I want a distribution! When can an executor be compelled to make an interim distribution?

Sometimes the administration of a deceased estate can take years to complete.  Lazy executors, the complexity of the deceased’s affairs and legal proceedings (such as family provision proceedings or contested will proceedings) are but a few examples of causes of delay.  In such cases, the delay can be an understandable cause of frustration for the estate beneficiaries, who, for many years, may not receive so much as an interim distribution in part satisfaction of their expectancy under the deceased’s will.

Whilst, as a matter of broad principle, an executor is not obligated to make distributions from the estate prior to having completed the estate administration, in certain circumstances, there is scope for a beneficiary to make an application to the Court to compel the executor to make an early (interim) distribution.  This occurred in the recent case of Angius v Salier,[i] in which the NSW Supreme Court was called upon to make an order for an interim distribution.  This case is discussed below and is a helpful reminder of the circumstances in which the Court may consider it appropriate to order that the executor make an interim distribution.

The executor’s administrative duties and the "executor’s year"

As alluded to above, an executor is not required to make a distribution from the estate of the deceased before completing the administrative duties which he or she is required to perform.  Depending on the complexity of the deceased’s affairs, these administrative duties can be extensive and varied.  Broadly, they include:

• ascertaining and getting in the assets of the deceased;

• ascertaining and discharging the liabilities of the estate (including any taxation liability);

• keeping accounts and proper records of all dealings with the assets and liabilities of the estate; and

• delivering accounts (if called on to do so) to those entitled to them.[ii]

In some cases, the executor may also be required to defend the estate from any claim for provision or further provision or defend the deceased’s will from challenges to its validity.  A premature distribution from the estate could, therefore, threaten the capacity of the estate to meet claims or costs on it, and the executor or administrator may be held personally liable for the shortfall.

In the absence of any claim on the estate or challenge to the deceased’s will, there is a general ‘rule of convenience’,[iii] rather than a fixed rule of law, that the executor should endeavour to carry out his or her administrative duties within 12 months of the deceased’s date of death.[iv]  This 12-month period is often referred to as the "executor’s year".  Executors are entitled to this 12-month period, it is said, for the purpose of administering the estate and so need not make any distributions within this time.[v]  Of course, being only a rule of convenience, some cases may dictate administration within a shorter time frame, whereas in others, a longer one.  In all cases, an executor must carry out his or her duties with due diligence and be able to justify a delay if and when one arises.[vi]

Incidentally, the expiry of the "executor’s year" coincides with the expiry of the limitation period for a person to make a claim against the estate for family provision.  In order to avoid a situation in which the executor has insufficient funds with which to defend a claim, depending on the circumstances, a cautious executor might, therefore, wait until the expiration of one year from the deceased’s date of death before making any distributions from the estate, even if he or she has completed his or her administrative duties and taken steps to protect himself or herself in respect of any distributions made without notice of a claim.[vii]

Having regard to the above, there are cogent bases upon which an executor might reasonably resist any request from a beneficiary for an interim distribution prior to the expiration of at least one year from the date of the deceased’s death.

Interim distributions prior to completion of the estate administration

A personal representative is not precluded from being obliged, in some circumstances, from making an interim distribution – even where there are some administrative duties yet to be performed.  In Gonzales v Claridades[viii], Campbell J identified some situations in which an executor may even have a duty to make an interim distribution:

"If the legal personal representative [i.e. the executor] is in a situation of knowing (1) that there are some distributions of the estate which could be made in accordance with the will or the rules of intestacy which govern the distributions of that estate, (2) that there was no realistic prospect that that distribution could be cut down or affected by those aspects of administration of the estate which remained unperformed, and (3) that the remaining tasks of administration were not likely to be completed soon, then it may be the duty of the legal personal representative to make an interim distribution to that extent."

In circumstances where, for whatever reason, the administration of the estate is delayed, it may be appropriate for the beneficiary of an estate to request the executor to make an interim distribution.  This occurred in Angius v Salier.

Angius v Salier

In Angius v Salier,[ix] the relevant facts were that:

• The deceased, the late Ms Laura Angius, died on 4 January 2012 leaving an estate the net value of which was in the range of $13,117,266 and $13,184,766.

• On 22 February 2013, family provision proceedings were subsequently commenced against the estate of the deceased by her daughter, Gianna Angius (aka Jenny).

• Separate proceedings were brought against the estate of the deceased by her former husband, John. John and the deceased’s marriage had broken down and they had entered in to a separation agreement prior to the death of the deceased.  The deceased had died before the terms of the separation agreement were fully implemented.  The proceedings brought by John were to enforce the separation agreement.

