executor-powers

Is it really necessary for my executor to have so many powers?

Sophia Johnston ||

When preparing a Will, we often get asked, “I just want a simple will where everything is on one page – can we just delete these extra powers so that it is all on the one page?”

Put simply, our response is if no additional powers are given to your executor by your Will, then the powers they can use to administer your estate are limited to those powers set out in the Trustee Act 1925 (NSW) (Trustee Act).

For example, if there is no “power of sale” granted to your executor in your Will, and the sale of the property isn’t required for the purposes of administration (i.e. to pay debts) then your executor can’t sell the property without the beneficiaries’ consent.

Unfortunately, life happens and families don’t always get along. As such, the beneficiaries may not consent to the executor selling the property.

In this case, the executor may need to apply to the Supreme Court of NSW under section 81 of the Trustee Act to request the particular power to sell the property.

Obviously, this means that the estate will incur more expenses than it would if the Will had included the “power of sale.”

Scenario one: One of the client’s children wants the option to receive their parent’s family home as part of their inheritance

Margaret, the deceased, died leaving a house with a value of $1,500,000 and term deposits worth $2,000,000 (after payment of all debts).

Margaret was survived by two children, John and Sarah, who are equal beneficiaries of Margaret’s whole estate.

Ordinarily, both John and Sarah would each be entitled to 50% of the term deposit and 50% of the house. However, John wants the family home for himself.

With John’s consent, the executor is able to utilise the “power of appropriation” pursuant to section 46 of the Trustee Act to transfer the family home to John. Because the transfer to John is in part satisfaction of his entitlement in the estate then only nominal transfer duty (previously known as stamp duty) applies. (See Duties Act 1997 (NSW) s 63(1)(a)(iii)).

Often a Will includes a specific “power of appropriation.” This usually provides the executor with greater power to utilise the power than under the Trustee Act (depending on how it is drafted), allowing the executor to appropriate any asset without the consent of the relevant beneficiary and, without the need for a duly qualified valuer to value the relevant property (as would otherwise be required under the Trustee Act).

Scenario two

If Margaret’s family home was valued at $2,500,000 and the term deposits at $2,000,000 (after paying all debts), then the executor wouldn’t be able to utilise the “power of appropriation” pursuant to the Trustee Act in respect of the property as the value of the property is more than what John is entitled to from the estate.

In this situation, John may seek to obtain the agreement with Mary to vary the trusts in the Will to allow John to receive the family home, notwithstanding it is more than he is entitled to. Again, families don’t always get along and Mary might not agree to John receiving the family home.

Even if Mary agreed, John would still have to pay ad valorem duty on half of the value of the family home (the half of the property that Mary would have been otherwise have been entitled to but for the agreement between herself and John). (See Duties Act 1997 (NSW) s 63(2)).[2]

The additional payment of ad valorem transfer duty wouldn’t have been imposed if there was a suitable “option to purchase” in the Will for John (and the transfer to John occurred in accordance with the option). This would have then been a transfer in conformity with the trusts of the Will, to which only a nominal transfer duty applies. (See Duties Act 1997 (NSW) s 63(1)(a)(i)).[3]

Please contact us if you would like a solicitor to draft your Will, to tailor your Will for your needs and to allow the executor to distribute your estate for the ultimate benefit of your beneficiaries in the most cost-efficient manner.

 

[1] See Chief Commissioner of State Revenue, Deceased Estates Revenue Ruling, DUT046, 12 February 2020 at Example 3

[2] See Chief Commissioner of State Revenue, Deceased Estates Revenue Ruling, DUT046, 12 February 2020 at Example 1 and 2

[3] See Chief Commissioner of State Revenue, Deceased Estates Revenue Ruling, DUT046, 12 February 2020 under the heading “Option to Purchase”

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