Put Up or Shut Up – Discovering and Disputing a Deceased’s Debts.
An executor or administrator of a deceased person’s estate (“LPR”) has a duty to pay all valid debts and liabilities of that deceased person. The LPR does not need to pay these debts personally but can instead use the deceased’s estate to make payment.
However, what if the LPR becomes aware of a debt after the estate has already been distributed? Does the LPR have to pay the debt in that case?
Advertising for debts
Most jurisdictions in Australia have legislation in place that provides the LPR with protection against future debts provided the LPR publishes a prescribed notice before distributing the estate. These specific requirements will vary from State to State but, by way of example, section 92(1) of the Probate and Administration Act 1898 (NSW) (“PAA”) provides as follows:
“The executor or administrator of the estate of a testator or an intestate may distribute the assets, or any part of the assets, of that estate among the persons entitled having regard to the claims of beneficiaries (including children conceived but not yet born at the date of the death of the testator or intestate), creditors and other persons in respect of the assets of the estate of which the executor or administrator has notice at the time of distribution if–
- (a) the assets are distributed at least 6 months after the testator’s or intestate’s death, and
- (b) the executor or administrator has given notice in the form approved under section 17 of the Civil Procedure Act 2005 that the executor or administrator intends to distribute the assets in the estate after the expiration of a specified time, and
- (c) the time specified in the notice is not less than 30 days after the notice is given, and
- (d) the time specified in the notice has expired.”
Section 92(2) of the PAA goes on to confirm that if the LPR complies with the above requirements, he or she will not be liable for any debt unless the LPR had notice of such debt when distributing the estate.
In Queensland, it is section 67 of the Trusts Act 1973 (Qld) (“TA”) that provides the LPR with this protection and it prescribes a period of at least six weeks for the LPR to wait before distributing.
Exceptions to the protection
It is worth noting, though, the comments of Meek J in the recent New South Wales case of Application of Doolan [2023] NSWSC 320. In this case, the deceased was a lawyer who practised exclusively in family law. Since his executors believed he may have acted negligently in preparing prenuptial or cohabitation agreements, they were concerned there could be future claims by the deceased’s clients and advertising pursuant to section 92 of the PAA would not protect them.
His Honour agreed that, while the executors were not presently aware of any specific claim, they might have knowledge of circumstances that could give rise to a claim such that they are not protected by publication of the section 92 notice. In any event, “the comments of Lindsay J in Re Yorke point up the fact that there are some types of contingent claims for which an advertising procedure as a means of protecting LPRs is not entirely apt because such advertising might not also give fair notice to potential claimants and a reasonable opportunity to bring forward their claims.”
While his Honour ultimately advised the executors that they could distribute the estate without retaining any funds to cover future claims since there was no evidence placed before the court to establish the deceased had been negligent, this case underscores the limitations to the protections provided by advertising for claims.
Disputing debts
If the LPR, after publishing the prescribed notice or advertisement, receives notice of a debt before distributing the estate, the LPR must generally pay that debt unless the LPR does not believe that the debt is valid. Where the LPR does not agree that the debt is valid, most jurisdictions give the LPR a process to distribute the estate and legally ignore the debt.
In New South Wales, section 93 of the PAA states that the LPR can give the alleged creditor a notice requiring that creditor to commence legal proceedings to enforce his or her debt within three months. If the creditor does not commence such proceedings within three months, then the LPR can apply to the court to have the creditor barred from later bringing a claim against the LPR for the debt and proceed to distribute the estate without regard to it.
In Queensland, section 68 of the TA provides a similar process for the barring of claims but instead prescribes a period of six months for the LPR to wait before making an application to the court.
It is a critical that a LPR understands the above requirements and the differences in each jurisdiction to be protected. People do not realise that taking on the role of an executor or administrator opens you up to all sorts of potential liability. If you are an executor or administrator and require assistance with navigating your duties, please contact us and book a consultation today.
By Max Williams – Special Counsel
More on Wills and Estate Planning, Know Your Role: Executors and Beneficiaries, Pitfalls for Executors, Appointing a Solicitor as your Executor: Practical Considerations
