As an executor, distributing the assets of a deceased estate within a reasonable time is one of your primary responsibilities. However, this task comes with significant risks, particularly if distributions are made prematurely or with unwarranted delay. Understanding the legal requirements and potential pitfalls is crucial to ensure a smooth administration process that avoids disputes and potentially incurring personal liability.

In addition to obtaining a Grant of Probate or Letters of Administration where required, executors or administrators must ensure that all debts and liabilities of the estate are settled. This includes funeral expenses, outstanding taxes incurred by the deceased or during the administration of the estate, and any other debts the deceased may have left behind. 

One of the most critical considerations is the potential for family provision applications (FPA's). These claims are made by eligible persons, such as spouses, children, or financial dependents, who believe they have not been adequately provided for in the will. It is crucial that executors are aware of the statutory time limits for these claims, which vary by state. 

In Queensland, the Succession Act 1981 stipulates that an FPA must be notified within six months of the deceased's death and filed within nine months. Executors who distribute the estate before these time limits may be held personally liable if a claim is successful. 

In New South Wales, the time limits are similar, with FPAs required to be filed within twelve months of the deceased's death. Executors must also publish a notice of their intention to distribute the estate, allowing creditors and other interested parties to notify executors of a potential claim, or any outstanding liabilities. Distributing the estate before these requirements are met can expose executors to personal liability.

Victoria follows a slightly different approach. Under the Administration and Probate Act 1958, eligible applicants have six months from the date of the Grant of Probate to make claim.  

Distributing an estate prematurely can have severe consequences. Executors who distribute assets before the statutory time limits may be required to personally repay any amounts needed to satisfy successful claims or to pay legitimate liabilities that they were aware of within the relevant time frame. This risk is particularly high in cases where family provision claims are likely.

In Re Faulkner [1999] 2 Qd R 49, notice of an intended FPA was given within the six-month time limit, but the executors distributed the estate immediately after the nine-month period had expired, before the matter had been resolved. The court found that where notice of an FPA has been given, it must be at least fairly arguable that a distribution as soon as the nine-month period has expired is not one "properly made" so as to protect an executor from personal liability. As a result, the executors' distributions were set aside, and the property was returned to the estate by order of the court.

In the case of Re Estate of Hagendorfer (Injunction) [2024] VSC 482, the plaintiff, one of the deceased's children, was excluded from the will, leaving the estate to her two siblings. The executrix distributed the estate to herself and the second defendant before the six-month period for contesting the will had expired. The plaintiff made an application for provision within the requisite period, and the court granted an interlocutory injunction to freeze the distributed funds pending the determination of the claim. The court found that the plaintiff had an arguable case and that the executrix and second defendant should retain at least $150,000 in equity to satisfy potential claims. The Court emphasised that executors who distribute early may be personally liable for any loss to a claimant arising from the early distribution.

While executors are generally not obligated to make distributions before completing the administration of an estate, beneficiaries can sometimes compel an interim distribution. This often occurs when the administration is delayed due to complex affairs or legal proceedings.

In Gonzales v Claridades (2003) 58 NSWLR 188, the court identified scenarios where an executor might have a duty to make an interim distribution if:

1. There are assets that can be distributed according to the will or intestacy rules.

2. There is no realistic prospect that the distribution could be affected by unresolved administrative tasks.

3. The remaining administrative tasks are unlikely to be completed soon.

In Angius v Salier [2018] NSWSC 995, the deceased left a significant estate. Family provision proceedings were initiated by her daughter, and separate proceedings were commenced by her former husband to enforce a separation agreement. This meant that the estate's administrator had been unable to make substantial distributions. The deceased's son, the sole beneficiary under the will, applied for an interim distribution of $1 million, largely in part to cover medical costs.

The court adopted a cautious and conservative approach in considering the son's application, emphasising that sufficient funds needed to remain in the estate to satisfy the maximum potential claims of both the deceased's daughter and former husband. Ultimately, the Court authorised the distribution, finding that the unresolved claims could still be met if the distribution was made.

To mitigate these risks, executors should:

1. Pay Liabilities: Executors should ensure that all legitimate debts of the deceased or incurred during the administration of the estate are paid prior to any distribution. 

2. Tax Returns: Executors should engage an accountant to prepare tax returns for the deceased and the estate and ensure that any tax liabilities are paid before distribution. 

3. Wait for statutory periods to lapse: Executors should ensure that the six to twelve-month periods (depending on their jurisdiction) for FPAs have passed before distributing any assets.

4. Publish notices: Executors must be careful to follow the legal requirements for publishing notices of intent to distribute the estate.

5. Consider if interim distributions are appropriate: Executors should be aware that while they have the right to take their time to administer the estate properly, they must also consider the needs of the beneficiaries. Delays in distribution can cause frustration and financial hardship for beneficiaries, particularly if they have immediate needs. Executors should communicate transparently with beneficiaries about the status of the estate and any potential delays.

By adhering to these guidelines, executors can minimise the risk of personal liability and ensure a fair and efficient distribution of the estate. Please feel free to reach out to our Corporate & Commercial team if you require any legal support regarding the matters discussed above.