Introduction

Being appointed as an executor of a will for a deceased estate is a role of significant trust and legal responsibility. Many individuals who take on this duty are unaware that common mistakes can result in being held personally liable for the estate’s debts, a situation that can have disastrous financial consequences even when errors are unintentional.

This guide provides essential information on how to properly administer an estate and avoid the pitfalls that lead to personal liability. Understanding your legal duties and the most frequent executor mistakes is crucial for protecting yourself while honouring the responsibilities of your role.

Understanding an Executor’s Core Legal Duties

The Legal Framework Governing Your Executor Role

When you are appointed as an executor in New South Wales, your role is governed by significant statutory and fiduciary obligations. These legal duties are not merely administrative; they form a strict framework that, if breached, can lead to personal liability.

The core legal instruments that dictate an executor’s responsibilities include:

• The Succession Act 2006 (NSW)
• The Probate and Administration Act 1898 (NSW)
• The Trustee Act 1925 (NSW)
• Common law and equitable principles applicable to fiduciaries and trustees

These laws establish the high standard of care required to administer an estate and protect the interests of beneficiaries and creditors. Understanding this legal context is the first step in avoiding common executor mistakes that could make you personally liable for estate debts.

Your Primary Responsibilities When You Administer an Estate

As an executor, you are responsible for managing the deceased person’s financial and legal affairs according to their will. To administer the estate correctly and avoid being held personally liable, you must diligently perform several key tasks.

Your primary responsibilities as an executor include:

Responsibility	Description
Applying for a Grant of Probate	The crucial first legal step to confirm the will is valid and obtain the court’s authority to manage and distribute the estate.
Identifying and Securing Assets	Locate, gather, and preserve all assets of the estate, including securing property, insuring valuables, and holding cash in an interest-bearing account.
Paying Debts and Liabilities	Identify and pay all of the estate’s debts, including taxes, loans, and credit card balances, before distributing any assets to beneficiaries.
Keeping Accurate Records	Maintain clear and detailed records of every transaction made on behalf of the estate, which must be available for beneficiaries to inspect.
Managing Tax Affairs	Lodge a final tax return for the deceased and, if the estate earns income during administration, file a separate trust tax return.
Distributing the Estate	Once all debts and liabilities are settled, distribute the remaining assets to the beneficiaries in strict accordance with the will’s terms.

These duties ensure the estate is settled in an orderly and lawful manner, protecting both the wishes of the deceased and the interests of all beneficiaries.

Key Areas That Lead to an Executor’s Personal Liability

Mismanagement of Estate Assets & Investments

An executor has a fiduciary duty to manage the estate’s assets prudently, which involves collecting, preserving, and sometimes investing them. The expected standard of care is that of an ordinary, prudent person managing their own business affairs.

This standard requires executors to:

• Actively protect estate property
• Avoid making reckless decisions that could harm asset values
• Prevent overly conservative approaches that might diminish estate value

Failure to meet this standard can result in the executor being held personally liable for any financial loss suffered by the estate. Under section 44 of the Probate and Administration Act 1898 (NSW), an executor is legally required to gather and administer the estate with due diligence. For instance, if they fail to secure a vehicle that is later stolen or damaged, they could be held responsible for the loss.

Premature Distribution & Liability for Estate Debts

One of the most common executor mistakes that can lead to personal liability is distributing estate assets to beneficiaries before understanding what happens to debts after death and paying all liabilities. If an executor distributes the estate and a creditor later makes a claim, the executor may be held personally responsible for the unpaid debt. This presents a significant risk, as recovering funds from beneficiaries after distribution can be extremely difficult.

This responsibility includes settling all tax liabilities with the Australian Taxation Office (ATO), such as:

• Lodging final income tax returns
• Resolving any capital gains issues
• Addressing outstanding tax obligations

Distributing the estate before these matters are finalised can make the executor personally liable for any tax shortfall. Section 92 of the Probate and Administration Act 1898 (NSW) mandates that the estate must be administered according to law before any distribution occurs.

Improper Distribution Contrary to the Will or Law

Executors are under a strict legal duty to distribute the estate precisely according to the terms of the will. If there is no valid will, they must follow the intestacy rules outlined in Chapter 4 of the Succession Act 2006 (NSW). Any deviation from these instructions can expose the executor to personal liability, potentially forcing them to repay the misdirected funds from their own pocket.

Liability for improper distribution can arise in several ways, including:

Type of Improper Distribution	Description & Consequence
Paying the wrong beneficiaries	If funds are given to individuals not entitled to them under the will or law, the executor may have to personally compensate the estate.
Failing to locate all beneficiaries	An executor must make reasonable efforts to find every beneficiary; failure to do so resulting in misdistribution can lead to personal liability.
Ignoring intestacy rules	When no will exists, distributing assets in a manner contrary to the legal order of succession is a serious breach of duty.

Failure to Address Potential Family Provision Claims

Under the Succession Act 2006 (NSW), certain eligible persons can apply to the court for provision from an estate if they feel they have been inadequately provided for. This application must be made within 12 months of the deceased’s date of death.

An executor who distributes the estate before this period expires, especially when they are aware of a potential claimant, risks being held personally liable. If a family provision claim is successful after the assets have been distributed, the executor could be ordered to personally pay the amount awarded to the claimant.

In Smith v Smith [2010] NSWSC 797, an executor was found personally liable for the estate’s shortfall after distributing assets despite knowing a potential claim existed. Therefore, executors should refrain from final distribution until the 12-month claim period has passed, particularly if they believe a claim is likely.

