Can executors be forced to pay legacy?

Trusts Discussion
1

I would be grateful for views on the following situation:

A beneficiary is entitled to a legacy of approximately £100,000 from her mother’s Will. The beneficiary is also one of three executors, the other two being professional executors (a solicitor and an accountant).

The mother died over two years ago, but probate was only obtained in November last year.

The beneficiary is desperate for the money, having entered into various financial commitments in expectation of receiving payment. However, the other two executors are refusing to pay, saying that there may be a claim under the Inheritance (Provision for Family and Dependants) Act 1975. They have therefore said that they need to wait a total of 10 months from the date of the grant, that being the six months period for bringing a claim plus 4 months for serving the claim form.

This means that the beneficiary will not receive payment until September, by which time she is likely to have suffered debt enforcement action.

There is no known or suspected claimant, and the estate is worth around £2.5m net of tax. The beneficiary is also a residuary beneficiary.

My provisional view is that the trustees are acting completely unreasonably, but I’m not sure what action could be taken to have the legacy paid. A County Court claim would take too long - by the time it got anywhere it would probably be September anyway - and I’m not sure whether a court would grant a mandatory injunction against the executors in such a case.

However, it occurred to me that a different approach might work. As the default position is that the legacy should be paid within a year from the date of death, any decision not to comply with this rule appears to me to be a positive decision by the trustees. And as trustees must generally act unanimously (there’s nothing in the Will allowing them to act by majority) I can’t see that a decision by two of the three trustees not to pay the legacy is legally sustainable.

TIA for any contributions.

2

If the executors believe there could eb a claim under the 1975 Act, it is not unreasonable for them to defer any distribution until 10 months after the date of the grant, being the 6 month period set out in the 1975 Act plus 4 months validity for the service of a claim issued on the last day of the 6 month period.

Although the executors could consider a distribution within that 10 month period, they would probably only do so if the beneficiary to whom the distribution were to be made would provide an indemnity to return funds, if required. However, in the present situation, where the beneficiary needs the monies to pay outstanding debts, such an indemnity is unlikely to have any value.

Has the beneficiary considered negotiating with their creditors to defer payment until after the 10 month period has elapsed – as one of the other executors is a solicitor, might they be amenable to providing confirmation of the beneficiary’s entitlement in support of such a request?

As regards the position on payment of the legacy, the “executor’s” year is merely a rule of thumb and has no particular significance other than in respect of the start date from which interest accrues on an unpaid legacy. Where executors have good grounds for non-payment, such as where there is potential for a 1975 Act claim, a court wold weigh all of the facts in deciding if there has been inappropriate delay in administering the estate.

Turning to the “unanimous” point, the question before the executors is “when to pay the legacy”, not “when not to pay the legacy” so that it cannot be paid unless all are in agreement. Unless it can be demonstrated that the executors’ concern over the possibility of a 1975 Act claim is merely whimsical, there may be little that the beneficiary can do, other than seek to negotiate with their creditors to defer any recovery action until, say, a month after the expiry of 10 months from the date of the grant.

If, as suggested, there is no known or suspected claimant, perhaps the beneficiary should put the facts before a Chancery counsel to see if a written opinion from counsel will persuade the other executors to reconsider their position.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

Has the option of early distribution insurance been considered? This may well be cheaper than payment of interest on the legacy which will now be accruing. Of course, this will need Exor agreement but could be a means to compromise.

4

I agree that paying the legacy is a duty so that 2 out of 3 cannot properly refuse to pay if the executor’s year has expired and this runs from the date of death. Executors will still have a defence if there is still any reasonable doubt that the estate may not be of sufficient value to meet the legacy in full.

The 1975 Act requires an application under s4 to be made within 6 months of the date of grant of representation. I do not believe any further time to serve process extends the time period. However, alarmingly, that can be extended if the Court permits but the Act says nothing about when such permission should be granted. There is nothing in CPR 57 though CPR 1(overriding objective) applies and the right to a fair trial under s1(3) Sch 1 Art 6 HRA 1998. Case law allows some guiding principles to be elicited e.g. Re Salmon and Re Dennis, both decided in 1981. The Court will consider inter alia the reasons for any delay by a claimant in applying.

