Estate administration – assets and liabilities

One of the key duties of a personal representative, such as an executor or administrator, is to collect in the estate assets and pay estate debts. Below are several issues that commonly arise:

  1. What does “collecting in estate assets” mean?

“Collecting in estate assets” refers to the process by which an executor either converts estate assets to cash, or transfers the assets into their name/s to enable a later sale or distribution to the beneficiary/s.

After the assets are collected, the executor would pay any liabilities and then attend to a distribution of the balance of the estate.

  1. Executor or Administrator to provide identification

An executor will be required, by most institutions, to provide identification (such as certified copies of a driver’s licence or passport) before being able to deal with assets of the estate. This is in addition to the usual requirements to produce certified copies of either a grant of representation (either probate or letters of administration) or the death certificate and will.

  1. What assets cannot be dealt with or are outside of the estate?

There are a number of assets that do not form part of a deceased’s estate and do not pass under a will.

Life insurance

Life insurance is a contract which pays a specified amount to a nominated beneficiary upon the death of the insured person. The nominated beneficiary may be the deceased, and in this case, the insured amount is paid to the estate. However, if the nominated beneficiary is (for example) the spouse of the deceased, the payment will be made directly to the spouse and will not form part of the deceased’s estate.

Superannuation

Superannuation is actually an interest in a trust but these interests are highly regulated and governed by federal legislation. The relevant legislation provides that superannuation interests can only be paid to the deceased’s:

a) Spouse (including a de facto spouse);

b) Dependents (including children and step children); and /or

c) Estate

A person may execute a binding death benefit nomination which requires the trustee of the superannuation fund to pay their superannuation death benefits to one (or more) of the above beneficiaries upon their death.

In the absence of a binding nomination, the trustee has a discretion where to pay the superannuation interest, but only amongst the range of beneficiaries listed above.

In either case, the superannuation death benefit does not automatically form part of the estate. It will only form part of the estate if the trustee determines to pay it to the estate or the deceased has left a binding nomination in favour of the estate.

Jointly owned assets

If a deceased person owns an asset, usually land, as a joint tenant with another person, upon death the surviving joint tenant becomes the sole owner of that property, by operation of the rule of survivorship.

This means that deceased’s interest never forms part of their estate and any gift of such property in their will is not effective.

Trusts

A deceased may have an interest in a discretionary trust as either a trustee or beneficiary. Depending upon the terms of the Deed, a person can pass on their role of trustee to a successor. However, it is not usually possible to “pass on” their interest as a beneficiary of the trust or in the underlying assets owned by the trust. Those assets belong to the trust and do not form part of the deceased’s estate.

Companies and interests in companies

A deceased may be the director or shareholder of a company at their death. The Corporations Act usually deals with the transition of the role of director upon a person’s death, but the shares in the company are assets of the estate. This is to be distinguished from the assets owned by the company, which do not form part of the estate.

It is important to be aware that ASIC requires the death of a director to be recorded quite quickly after death, so if the deceased was a director of a company, this matter should be attended to as a matter of priority.

      1. What happens to assets once they have been collected?

An executor has a duty to maximise the estate. This means that if possible, the assets need to earn an income for the benefit of the beneficiary/s. The most common example is for cash to be placed in an interest bearing account.

Consideration should also be given to prioritising the sale of wasting or devaluing assets, such as machinery and motor vehicles, which depreciate in value with time.

      1. When should estate liabilities be paid?

As a part of the duty to maximise the estate, executors have a duty to minimise the liabilities incurred by an estate. A good example of such a liability is an interest-bearing loan. Such liabilities should be discharged as soon as possible.

      1. What are digital assets and how does an executor deal with them?

Digital assets are rights or interests in data such as audio, images, videos or text files which are in digital format. For example, online social media accounts, email accounts or website domains. Data held offline, such as on computers, tablets and mobile phones are also digital assets.

The executor should make inquiries about what digital assets the deceased may have had which fall into the estate and carry out any instructions left in the will or other associated documents. If digital assets have not been specifically mentioned, the executor should seek the views of the beneficiary entitled to the digital assets so that they can be removed, ‘memorialised’, sold or transferred as appropriate.

Most social media sites or data storage facilities have a process to follow in the event of the death of one of their account holders.

Further reading

Duties of the executor