Unreasonable Delays in Estate Administration

While there is no strict deadline, an executor is generally expected to complete the estate administration within 12 months of the death, a period often called the “executor’s year.” An unreasonable delay beyond this timeframe without a valid reason can be considered a breach of duty. Such delays can cause financial loss or hardship for beneficiaries, who may then take legal action.

If a court finds that an executor has failed to administer the estate in a timely manner, consequences that lead to personal liability may include:

• Being ordered to pay interest to beneficiaries from personal funds
• Paying compensation to beneficiaries for losses caused by the delay
• In serious cases, removal from the executor role

Breach of Fiduciary Duties like Impartiality & Record Keeping

Executors have a duty to act impartially and in the best interests of all beneficiaries, avoiding any favouritism unless the will explicitly directs it. A conflict of interest, such as when an executor is also a major beneficiary, must be managed carefully to ensure all decisions are fair. Prioritising personal interests over the collective good of the beneficiaries is a breach of this duty.

Furthermore, an executor must keep accurate and detailed records of every transaction made on behalf of the estate. This includes:

• All income received
• All expenses paid
• All distributions made

Beneficiaries are entitled to inspect these accounts to ensure transparency. Failing to keep proper records or intermingling estate funds with personal money are serious mistakes that can lead to accusations of misconduct or even executor fraud, exposing the executor to being held personally liable for any unaccounted-for funds.

The Financial & Legal Consequences of Executor Mistakes

Being Held Personally Liable to Compensate the Estate

When an executor mistake leads to financial loss for the estate, the court can order them to repay the deficit from their own personal funds. This significant risk means an executor could be held personally liable for debts and losses incurred through their mismanagement, a situation that could put their own assets at risk to compensate beneficiaries or creditors.

Common executor mistakes that can lead to personal liability include:

Executor Mistake	Explanation & Consequence
Distributing the estate too early	If an executor distributes assets before all debts and taxes are paid, they can be held personally responsible for any shortfall and may have to pay it themselves.
Ignoring potential claims	An executor who distributes the estate before the 12-month period for a family provision claim expires can be found personally liable for any amount later awarded by the court.
Mismanaging assets	Selling assets below market value or making poor investment decisions can cause financial loss, for which the executor can be required to personally compensate the estate.

Potential Removal as Executor by the Court

Beneficiaries have the right to take legal action if they believe an executor is mismanaging the estate. In such situations, they can file a claim to address the issue, highlighting the Supreme Court’s role in will disputes and having the executor removed from their position and replaced with a new administrator. This action is typically taken when trust has broken down due to the executor’s conduct.

An executor can be removed for several reasons, including:

Grounds for Removal	Description
Unreasonable delays	Failing to administer the estate within a reasonable timeframe (often the “executor’s year”) without a valid reason can be grounds for removal.
Failing to keep proper records	If an executor cannot provide clear and accurate accounts of their management of the estate, it can be seen as a breach of duty.
Not acting in the beneficiaries’ best interests	An executor must remain impartial and act for the benefit of all beneficiaries; any failure to do so can justify their removal.

If the court finds evidence of mismanagement, it can order the executor’s removal and appoint a professional trustee or another suitable person to complete the estate administration correctly.

How to Protect Yourself from Personal Liability

Follow the Correct Legal Process for Estate Administration

To avoid being held personally liable, an executor must strictly adhere to the correct legal procedures when administering an estate. Following the statutory process for distribution provides significant protection against future claims from creditors or potential beneficiaries. Rushing the estate administration can lead to critical errors.

Under section 92(1) of the Probate and Administration Act 1898 (NSW), an executor may safely distribute the estate after these specific criteria are met:

• At least six months have passed since the deceased’s date of death
• The executor has published a notice of their intention to distribute the estate on the NSW online registry
• The notice period of at least 30 days has expired

By complying with these notice requirements, an executor is protected from personal liability if a claim is later made, provided they had not received notice of the claim before distributing the assets. This protection is outlined in section 92(2) of the Probate and Administration Act 1898 (NSW) and section 93 of the Succession Act 2006 (NSW).

The case of Ernst v Mowbray [2004] NSWSC 1140 highlighted that executors could have been held personally liable for distributing an estate without giving proper notice if a subsequent claim had been successful.

Seek Professional Legal Advice for Your Estate

Engaging an experienced estate lawyer is one of the most effective ways for an executor to protect themselves from personal liability. It is a common executor mistake to avoid seeking legal advice, especially when the estate involves any complexities.

A lawyer can:

• Guide you through your legal duties
• Help you navigate the estate administration process
• Ensure you comply with all legal requirements

This professional guidance is particularly important for complex estates that may involve business interests, unclear debts, or potential family disputes. Additionally, it helps prevent common executor mistakes that could otherwise lead to personal liability.

The costs associated with hiring lawyers or accountants are considered an estate expense and can be paid from estate funds, which can save significant time and money in the long run.

Conclusion

Acting as an executor carries significant legal responsibilities, and common mistakes during estate administration can lead to being held personally liable for the estate’s debts. Diligently managing assets, settling all liabilities before distribution, and adhering to legal processes are essential for avoiding this serious financial risk.

If you are administering an estate and need to ensure you are protected from personal liability, contact our experienced Wills and Estates lawyers at PBL Law Group today. Our team provides the expert legal advice you need to navigate your duties confidently and administer the estate correctly.

Frequently Asked Questions