The first question is whether the executors are otherwise in a position to pay the legacy especially as the legatee is also the residuary beneficiary, so could indemnify them out of that residuary entitlement even if no further. Have they advertised for creditors? Do they know of any claims that might be made against the estate or risks that the Will might be challenged?

If not, the second question is whether they are currently aware of the existence or likely existence of any potential claimants within s1 and 1A of the Act. In this case the answer seems that there are none such. Some of these categories are a bit vague but most are not and will be identifiable by reasonable enquiries of family members and any answers stood up externally. The dead are excluded but family members do go missing. Some may be benefited by the Will but argue only insufficiently.

s20 of the Act protects PRs if they distribute after the 6 month period against an order pursuant to an application made outside that period, or any variation of one made earlier, which the Court might permit. However this does not prejudice their right to recover assets distributed, so the legatee needs to be aware of that possibility. The Act does not prevent an action against the PRs whenever they distribute if they were wrong to do so, only within the very narrow limits of s20 as regards a specified claim under the Act. Can the legatee/residuary beneficiary provide any security over any asset which she intends to spend the money on or has already done so, perhaps by incurring debt to be liquidated from an estate distribution?

I suggest she should formally request payment even within the 6 months (the executors are not bound to wait) or and confirmation whether the residue has been ascertained and if so why she cannot be paid out in full. She should particularise her circumstances for needing the funds that are related to timing and her potential financial detriment. Tactically she might offer up front or only in reply a request for a payment on account and offer an indemnity, for a limited period and also limited to her beneficial entitlement, or any further security if she has it and is willing to provide.

She might also reflection whether it was prudent to incur financial commitments dependent on her receiving her entitlement before actual receipt.

Jack Harper

5

Thanks for your suggestion Karl. Yes, it was mentioned by the solicitor executor, but he wanted paying for his time setting it up, and the cost of that time plus the premium seemed wholly excessive in a situation where there is no foreseeable risk at all.

6

The beneficiary is asset rich but cash poor. She owns a house worth £750k with no mortgage, and she did offer an indemnity (even though she’s also a residuary beneficiary, so not really needed) but her offer was rejected.

7

Thanks for such a comprehemsive reply Jack.

The reason the delay is 10 months, not 6, is that a claim could theoretically be issued without notice to the executors. The Claim Form doesn’t have to be served until 4 months later so the existence of the claim could remain unknown for a total of 10 months.

The executors can pay the legacy, as they’re sitting on around £600k in cash. I assume they’ve advertised for creditors, as probate was granted in November, but because of the nature of the estate it’s very unlikely there would be any significant creditors, certainly none so large as to affect the ability to pay the pecuniary legacies.

There are no known prospective claimants, and there have been no indications of any challenge to the Will.

And whilst I agree with your comments as to the prudence aspects the beneficiary, as executor, knew there was substantial cash in the estate and had no reason to expect a 10 month delay in receiving payment.

8

MIchael, surely she might be prepared to offer the executors a charge over her unmortgaged property.

Jack Harper

Thanks for such a comprehemsive reply Jack.

The reason the delay is 10 months, not 6, is that a claim could theoretically be issued without notice to the executors. The Claim Form doesn’t have to be served until 4 months later so the existence of the claim could remain unknown for a total of 10 months.

The executors can pay the legacy, as they’re sitting on around £600k in cash. I assume they’ve advertised for creditors, as probate was granted in November, but because of the nature of the estate it’s very unlikely there would be any significant creditors, certainly none so large as to affect the ability to pay the pecuniary legacies.

There are no known prospective claimants, and there have been no indications of any challenge to the Will.

And whilst I agree with your comments as to the prudence aspects the beneficiary, as executor, knew there was substantial cash in the estate and had no reason to expect a 10 month delay in receiving payment.

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Previous Replies

paul:

Although the executors could consider a distribution within that 10 month period, they would probably only do so if the beneficiary to whom the distribution were to be made would provide an indemnity to return funds, if required. However, in the present situation, where the beneficiary needs the monies to pay outstanding debts, such an indemnity is unlikely to have any value.

The beneficiary is asset rich but cash poor. She owns a house worth £750k with no mortgage, and she did offer an indemnity (even though she’s also a residuary beneficiary, so not really needed) but her offer was rejected.