Are you an executor of a Will? Before administering the estate, you should understand that this role involves risks such as personal liability for the expenses of administering the estate.
Executors of a Will must ensure they comply with the terms of the Will and relevant legislation when administering the estate.
An executor’s duty to finalise the deceased’s tax affairs is possibly one of the most underestimated tasks. If an executor does not properly carry out their duties in this regard, they run the risk of becoming personally liable for the payment of the deceased’s tax liabilities. The question about whether to apply to the Supreme Court for probate is the most important question. Therefore we strongly recommend executors obtain legal and accounting advice at an early stage.
Probate is an application to the Supreme Court by the executor to approve the will and fees for this are based on the Supreme Court sliding fee schedule. Not all estates require Probate, especially if the assets are small and there is no real estate or shares to deal with.
What is usually involved in finalising a deceased’s individual tax affairs?
The executor in all estate matters is expected to notify not only all the personal creditors and government agencies but also the Australian Taxation Office (ATO) of the deceased’s death. Arrangements must be made for any outstanding tax returns to be prepared and lodged. They must also arrange a final tax return for the deceased to be prepared and lodged and arrange payment of any tax liabilities. A deceased’s accountant usually does this together with the lawyers assisting the executor.
An executor’s tax obligations under a Will may become more onerous if the deceased had any involvement with companies or trusts, operated a business or was the trustee or member of a self-managed superannuation fund.
Executors should also understand that the estate’s tax affairs are different from the deceased’s individual tax affairs. Estates are treated as trusts for tax purposes, so an executor should:
- obtain a tax file number for the estate;
- arrange and ensure that tax returns are prepared and lodged with the ATO; and
- ensure payment of any tax liabilities.
The above can involve a substantial amount of time as the executor would need to gather information and documents in order to finalise the deceased’s individual tax affairs. This could become an onerous task especially if the deceased had a number of outstanding tax returns, did not use an accountant, or leave sufficient records and paperwork.
Therefore it is imperative for an executor to obtain appropriate accounting and legal advice either before or at an early stage of the estate administration. It will also help to reduce the risk of personal tax liabilities.
You also should be aware that you may be entitled to commission for your ‘handy work’ in administering the deceased’s estate. Although this is rare and it can be difficult to prove to the Supreme Court that the commission is warranted.
Can an executor of a Will receive commission?
An executor of a Will is entitled to charge a reasonable commission for administering the assets of the deceased’s estate in limited circumstances. Executors are not automatically entitled to commission for their work and will need to make an application to the Supreme Court for commission which can be time consuming and not always successful. Alternatively, if all residual beneficiaries of the Will are adults, they can reach a unanimous agreement on the amount of commission to be paid. This agreement should be in writing and signed by all beneficiaries.
How is commission determined?
The amount of commission paid to an executor ranges from 1 – 3% of all assets less all liabilities, which is referred to as the ‘corpus’. For example, an estate is worth $1.5 million. After the sale of the property, payment of outstanding mortgage, funeral and other estate administration expenses, $1 million remains as part of the estate. This amount is referred to as the ‘corpus’. In this scenario, the executor would be entitled to a commission of approximately $10,000 to $30,000. Additionally, an executor may earn up to 6% of income earned during the administration.
The Supreme Court may also determine the amount of commission paid to an executor by considering the following factors:
- size of the deceased’s estate;
- type of care and responsibilities required of the executor;
- the amount of time an executor has invested into performing their duties;
- the care and diligence shown by the executor in performing their duties.
If an executor is a beneficiary under a Will, this does not mean they cannot also make a claim for commission. The Court will look at how much has been left to the executor as a beneficiary and will adjust any commission accordingly, if granted.
It is imperative for an executor of a Will to seek legal and financial/accounting advice to prevent becoming personally liable for the deceased’s outstanding tax debts. It will also assist the executor is administering the Will properly and efficiently.
This information is for general purposes, and you should obtain professional advice relevant to your circumstances. A lawyer who is experienced in this area will also be able to advise as to the amount of commission an executor is entitled to for their effort in administering a Will.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9918 0222 or email email@example.com.