Proceeds payment directions by executors.

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By Mr Matthew Ellis – Director MGB Legal
“Recently, the question has been raised about payments made to executors of deceased estates. More specifically, the question was raised about whether it is acceptable to make a payment of the proceeds of settlement directly to the executor, as opposed to an account in the name of the deceased’s estate. Obviously, you have to take your client’s instructions as to how to make payment of cheques, but there is some danger in allowing payments to be made to the executor in their own name, or even directly to beneficiaries.

An executor is obliged to get in all the assets of the deceased, pay the liabilities of the deceased, and then distribute in accordance with the Will or the Administration Act (as the case may be). An executor is also automatically a trustee, and therefore has all of the obligations of a trustee, including to keep their own funds and matters separate from the funds of the trust (or in this case, estate). By making the cheque payable to the executor directly, you could be facilitating a breach of trust by them. They may not be aware of it, which is why it’s a good idea for you to point it out and check they understand what they are supposed to be doing.

Payment to beneficiaries directly can also be a problem. You may not be aware of the debts of the estate, and whether they are paid. Beneficiaries only get paid once the debts have been fully paid out. So by permitting payment directly to beneficiaries, you may be inadvertently assisting the trustee in defrauding creditors.

While it’s a remote risk, we do know of cases in the eastern states where a lawyer drafting a will which was later found to be defective, was successfully sued by the beneficiaries named in that will for the loss they suffered. It’s not out of the realm of possibility to think that a failure to ensure payment is directed properly could create a potential liability to a beneficiary or creditor that doesn’t receive payment. So if you’re asked to order cheques to someone who is not the executor, it may be wise to make them aware that it should really go into an estate account, or else they could find themselves personally liable if a beneficiary or creditor wants to take action against them. They should be encouraged to make the cheques properly payable to the estate to avoid any problems down the track.”

Source: AICWA 6 June 2017 e-Bulletin

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