Executors in dispute – traps and tips to manage them

A dispute between executors named in the Will can occur prior to the application to the Supreme Court for a grant of probate or during the administration of the estate after probate has issued. A dispute can also occur between executors and beneficiaries. Executors in dispute will almost always result in increased legal costs for the estate and the beneficiaries as well as lengthy delay in progressing the due and proper administration of the estate.

This article will focus on how to manage executors in dispute. It will look at the risks and traps associated with any dispute and provide tips to assist to better manage the risks.

The Willmaker’s choice and the law

The starting point is that the Court will not lightly interfere with the Willmaker’s choice of executor without good reason because of a desire to prioritise the Willmaker’s nomination.

The relevant legal principles where a Court may interfere with a Willmaker’s nomination of executor are succinctly summarised by Slattery J in Callaway v Callaway; The Estate of Aileen Margaret Callaway [2019] NSWSC 1275 at paragraphs [10] and [11].

“10.   The Court will pass over a named executor where to appoint that executor would place the administration of the estate in jeopardy: Bates v Messner (1967) 67 SR (NSW) 187; (1967) 86 WN (Pt 2) (NSW) 35. There are many established grounds for passing over an executor, including: bad character; attempts to delay the proper investigation of the deceased’s affairs; time wasting and neglected duties; conflicts of interest; extensive absences abroad; but, authority also suggests there are no limits to the grounds upon which an applicant may be passed over as each case depends upon its own facts and the Court’s overriding concern is promoting the orderly administration of the estate and the welfare and best interests of the beneficiaries: Miller v Cameron (1936) 54 CLR 572; [1936] ALR 301; [1936] HCA 13. The primary concern of the Court will be to ensure the estate will be efficiently and properly administered according to the terms of the will: Mavrideros v Mack (1998) 45 NSWLR 80 (at [107] and [108]); (1988) NSWCA 286.

11.   But a testator’s choice of a designated person as executor or co-executor is important and implies that the deceased reposed trust in him or her, and considers them to have been both suitable and capable of performing the duties required so such a person is not passed over lightly: Uniting Church in Australia Property Trust NSW v Millane [2002] NSWSC 1070, at 9. Some degree of latitude is to be expected in relation to conflicts of interest in the appointment of family executors. It should be borne in mind that the deceased can be expected to have known of relationships and circumstances during the deceased’s lifetime which might lead to a conflict of interest, but has nevertheless made the choice of the appointing the person as executor in that knowledge. But conduct or circumstances which have arisen since the death of a testator, or about which the testator could not have expected to have had such knowledge, will not necessarily be treated with the same flexibility.”

What is important?

The focus of the Court when dealing with executors in dispute is to determine what will promote the proper and efficient administration of the estate in the best interests of the beneficiaries.

Recent case law examples reflect that focus.

In Estate of Nitopi (No 3) [2021] NSWSC 1136 the Court replaced the named executor (the widow of the deceased) by granting letters of administration with the Will annexed to the deceased’s son primarily because the named executor did not have a financial interest in the outcome of the estate administration. There was evidence that the executor had been charged with a number of criminal offences. This may have influenced the Court. However, Justice Parked noted at [11].

“….An order removing a person as executor is not necessarily a condemnation of that person’s character or abilities in that office.”

In the Victorian case of Re Arklie (No 2) [2019] VSC 350 the Court passed over the named executrices whose relationship had broken down and were in acrimonious conflict and made a grant of letters of administration with the Will annexed to State Trustee Ltd. This was because the appointment of the executrices would have jeopardised the due and proper administration of the estate in the best interests of the beneficiaries.

Traps

The most common traps when dealing with executors in dispute include:

1. Failing to be crystal clear on the nature of the dispute and the reasons for it from the perspective of the relevant parties (either between executors, executors and beneficiaries or executors and claimants/creditors). Unless this is clear, a workable solution is impossible.

2. The significant legal costs that will be incurred (and wasted) in trying to work through the dispute and document a way forward that cannot ultimately be agreed.

3. Rushing to obtain a grant of probate (which can usually be agreed quickly with a general notation about the dispute in the application documents) without having a binding agreement in place governing the way forward in relation to the estate administration. Any such agreement should prudently detail the steps that need to be taken to obtain the grant and administer the estate with time limits for each step.
   
   In most cases where the executors in dispute with each other obtain a grant without a comprehensive binding agreement in place, the Court grant usually becomes of little assistance because of the ongoing dispute, and it results in a further costly Court application to have the grant revoked and a further grant made in the estate. A further grant is usually made to an independent experienced professional (such as a specialist lawyer) or to a licensed trustee company such as Perpetual, Equity Trustees, the NSW Trustee and Guardian or Australian Unity Trustees.

4. Moving too quickly to appoint an independent administrator without properly considering the additional costs to the beneficiaries.

Tips to manage risks

The tips to manage risks will differ depending on the terms of the Will, the relationship between the executors or between the executors and other parties and, the time when the dispute arises. The following are important tips to avoid disputes and what to do when a dispute occurs:

1. Willmakers should be encouraged to think carefully about who they appoint as executor. Disputes and delay can be minimised where a single executor is appointed in a Will with a substitute if the named executor is unable or unwilling to act.

2. Willmakers should be advised not to appoint disputing family members as executors in the hope that ‘they will work it out’. Instead, they should consider appointing an independent person (such as appropriately qualified professional) or a licensed trustee company.

3. If Willmakers insist on appointing multiple executors, consideration should be given to including appropriate deadlock breaking clauses in the Will such as referring any dispute to an independent third party.

4. If no grant has been made in the estate, consider tactical manoeuvres for the compliant non-problem executor. For example, should an executor renounce their right to obtain a grant or consent to a grant to the other executor so that the grant can issue from the Court and the estate administration can proceed. This would allow the dispute/claim to be dealt with in the estate administration.

5. After clearly understanding the nature of the dispute and the reasons for it, a meeting should be quickly organised with the relevant parties or their legal advisors (if they are legally represented) to see if the dispute can be resolved or a binding document governing the way forward can be agreed.

6. If a grant in the estate has issued from the Court and the dispute cannot be resolved, the compliant non-problem executor may want to apply to the Court for judicial advice that the executor is justified in commencing legal proceedings to remove the problem executor. This will ensure the compliant executor’s legal costs are not borne personally by that executor.

7. If a grant in the estate has issued from the Court and the dispute cannot be resolved, an application can be made to the Court to revoke the grant and for a new grant to be made in the estate to an independent person/trustee company. This may give all relevant parties one last opportunity to resolve the dispute and agree on a document governing the way forward. Disputing parties may be more inclined to resolve the dispute with the pressure of a future contested Court hearing in the background.

Conclusion

If you have read this article and think you may need assistance with your legal position as an executor or as a beneficiary, please feel free to contact the author or any member of our private clients team for advice and assistance.

Author: Gerard Basha