*I have used the words ‘executor’ and ‘trustee’ in this blog interchangeably.
Being an executor or trustee can be a challenging role. You are tasked with not only dealing with banks, share registries and the world at large, but also the beneficiaries.
It is reasonable to say that many issues may arise for an executor when administering an estate and sometimes Will does not provide any guidance on what the executor should do, or how they should handle the issue.
Some of the issues I have seen executors face in practice include:
Scenario 1 – The question of whether the executor should commence legal proceedings against a third party for failing to repay a significant documented loan.
Scenario 2 – How to deal with a beneficiary who is living in a property owned by the deceased and refusing to pay rent in accordance with a tenancy agreement following the death of the deceased, thereby causing a loss to the other beneficiaries.
Scenario 3 – Where there is a direction under the deceased’s Will that a particular property is subdivided and the resultant lots gifted to particular beneficiaries – but after formal enquiries were made it was identified that the property could not be subdivided. In this situation the executor was unsure whether they had the power to sell the property and divide the net sale proceeds between the beneficiaries.
These types of situations can place the trustee in a position of risk, especially if taking action to address the issue incurs significant costs for the estate.
For example, taking scenario 1, if a trustee commences legal action against a third party to recover a significant loan on behalf of the estate, the legal action itself will incur costs. The question is, is the trustee justified in incurring those costs to recover the loan through legal proceedings?
As a general rule, a trustee should never make these sorts of decisions without the opinion, advice or direction from the Court.
What steps should be taken if there is any doubt as to trustee’s role?
Section 96 of the Trusts Act 1973 (Qld) addresses a trustee’s right to apply to the Court for directions:
“Any trustee may apply upon a written statement of facts to the court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power of discretion vested in the trustee.”
Therefore, in situations where there is any doubt as to how a trustee should carry out their role, an application should be made to the Court seeking directions.
What is the benefit of making such an order, and why is it important?
Section 97 of the Trusts Act 1973 (Qld) addresses the protection a trustee will receive whilst acting under the direction of the Court:
“Any trustee acting under any direction of the court shall be deemed, so far as regards the trustee’s own responsibility, to have discharged the trustee’s duty as trustee in the subject matter of the direction, notwithstanding that the order giving the direction is subsequently invalidated, overruled, set aside or otherwise rendered of no effect, or varied.”
Accordingly, if a trustee seeks directions from the Court and acts in accordance with those directions, then that trustee is deemed to have carried out their duty.
The trustee will receive the protection of the Court if there is an argument against them (especially by a beneficiary) about the way they carried out their obligations.
The importance of legal advice if you feel an application for directions is needed
If you are in a situation where you feel an application to the Court for directions is necessary, it is important to seek legal advice.
An application for directions can be an expensive process.
Therefore, if such an application is required, it is crucial that the correct application is prepared, the wording of the directions sought is precisely correct, and the relevant supporting material is gathered.
The risk with not having the wording of the directions sought precisely correct, is that if a situation arises after the directions are sought, and the directions do not cover that situation, then there may be a need for you to return to the Court for further directions.
Therefore, having the material prepared comprehensively will avoid the time and cost of a further application.
If you are an executor, administrator or trustee and you believe you are in a situation which requires a direction from the Court, please do not hesitate to contact me.