Being an executor is a risky business
If someone has asked you to be the executor of their will, beware of biting off more than you can chew. Although being appointed executor can be a sign of the esteem in which you are held by a friend or family member, the role can be extremely challenging and carries significant – and potentially very costly – legal liability.
Recent research from Executors Insurance, a company that sells policies to protect executors against a number of issues suggests that millions of people have accepted the role of executor without fully understanding the legal and financial liabilities they could face.
The survey found that while 47% of those who had in the past executed a will found the process straightforward, 17% reported that the experience was harder than they expected, while a further 12% said it was “a complete nightmare”.
Executors Insurance estimates that around six million people have executed a will in the past, with five million currently named as executors but yet to carry out their duties. In around three-quarters of wills, family members or friends are named as executors rather than professionals such as solicitors or bank officials.
“The responsibilities of an executor are very rarely talked about,” says Executors Insurance spokesperson Guy Everington. “Your liability should anything go wrong is not only personal and unlimited, it is also joint and several. This means that if there are other executors and one of the others makes a mistake, you could be held liable. If you have money and the others don’t, any unhappy parties are likely to come after you.”
As an executor, you can be held liable for mistakes for up to 12 years rather than the six years commonly applied in contract law. The liability can be extended a further three years if minors are involved, Everington says. But his company’s research found that 43% of people thought liability ended once all payments had been made from the estate.
Everington adds that the number of cases being brought against executors appears to be increasing. Figures from the High Court in England show there were 107 claims against executors for breach of duty in 2012 but 368 in 2013.
One possible reason for the rise in the number of claims is the increasingly fragmented nature of families. “The extent of extended families, including split families and second families, is growing and that is definitely increasing exposure,” Everington says.
“The role of an executor is to establish what the estate’s assets are, value them, pay the tax due, and then distribute the assets to the beneficiaries,” says Danny Cox, a chartered financial planner at investment firm Hargreaves Lansdown. “In some cases, it can be a really simple process – for example, people who just have a couple of bank and building society accounts.”
But for people with more complex affairs, one of the hardest jobs is locating the assets. “They might have premium bond accounts or bank accounts where the passbooks are lost; and not everyone puts their investments into a platform where everything is in one place.”
Services such as the Pensions Tracing Service or the Unclaimed Assets Register can help locate overlooked sources of wealth, Cox adds.
“Most investments will provide an annual statement so you should have something dropping through the letterbox over a 12-month period – but, obviously, you’d want to settle probate much sooner than that.
“Ask close family members what they know – they might be able to tell you that the deceased has got some land or property you didn’t know about. And wading through bank or credit card statements can give details of council tax paid on another property, say, or income from investments that you weren’t aware of.”
If you are asked to be an executor, you should think long and hard before accepting, Cox says. “If I was asked, I’d want to understand whether I was the right person and whether I was too close to the situation. For example, if I was a beneficiary I wouldn’t be comfortable also being the executor.”
The potential complexity of the estate should be another consideration.
“If someone had complicated business assets or an extended family, I would feel less confident because it requires a certain level of expertise to divide these things up. You’d also be more likely to have contentious issues or have the will contested. In these circumstances, the executor could be left with a major headache.”
For his part, Cox says he has chosen a “trusted friend” who also works in financial services to be his executor.
“When I appointed an executor, I looked for someone who had a very good understanding of things such as tax situations and who was used to dealing with money and financial planning,” he explains. “And the person I chose is younger than me, so the chances of him outliving me are greater.
“Most couples will appoint the other as executor, but it is important to appoint an additional executor in case you both die at the same time.”
Perhaps the biggest mistake an executor can make is failing to recognise their own shortcomings and calling in outside help when necessary, Cox says.
“It is important to know your limits: that means that if there is something you are not sure about, you check it out with a lawyer or accountant so you don’t end up paying more tax than you should, or not enough,” he adds.
Cox says that while professional executors such as solicitors or trustee companies can be expensive, if an estate is particularly complex then a professional can be objective and neutral.
“Charges vary hugely and range from 1% to 3% of the value of an estate,” he says. “Some solicitors charge by their hourly rates.” But help is also available from the state. “HM Revenue & Customs has a very good helpline, so I’d be firing queries off to it if I was unsure,” he adds.
Everington points out, however, that even if the services of a solicitor or accountant are sought, the executor is still ultimately liable for any mistakes – even those made by professionals.
“As executor, you are fully entitled to appoint a lawyer. The beneficiaries may ask why you are ‘wasting’ money but it’s entirely your choice,” he says.
“You are nonetheless still personally liable. The solicitor should know what they are doing but if they make a mistake you could still be sued: the beneficiary can’t sue the lawyer because they haven’t had a contract with them.”
Another issue is the clarity and accuracy of the will. “This is especially the case given that more people are using DIY will services,” Cox says. “The executor needs to make sure they have clear instructions. One of the things you might do before you agree to act as executor is have a look at how the will is drafted. For most people, it is the legalese that is hard to work their way through.
“The example that is always given in the textbooks is that of the deceased leaving their ‘favourite ring to their favourite daughter’, but no one knows which is their favourite ring or daughter. To avoid this kind of problem, you should be able to see an early draft of the will if you are being appointed executor.”
The process of applying for the right to deal with a deceased person’s estate. If a person has left a will, they will usually have appointed a will executor. The executor then has to apply for a ‘grant of probate’ from the probate registry, which is a legal document that confirms the executor has the authority to deal with the affairs of the deceased. If a person dies without making a will, intestacy law applies (see intestate).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.