Regularly reviewing your Will is very important as your family circumstances and assets continually change. Not only should you ensure that the terms of your Will reflect your intentions about gifts from your estate, it is also important to check that you have given your executors the necessary powers to carry out the administration of your estate effectively.
What does your executor do?
If you have created a Will you must have appointed an executor, authorising him or her to administer your estate after your death. The functions of your executor broadly include:
- identifying and taking control of all of your estate assets;
- identifying any creditors of you or your estate, and paying those creditors from estate funds; and
- arranging distributions from your estate in accordance with the gifts you have set out in your Will.
Why is it important for your executor to have powers?
The administration of an estate can take a long time, even if the estate is small in terms of value and complexity. During the administration process your executors may need to preserve, manage, or invest your assets before they are distributed to your beneficiaries. During this period your executor acts as trustee of the assets, which is why an executor is described as ‘executor and trustee’ in your Will. Your executor’s role as trustee will end when the estate is fully distributed. However, the trustee role may continue for a much longer period when assets are held in trust for children or beneficiaries with a disability.
The law gives executors and trustees a number of powers, but also imposes certain duties and obligations on them. The terms of your Will can also extend or restrict those powers and obligations or create new ones. The functions, powers and obligations of executors and trustees are not to be taken lightly. It is therefore very important to carefully consider what powers your executors may need in order to deal with your estate in the best possible way.
While many executor powers exist at law, here are two powers that are commonly drafted into Wills to expand what the law may provide to executors and trustees.
Power to appropriate assets
If assets such as superannuation are paid to your estate and there are many beneficiaries, it is important that your executor has a discretionary power of appropriation. This power will permit your executor to do things such as direct any proceeds of superannuation received by your estate to beneficiaries who may be ‘dependants’ under tax law, which will enable your estate to receive the benefit of tax concessions. Such a power may also give your executor the ability to resolve disputes where more than one beneficiary wants a particular item as part of their share in the estate (avoiding potential legal costs, stamp duty or capital gains tax consequences of alternative means in resolving such disputes through settlements).
Power to advance to minors
If there is the prospect of a beneficiary of your Will being a minor (who cannot themselves consent to a receipt of a gift from your executor), it may be appropriate for your executor to have the power to advance assets to a parent or guardian of a beneficiary. While the law does empower trustees to make advances from estates to parents or guardians, there are limitations on how much a trustee can advance. Circumstances may require these limits to be extended further and such extensions can be achieved in your Will.
Ultimately you should provide your executors with as much flexibility as possible. Extensions of standard powers will give executors and trustees much needed flexibility and discretion when administering your estate. It should be noted that such flexibility can not give an executor discretion in determining the value of the share to be distributed, only the source and type of assets used to make up that value.
If you have not reviewed your Will in a while it is likely that your assets or the circumstances of your beneficiaries have changed. Your assets may have diversified or there may be potential beneficiaries in your will who will require their shares to be managed for long periods of time, such as children.
Ultimately you cannot know with any certainty what circumstances your executor will find themselves in after your death. Ideally you will have chosen an executor who is trustworthy and competent and therefore no matter what complexity exists he or she will be able to discharge their duties effectively. Generally, the inclusion of a wide range of powers giving your executor flexibility carries less risk than omitting or restricting powers which may result in missed opportunities and costly consequences for your estate.
It should be noted that the practise of Will drafting is constantly evolving due to factors such as:
- changes in law (especially tax law);
- guidance from judicial decisions becoming available about relevant laws and their practical application;
- changes in the type of assets held due to increased access to a global market; and
- changes in family structures.
If you are unsure whether your Will gives your executors and trustees enough relevant power, discretion and guidance to carry out their functions and to benefit your beneficiaries in the best possible way after your death, then you should seek legal advice and make an appointment with a lawyer to review your estate plan.