How
should a personal representative (PR) deal with a request from a beneficiary
for an interim distribution before the estate is finalised? Estates can take many months to conclude but
a beneficiary may be in need of some of their inheritance sooner. Can an executor help out without putting him
or herself on the line?
Any PR
(be they an executor of a Will or an administrator of an intestate estate) facing
a request for an early distribution should consider their own position as well
as the beneficiary’s. A PR owns a duty
to the court, both to gather in the assets of the deceased and also to ensure
that sufficient estate assets are retained to meet all liabilities and pay
creditors. Not all liabilities may be
evident at the time of death. Failure to
retain sufficient funds to pay these may result in creditors pursuing the PR personally,
so a PR must exercise caution in the face of such requests.
Unless
the PR was very familiar with the deceased’s finances, or the beneficiaries can
be entirely trusted to return estate assets if necessary, a PR should consider
taking advantage of the protection offered by s.27 of the Trustee Act 1925 and
advertise for creditors in the London Gazette (and elsewhere if appropriate,
depending upon the deceased’s circumstances).
Once the two month notice period has expired and if the PR has still
received no notification of a claim prior to distribution, any creditor who
appears after distribution has to pursue the recipient of the estate funds,
rather than the PR.
Section
44 of the Administration of Estates Act 1925 provides that ‘a personal
representative is not bound to distribute the estate of the deceased before the
expiration of one year from the death’.
Accordingly PR’s cannot be forced to distribute sooner but could
consider doing so if they are confident that all liabilities and creditors have
been ascertained.
For
deceased UK domiciliaries, PRs should be aware that claims under the
Inheritance (Provision for Family and Dependents) Act 1975 can be issued up to
6 months after the Grant of Probate is itself issued and the claimant then has
a further four months in which to serve the claim. Therefore 1975 Act claimants can appear up to
ten months after the Grant has issued.
If
an interim distribution is needed sooner, a PR should consider insisting on a
form of indemnity from the beneficiary to confirm that, should a claim be made
against the PR in connection with the estate, the beneficiary will indemnify
the PR for that claim out of the funds distributed. The PR will need to consider whether that
beneficiary will be good for the money if the indemnity needs to be relied
upon. Ideally the PR will also obtain
confirmation from the beneficiary that the beneficiary accepts the sums
distributed at least in partial satisfaction of their interest in the
estate. It may be appropriate to provide
a set of draft estate accounts at this point.
Alternatively,
depending upon the assets comprising the estate and their administrative powers, the PR may be able to offer to
loan a beneficiary a portion of their share of the estate, in return for a
suitable indemnity. This is likely to be
more satisfactory for a PR, as the PR still retains ownership of the estate
assets, albeit in the form of an IOU. The creditworthiness of the beneficiary will
need to be considered once again.
Lay PRs, in particular, can often feel under
pressure from family member beneficiaries to make early distributions. However, creditors need make no exceptions
for lay PRs! The law allows PRs to
protect themselves and a prudent PR will do just that.
