Know Your Role: Executors and Beneficiaries

Executors and Beneficiaries

Two of the most common terms used in Wills and the administration of deceased estates are ‘executor’ and ‘beneficiary’.  But what do these terms mean?

What is a beneficiary?

In the context of Wills, a beneficiary is a person (or an entity such as a company or charity) that receives a benefit under your Will, whether that be money or receiving a particular asset.

On the other hand, in the context of discretionary family trusts, a beneficiary is one of many people to whom the trustee can consider distributing income or capital of the trust.

So, in a Will, the beneficiary usually has a clearly defined interest.  In other words, beneficiaries under a Will know what they are going to receive at the end of the estate administration. However, when it comes to a discretionary trust, a beneficiary has no fixed interest.  In fact, the beneficiary of such a trust may receive nothing from the trust during its operation because distributions are at the discretion of the trustee.

What is an executor?

An executor is the person (or persons) you appoint in your Will to carry out the wishes and directions set out in your Will.  An executor makes sure (as far as possible) that what you want to happen happens.  But how does an executor do this?  Well, to put it simply:

  1. First, your executor organises your funeral (normally in consultation with your family).
  1. Then, your executor ascertains your assets.
  1. Once your executor has ascertained your assets, he or she must usually obtain something called a grant of probate from the Supreme Court of the State or Territory in which you lived. (This is the official recognition of your Will as the one to be acted on as your valid last Will.)
  1. After the court issues the grant of probate, your executor can then use it to collect the estate assets by, for example, closing bank accounts and transferring real estate into the name of executors. Sometimes, this may even include making a claim on your superannuation.
  1. Once your executor has collected or gained possession of all your assets, he or she then needs to pay your debts and liabilities. This may include credit card debts, outstanding tax etc.
  1. Finally, once all your liabilities have been discharged, the executor can proceed to distribute the remaining estate assets to your nominated beneficiaries. However, this may not always be completed via a single distribution but may instead be completed in several stages (known as interim distributions).

Can a beneficiary be an executor?

In our experience, there seems to be a common misunderstanding amongst the public that if you are a beneficiary in a Will, you cannot (or should not) be the executor of it.  However, it is often the opposite; if you are the beneficiary of a Will (and certainly if you are the main beneficiary of a Will), you are usually the best person to be the executor because you have an interest in ensuring that the estate is administered properly, and you get something at the end of it, unlike an independent executor.

If you appoint as your executor someone who is not a beneficiary, he or she only has a right to make a claim for executor’s commission (i.e., compensation for the ‘pains’ and ‘trouble’ gone to in administering your estate).  Further, a disinterested executor may turn out to be an uninterested executor and not administer the estate quickly (or properly).

In short, unless there are extenuating circumstances that would make a beneficiary unsuitable to be the executor (such as incapacity or mental disability on the part of the beneficiary), there is nothing necessarily wrong with appointing a beneficiary as your executor.  Of course, this should be discussed with a suitably qualified estate planning lawyer to understand any further implications.

By Max Williams

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