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BEWARE! The consequence of releasing assets to an executor without a grant of probate

July 31st, 2018

An executor, when administering an estate, may try to avoid obtaining a grant of probate of the deceased’s will.  In this situation, the executor will often request that the party holding the assets on behalf of the deceased (i.e. a bank) waive the production of a grant of probate and simply distribute the assets to the executor named in the will.

Generally, upon receiving these requests the party releasing the deceased’s assets will, in exchange for dispensing with the requirement for the production of probate, request that a release and indemnity form be signed by the executor of the estate.  Whilst most of these requests to waive probate typically arise in low value estates where it would be uneconomical to obtain a grant, it is still important to handle these requests with great caution and care.

Be warned, a release and indemnity form signed by a “purported” executor, in exchange for waiving the requirement to produce a grant of probate, may be insufficient protection against future claims.  The recent case of Public Trustee v CBA & Ors [2018] SASC 25 is a timely reminder to all banking personnel, accountants, stockbrokers, financial planners, insurance brokers, company directors, superannuation fund trustees, and business owners (essentially anyone releasing funds/assets to an executor of an estate) of the importance of probate and why you should always think twice before waiving the requirement for the production of a formal grant.

Public Trustee v CBA & Ors [2018] SASC 25

The deceased, Ms Martin passed away on 3 October 2008, aged 90.

Ms Martin had made three wills following the death of her late husband in 1987:

  • will dated 29 April 2008, appointing Ms Martin’s son Michael as the executor (“the 2008 will”);
  • will dated 16 October 2007, appointing Michael’s estranged wife Alba as the executor (“the 2007 will”); and
  • will dated 22 October 2002, appointing the Public Trustee as executor (“the 2002 will”).

A grant of probate in solemn form was made on 15 May 2013, propounding the 2002 will.  The reason that a grant of probate was issued for the 2002 will and not the later wills is because the court determined that Ms Martin did not have the requisite capacity at the time the 2008 and 2007 wills were prepared.

At the date of Ms Martin’s passing she had account with the Commonwealth Bank of Australia (“CBA”) and the Bank of South Australia (“Bank SA”).

In June 2009, Michael sought payment of the proceeds of those accounts to him, as the executor of the estate pursuant to the 2008 will.

CBA wrote to Michael requesting that a certified copy of probate be provided in order to release the funds, along with several other forms to be completed.  Michael responded to CBA requesting that “…probate be waived as there is no property in the Estate of my late mother, only cash, and I would like to distribute it to the Beneficiaries”.

CBA agreed to waive the production of a grant of probate upon the condition that Michael complete and sign a “Claim for Assets Held on Behalf of Deceased Customer form”, along with a few other forms. Michael returned the signed form to CBA, whereby he agreed to indemnify the CBA against all action, suits claims or demands in respect of Ms Martin’s account.  CBA then closed the account held in Ms Martin’s name and released the funds, being $69,290.33, to Michael.

Similarly with respect to the proceeds held by Bank SA, Michael wrote to an officer at Bank SA requesting that probate be waived “as there is no property in Ms Martin’s estate, only cash, to be distributed among the beneficiaries”.

Michael provided several documents to Bank SA, including a “Deceased Estates Statutory Declaration”, signed and dated by Michael wherein he declared that he was the executor of Ms Martin’s estate and indemnified Bank SA “from and against all claims, demands, actions, proceedings and losses of whatever kind and extend arising out of our incidental to such instructions…”. Again, Bank SA agreed the waive probate and paid out the proceeds, being $108,461.00, to Michael.

Following the grant of probate being issued in 2013, the Public Trustee demanded that CBA and Bank SA repay of the proceeds in those accounts to them, as the lawful executor of Ms Martin’s estate.

The banks refused to make the repayment sought by the Public Trustee and asserted that they had already paid the monies to Michael pursuant to a valid release and discharge that he gave to each of them on behalf of Ms Martin’s estate.

The Public Trustee then brought proceedings against CBA and Bank SA, alleging that the banks were indebted to repay those amounts. 

At the date of the hearing, Michael’s whereabouts were unknown to the Public Trustee.

The issue for the court to determine was whether CBA and Bank SA were liable in debt to the Public Trustee for the proceeds in the accounts (totalling approximately $177,751.00) and whether the defence of discharge was made out in respect of the debt claimed.

The court held that:

  1. the Public Trustee, as executor of Ms Martin’s estate had a claim in debt against the CBA and Bank SA pursuant to contracts between customer and banker;
  2. Michael was liable to account for the assets of Ms Martin’s estate that he illegitimately dealt with in his capacity as an executor de son tort*; and
  3. CBA and Bank SA took a risk in circumstances where they could have acted conservatively and prudently by insisting upon the production of a grant of probate. Without a grant of probate, CBA and Bank SA could not obtain a valid release from Michael as a person claiming to be the executor of Ms Martin’s estate pursuant to an unproven will.
  4. CBA and Bank SA were required to pay out the monies to the Public Trustee as the lawful executor of the estate, however the banks were entitled to set-off its claim in equity pursuant to the indemnity given by Michael (and the other living children) against the Public Trustee’s claim to the extent of the amount that Michael (and the other living children) would otherwise have received from the residuary estate.

