Generally, where a person acts as the executor of another’s estate, one of three approaches are adopted to financially recognise the time, energy and effort involved.
In summary, the approaches are:
Reimbursement only – under this approach, all costs incurred by the executor (for example, engaging professional advisers) are reimbursed to the executor.
Payment according to services performed – often, this will be calculated by reference to the number of hours spent, multiplied by an appropriate hourly rate.
Commission.
The rules in relation to executor’s commission are relatively complex, largely based on case law that in some instances is hundreds of years old.
Importantly however, from a tax perspective, the Tax Office has confirmed that the payment of commission is essentially a reward for services rendered. This means that despite the fact that there is no formal employer/employee relationship, the income received by an executor must be included in their assessable income in the year it is derived and taxed at normal marginal rates.
This conclusion is explained in more detail in ATO ID2014/44.
Partly to counteract this outcome, and to provide a level of certainty as to the overall quantum of payment that is ultimately received by an executor, some will makers simply provide a specific cash gift to their executors under their will.
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** For the trainspotters, the title of today's post is riffed from Mary Poppins Returns and the song 'A cover is not the book’.
Previous posts have considered some of the key questions to ask in any estate planning situation - the following View articles also set out some of the key issues to be aware of:
Generally it is critical to ensure the choice of executor is very carefully considered.
At a threshold level, an executor should be someone the willmaker trusts implicitly.
Other key attributes to consider can include:
Financial literacy and acumen;
Emotional strength;
Likely ability to perform the role in the worst of circumstances;
Age and health;
Previous experience;
Knowledge of and strength of relationship with beneficiaries;
Knowledge of and strength of relationship with other executors;
Residency;
Expectations in relation to payment;
Overall willingness to act.
The executor of the will is also known as the trustee. While the trustee of the testamentary trust is often the same as the executor, it can however be someone different.
Generally there can be up to 4 executors appointed at any one time. Particularly if only one executor is appointed initially, having at least one back up is generally advisable.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** for the trainspotters, the title today is riffed from the Kylie Minogue song 'Better the devil you know'.
Posts over recent weeks have explored what issues a court will consider before a trustee of a trust is removed against their will.
Many of the themes mentioned are relevant to the issue of whether a court will remove an executor (or legal personal representative (LPR)) of a person’s will.
As a threshold issue, any person with an interest sufficient to entitle them to oppose an application for a grant of probate also has sufficient standing to seek revocation of a grant (see Re Hartley [2020] QSC 251).
As confirmed in Gardiner and Ors v Hughes and Anor [2017] VSCA 167 “…[I]n order to establish standing, an applicant for an order revoking a grant of probate or letters of administration must have a sufficient interest in the proceeding. Sufficiency of interest is established by showing that the applicant’s rights would or might be affected if the grant were to be revoked. The bare possibility of an interest will suffice."
The decision in Re Franks [2021] QSC 134 provides a useful summary of the key issues in this area.
In a situation where 2 executors were unable to agree on how to administer the estate (after a third executor had renounced their role due to the conflicts between the parties), one of the executors applied to the court for an independent executor to be appointed. Importantly, an executor can not resign without order of the court once probate had been granted. Furthermore, unless a law firm has joint instructions from the executors, they are unable to act.
The court confirmed:
Similar to its role when there is an application for removal of a trustee of a trust, at the highest level, the question for the court when considering the removal of an executor is what is in the best interest of the persons who have an interest in the estate, including creditors and beneficiaries, and its due administration.
A conflict between personal representatives is not solely determinative and there is no precondition of default on the part of any executor before the power of the court can be exercised (see Chesney & Anor v Tognola & Anor [2011] QSC 340).
Due regard must be paid to the willmaker's wishes as to the identity of their LPR, however it should not be assumed that a willmaker who was aware of potential disputes among beneficiaries will also have anticipated disputes among the executors (see Baldwin v Greenland [2007] 1 Qd R 117).
Ultimately, each case must turn on its own facts (see Re Flavel; Application by Lipshut [2018] VSC 228, Re McLennan [2018] QSC 124 and Mann Jnr v Grantham [2004] VSC 156).
Here there was held to be sufficient benefit in an independent administrator being appointed who would not need the agreement for joint action and who would not be compromised by conflicts of interest or personal interest. This was despite the nomination made by the willmaker in their will and the additional expenses the estate would incur.
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** For the trainspotters, the title of today's post is riffed from the Bronski Beat song 'Why?’.
