57 of the Trustee Act 1925 allows the court to extend a PR’s powers generally, or for a specific purpose, on the grounds that it is expedient and in the interests of the beneficiaries to do so.

You may also be authorised by a court to take steps in the administration (pursuant to the court’s inherent jurisdiction) or to vary a trust, so far as is necessary, under the Variation of Trusts Act 1958.

We’re here to protect you during the estate administration process

If you are a PR facing difficulties with your administrative duties, which may arise out of claims for beneficiaries or issues with the construction of a will, then do get in touch with us. There are multiple options available to you, and our dedicated inheritance and trusts disputes team can provide tailored advice specific to your situation.