Lessons to be learned

When releasing assets of a deceased to an executor, without the production of a grant of probate, exercise caution and care.  Strictly speaking, any party holding assets of the deceased, no matter what their value, may insist on sighting a grant before releasing the assets to an executor.  However, as mentioned previously, obtaining a grant of probate may not always be appropriate or practical for an executor, especially when the value of the assets of an estate are minimal.

It is sometimes difficult to balance the fine line of requesting the production of a grant of probate and waiving/dispensing with the requirement.  It will often depend on the circumstances at hand and weighing up the associated risks.

As set out in the case of Public Trustee v CBA & Ors [2018] SASC 25 it is important to remember that only a lawful executor, appointed pursuant to a grant of probate, is able to give a valid and effective release and discharge.

If you would like further information about the production or waiving of a grant probate in estate administration matters or are an executor who needs assistance applying for a grant of probate, please do not hesitate to contact our wills and estate planning solicitor Bianca Stafford.

*An executor de son tort is a person who has no authority to act as personal representative but who nevertheless intermeddles in the administration of an estate and is considered to be the duly appointed representative and is held liable accordingly.

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What happens to my super when I die?

February 13th, 2018

As a wills and estates solicitor I often hear the statement “I don’t have any assets, so I don’t need a will”.

This couldn’t be further from the truth.  I often respond with the following questions.

Me: “Do you work?”

Friend: “Yes

Me: “Do you have super?”

Friend: “Yes

Me: “That’s an asset right there.

In fact, superannuation is often a person’s largest asset.

In the estate planning world, superannuation is an unusual type of asset.  This is because superannuation is not typically an asset of your estate which is covered by the provisions of your will.  Your will only covers assets owned by you personally.  On the other hand, your super is held for you on trust by the trustee of your superannuation fund.

In order to direct who gets your super in the event that you were to pass away, you need to complete a binding death benefit nomination form (“BDBN”) with your respective superannuation fund or if you have a self managed superannuation fund, in accordance with the terms of the trust deed.

I bet you’re still thinking, well in that case I don’t need a will.

What I often find in practice is that a lot of people do not fully understand who you can actually nominate on those binding death benefit forms for your nomination to be binding.

Under the superannuation law, the eligible beneficiaries (whom you can nominate on your BDBN form) include:

1. your dependants; or
2. your legal personal representative (i.e. executor of your will or administrator of your estate).

“Dependants” include:
1. your spouse (married, de facto or same sex partner);
2. your children (including step-children and adopted children);
3. anyone who is financially dependent on you when you die; and/or
4. anyone who is in an interdependency relationship with you when you die.

As part of my estate planning practice, I always ask this question “Do you have a binding death benefit nomination in place?” and 95% of younger people or people without dependants respond with:

Yes, I have nominated my sister and my brother

Or

No, what is that?”.

If your nomination is invalid (i.e. if you have nominated someone who does not fit within the criteria of eligible beneficiaries above) or you do not having a binding death benefit nomination in place, the trustee of your superannuation fund has discretion as to who they pay your superannuation death benefit to in the event of your demise.

If you don’t have any dependants, then in majority of cases the superannuation fund will pay your superannuation death benefit to your estate, to be distributed in accordance with the terms of your will.

What if I don’t have a will?

If your superannuation is paid into your estate and you don’t have a will, it will be distributed in accordance with the rules of intestacy, which are a legislative set of rules. The rules of intestacy do not take into account your circumstances at the time of your passing and therefore, the distribution of your estate under these rules, may not be in accordance with your wishes.

Let’s use the example of Ben’s estate.

• Ben was 30 years of age when he passed away suddenly.
• He did not have a spouse (married or de facto) and had no children.
• Ben’s main asset was his superannuation (including a life insurance component), worth approximately $400,000.00. Ben had completed a binding death benefit nomination, and had nominated his two siblings Jack and Jill (50% each).
• Ben did not have a will.
• Ben was close with his mother, Jane, however he was estranged from his father, Peter.
• Jane attempted to administer Ben’s estate as his next of kin. She contacted his superannuation fund to have the funds paid to Jack and Jill, however the superfund asked for a grant of letters of administration* before they could release the funds.
• Jane obtained the grant and the superannuation fund advised her that because Ben’s nomination was invalid, they would be making a distribution to Ben’s estate.
• As mentioned earlier, Ben died intestate (that is without a will), so that meant that the rules of intestacy apply.
• Under the rules of intestacy, as Ben was not survived by any dependants, his estate was distributed to his parents equally.
• This was clearly not in accordance with Ben’s wishes and there was very little his siblings (and his mother) could do.

If Ben had simply prepared a will, gifting his estate to Jack and Jill equally, then this situation could have been avoided.

If you would like assistance preparing a binding and effective estate plan, please do not hesitate to contact me.

*A grant of letters of administration is an official document issued by the Supreme Court of Queensland which declares the name of the person(s) who has the formal authority to handle the financial matters of a deceased person.

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