Jeremy Mills explains the dangers that come with executing a friend or relative’s will
It is often the case that people fail to keep their affairs in good order or their wills up to date. They are not helped by sophisticated and confusing tax rules and stricter legal rules and regulations which mean that dealing with the administration of any estate can be far from straightforward.
Despite this, there has been a decline over recent years in the appointment of professional executors. Instead, many people are opting for the appointment of a family member, friend or even a business colleague as the executor for their wills. While it is, on one level, understandable that people wish to avoid the expense that ensues from a professional appointment, most executors do not realise the personal liability they could be facing for a voluntary, unpaid role.
Potentially putting their own financial wellbeing at risk, they could become personally exposed to full liability from any number of beneficiaries in the will. As Peter Collins, director of the Legacy Funding Corporation, recently put it: “Beneficiaries are now taking legal action if they feel that there is a problem with the estate, and without insurance the executor could have to fund their own defence.”
When could an executor face personal liability?
There are a number of areas in which an executor could face personal liability, including:
- Losses that are caused by the executor which have an effect on one or more of the beneficiaries and which could reasonably have been avoided;
- Fines or interest imposed by HMRC;
- Any expenditure which is normally reclaimable out of the estate (funeral expenses, estate agent’s fees etc.). These could be the responsibility of the executor if there are not enough funds in the estate to pay them.
When could an executor face litigation?
There are also a number of instances where an executor could face litigation as the representative of the estate, including:
- A challenge by a disgruntled beneficiary or family member as to the validity of the will or mental capacity of the testator at the time the will was made;
- A similar challenge on the basis that the testator was unduly influenced in drafting the will;
- A challenge by a person claiming that the will did not fulfil a promise made to him by the testator;
- A challenge under the Inheritance Act 1975 on the grounds that the will did not make reasonable financial provision for the person making the claim and that it should have done so.
Any non-professional executor willing to take on the role and deal with an estate would be well advised to safeguard their personal position as much as possible.
15-month court battle
Colin Lever learnt this the difficult way. Following his mother-in-law’s death in 2007, Colin, settled up the estate as an executor by paying all inheritance tax due and distributing the balance of the estate.
Four months later, he received a letter from HMRC stating they it was “considering the increase in value” of his mother-in-law’s house. While professionals had valued the house at £1.4m, it sold at an auction for £2.0m. Despite Colin paying all inheritance tax due on the £2.0m, HMRC were penalising him for over £44,000.
As he fought tooth and nail against HMRC’s charge of negligence, it reduced the charge to £17,500, a fee Colin still refused to pay. After a 15-month battle, HMRC dropped the case after a similar case went against it.
Executor liability insurance can protect the executors not only against innocent errors they might make in carrying out their duties in managing the estate, but it can also provide legal expenses to help them defend any action from a beneficiary or third party. Given the amounts of money involved, it would be foolhardy not to consider it.
Jeremy Mills is a notary public and runs his own legal and tax consultancy Mills Keep.
Peter is CEO of Legacy Funding Corporation Ltd and is a specialist in designing insurance programmes for organisations operating within the “Not for Profit “sector. He works closely with a number of financial institutions developing products that can generate income for the sector and he also designed the first line slip in the UK for Trustee liability Insurance.
Tel: 08448 480 380