Risk of Interim Distributions
An executor/administrator who distributes an estate early can be held personally liable for any shortfalls that result from an interim distribution. This means that if the estate does not have enough money to pay off any debts, then the executor or administrator may need to use their personal money to pay those debts. Generally, there are three main risks associated with making an interim distribution. Those risks are potential creditors, claimants in a Family Provision Act 1972 (WA), and outstanding unknown debtors.
- Potential Creditors
It is difficult to be aware of all of a person’s financial affairs. An issue arises when a creditor pursues a debt after an interim distribution has been made. The issue becomes more of a problem when the estate does not have enough funds to pay out the creditor.
One easy way to protect an executor or administrator is to give any potential creditors notice to make a claim. This notice is published in the government gazette and local newspaper. Once the notice has been published, any potential creditors have 30 days from the date of publication of the notice to inform my office that they are a creditor of the estate. In making an interim distribution before this time, the larger the amount that is distributed, the higher the risk. On the other hand, the lower the amount that is distributed, the lower the risk will be.
- Claimants in a Family Provision Act
There is a legislative list of people who are eligible to make a claim for further provisions from a deceased’s estate (‘Claimants’). These people include de-facto partners, parents and children. For more information about Family Provision claims, click here. Claimants have six months from the date that letters of administration have been granted to make a claim. Claimants would be out of time and would need to seek leave from the Court.
- Outstanding Unknown Debts
Outstanding debts present a risk when the amount is unknown. It is difficult to determine the estate’s tax liabilities until all the assets have been called in and a tax accountant has made an assessment. The estate will need funds to attend to the debts outlined in the draft distribution statement and any other debts that may arise during the administration of the estate.
If you have any questions about, passing of accounts, distribution plans, and protecting yourself as an executor or trustee, please do not hesitate in contacting us!