Will-makers commonly appoint one or more persons as “executor and trustee” of my estate. As the same person usually carries out both roles the significance between the two roles is not often appreciated.
The executor’s duties include obtaining a grant of probate, getting in all of the assets, paying outstanding debts including funeral expenses.
Once the executor has completed the administration of the estate the assets are either distributed directly to the beneficiaries or the executor holds the assets as trustee. This stage is referred to as the final distribution, which is somewhat of a misnomer, given that there may still be assets held by the trustee on testamentary trusts.
The difficulty is in identifying whether the transition from executorship to trusteeship has occured. Formal confirmation of the transition (assent) can be given by the executor. However, this does not usually occur in New Zealand and instead assent is inferred once the residue of the estate has been identified.
Guidance on the transition from executor to trustee is provided in IRC v Smith, where the Lord Judge notes that “The property which on the death of the testator vests in the executor does not remain vested in him for ever. So soon as he assents to the dispositions of the will becoming operative and to the trusts taking effect, the estate vested in him as executor is divested and vests under the dispositions of the will in the trustees of the will.”
The relevance of identifying whether a person is acting as an executor or a trustee can have relevance where a claim is made against the estate and it is necessary to determine whether or not the claim is out of time. For example, although the court has a discretion to extend time, a claim under s 6 of the Law Reform (Testamentary Promises) Act 1949 must generally be made within 12 months. One factor the court will take into consideration in determing whether or not to exercise discretion if a claim is made out of time is whether there has been a final distribution of the estate; that is the executor has completed the administration of the estate and now holds the assets of the estate as a trustee.
Where a claim is pending, it is not generally possible for the residue of the estate to be identified given the element of uncertainty.
Another practical implication of the stage of the administration of a trust is the duties owed by the executor vs the trustee. While an administrator has a fiduciary obligation to carry out the administration faithfully, a residual beneficiary has no rights to information that are enforceable against the administrator as until the administration is completed there is no residue.