• Due to the proceedings affecting the estate, the administrator had not been able to make any substantial distribution of the estate.

• Robert Angius, the son of the deceased (and sister to the plaintiff) and sole beneficiary of the deceased’s Will, brought an application to the Court on 3 April 2018 seeking an order that an interim distribution be made to him of $1 million.

The Court made the order for the interim distribution sought by Robert.  In considering whether to make the order, the Court adopted a cautious and conservative approach.  The Court was concerned to ensure that it was safe for the executor to make an interim distribution of $1 million, in the sense that there would be sufficient funds left over in the estate to satisfy the extreme outside result that Jenny and John could hope to achieve in their respective claims – if they were ultimately successful.  Accordingly, the Court made the following observations:

• The most conservative course was to take John’s and Jenny’s claims at their highest and allow for both John’s and Jenny’s claims in the full amount that each could reasonably hope to achieve. This meant making an allowance for John’s claim of an additional $3 million (the administrator already having made an allowance of $1 million) and an allowance for Jenny's family provision claim in the amount of 20% of the net estate (about $2.6 million).[x]

• An estimated net amount of approximately $7.4 million would remain in the estate once the claims were taken into account.[xi]

• Robert’s circumstances were such that he had a need for an interim distribution in the amount sought. For example, there was evidence that Robert had severe hearing impediments and was in need of cochlear implants, that Robert had not enjoyed adequate housing since the death of the deceased and that Robert owed legal costs in excess of $1.4m.[xii]

• Rule 54.3 of the Uniform Civil Procedure Rules 2005 (NSW) and s 84 of the Probate and Administration Act 1898 (NSW) provided a foundation for the Court to make orders requiring the payment of interim distributions.[xiii]

• In considering whether to make an order for an interim distribution, the relevant question was whether the executor, if acting with the greatest degree of conservation and prudence, could safely part with the sums to be distributed, bearing in mind that the executor is entitled to retain sufficient funds as a buffer against unexpected expenses.[xiv]

• There was no merit in the submission by Jenny that the Court should not authorise the interim distribution sought by Robert because to do so would encourage Robert to incur further excessive legal fees and that this in turn could undermine her family provision claim, because she might have to face the argument at a final hearing that Robert’s needs were substantially more than they would otherwise have been, due to his obligation to pay huge legal fees. To this regard, the Court noted that ‘how Robert spends his own money is his business.  The decisions he makes may, however, be material if he finds it necessary to make any further application for an interim distribution.’[xv]

• In light of the exceptional circumstances of the estate, it was clearly appropriate for the Court to authorise the executor to make an interim distribution of $1 million in favour of Robert.[xvi]

Conclusion

In summary, depending on the circumstances – usually where there has been significant delay in administering the estate – a beneficiary may request and compel an executor to make an interim distribution prior to completion of the estate administration.  Whether it is appropriate for the executor to make the distribution, or for the Court to order that the executor make an interim distribution, will depend on whether the executor, acting with the greatest degree of ‘conservation and prudence’ called for by the circumstances of the case, can safely make the distribution.  In this regard, an executor who is unsure of the appropriate course of action is ordinarily justified in approaching the Court for advice and directions.[xvii]

Author: Raffael Maestri

Contributing Author: Gerard Basha

 

[i] [2018] NSWSC 995 (29 June 2018).

[ii] (2003) 58 NSWLR 188,199.

[iii] Benson v Maude (1821) 56 ER 994, 994.

[iv] See, eg, Wightwick v Lord (1857) 10 ER 1278, 1286 (Wensleydale LJ).

[v] G E Dal Pont and K F Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017) 500; see also Wightwick v Lord (1857) 10 ER 1278, 1286.

[vi] G E Dal Pont and K F Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017) 501.

[vii] See Succession Act 2006 (NSW) s 93; Probate and Administration Act 1898 (NSW) s 92.

[viii] Gonzales v Claridades (2003) 58 NSWLR 188 (2003) affd 58 NSWLR 211.

[ix] [2018] NSWSC 995 (29 June 2018).

[x] Ibid [26]-[27].

[xi] Ibid [29].

[xii] Ibid [35]-[41].

[xiii] Ibid [60]-[62].

[xiv] Ibid [63]-[65]; see also Romano v Romano [2004] NSWSC 775 (26 August 2004) [18]; Steiner v Strang [2012] NSWSC 919 (14 August 20122) [25]-[27].

[xv] Angius v Salier [2018] NSWSC 995 (29 June 2018) [69]-[76].

[xvi] Ibid [76].

[xvii] G E Dal Pont and K F Mackie, Law of Succession (LexisNexis Butterworths, 2nd ed, 2017) 512.