A common question asked in relation to deceased estates is whether an executor can make an interim distribution of the estate assets to the beneficiaries.
What is an interim distribution?
An interim distribution is not a final, but rather a provisional or interim payment, to a beneficiary – usually because of an urgent need or if an estate is complex and there are delays in the administration.
The interim distribution does not exceed the beneficiary’s final entitlement. As a general rule, it is accounted for in the settling of the final accounts.
An executor is not precluded from making an interim distribution – even where there are some administrative duties yet to be performed.
However, careful consideration of the possible risks and rewards of early distribution of the estate must be made by the executor prior to any distribution.
Caution when making interim distributions
There are a number of factors to be considered before an executor can determine to make an interim distribution.
1. Keeping in mind an executor’s duties
Beneficiaries are, understandably, always eager to receive their interest in the estate and executors are eager to finalise their duties as quickly and efficiently as possible.
However, where an interim distribution is contemplated, an executor should be cautious as to not jeopardise their executor’s duties.
Of those duties, is the duty to distribute the estate “as soon as may be”. It does not follow though that the duty only arises once the administration is complete.
Therefore, in real terms, if any interim distribution to the beneficiaries carries no risk to the administration of the estate, the executor may consider making an interim distribution.
2. Account of all assets and liabilities of the estate
Keeping in mind an executor’s other duties, an executor should only determine to make an interim distribution if they are certain that the estate will have sufficient funds to cover:
- all pecuniary legacies;
- all outstanding liabilities (including tax and superannuation tax liabilities); and
- the final distribution of the balance of the estate.
An executor who distributes the estate early, can be held personally liable for shortfalls that result from early distribution.
Therefore, an executor must weigh up all the circumstances of the estate as a whole, before determining to make an interim distribution.
3. Risk of a claim against the estate – time limits to consider
An executor must also consider whether there are any claims foreshadowed against an estate before paying out any funds.
In Queensland, an executor should not make any distributions (of any nature) to any of the beneficiaries before 6 months from the date of death.
If an executor makes a distribution before 6 months from the date of death has passed, and a claim is subsequently made against the estate, the executor risks being held personally liable if the claim is successful.
Furthermore, as a general rule, if a claim is foreshadowed or has been made against an estate, an executor should not make any distributions until such time as the claim is withdrawn or resolved.
Communication and consent is key
In order to avoid disgruntled beneficiaries, the best approach would be for the executor to formally communicate any proposed interim distribution to all beneficiaries of the estate and to obtain their written consent.
If there is an interim distribution made, it ought to be equal across all parties involved.
If you have any queries on the distribution of an estate, please feel free to contact us for advice.
Our team have assisted many clients through what can be a very challenging time.
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