Administration of estates - Liabilities and protection of personal representatives

Learning Outcomes

After reading this article, you will be able to identify the main legal duties and liabilities of personal representatives (PRs) in estate administration, explain the risks of personal liability for breach or error, and outline the statutory and practical protections available to PRs. You will also be able to apply these principles to SQE1-style scenarios involving creditor claims, devastavit, and distribution of estates.

SQE1 Syllabus

For SQE1, you are required to understand the legal responsibilities and risks faced by personal representatives in estate administration, and the mechanisms available to protect them from personal liability. In your revision, focus on:

• The statutory and fiduciary duties of personal representatives (executors and administrators)
• The order of payment of estate debts and liabilities
• The concept of devastavit and personal liability for breach of duty
• Statutory protection for PRs, including s.27 Trustee Act 1925 advertisements
• The effect of indemnities and insurance for PRs
• The impact of distributing the estate before all claims are known or settled

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is devastavit and how can it result in personal liability for a personal representative?
2. How can a personal representative protect themselves from unknown creditor claims when distributing an estate?
3. What is the effect of placing a statutory advertisement under s.27 Trustee Act 1925?
4. In what order must debts and liabilities be paid from a deceased’s estate?

Introduction

Personal representatives (PRs)—executors or administrators—are legally responsible for collecting, managing, and distributing a deceased person’s estate. This role carries significant statutory and fiduciary duties. If PRs breach these duties, mismanage assets, or fail to settle debts correctly, they may be personally liable for losses. However, the law provides important protections for PRs who act diligently and follow prescribed procedures.

Duties and Liabilities of Personal Representatives

PRs must act promptly and with care to administer the estate according to law. Their core duties include:

• Collecting and safeguarding all estate assets
• Paying funeral, testamentary, and administration expenses
• Settling all debts and liabilities in the correct order
• Distributing the estate to the correct beneficiaries

Key Term: personal representative (PR) A person (executor or administrator) legally appointed to manage and distribute a deceased person’s estate.

Statutory and Fiduciary Duties

PRs are subject to both statutory obligations (primarily under the Administration of Estates Act 1925) and fiduciary duties. They must act honestly, in good faith, and in the best interests of the beneficiaries. They must not profit from their position (unless expressly authorised) or place themselves in a conflict of interest.

Key Term: fiduciary duty The obligation to act with utmost good faith and loyalty for the benefit of others, such as estate beneficiaries.

Duty of Care

PRs must exercise the care and skill that a reasonable person would use in managing their own affairs. Professional PRs (such as solicitors) are held to a higher standard.

Key Term: duty of care The legal obligation to act with reasonable skill and caution in performing one’s responsibilities.

Personal Liability and Devastavit

If a PR breaches their duties, they may be personally liable for any resulting loss. This is known as devastavit.

Key Term: devastavit A breach of duty by a PR resulting in loss to the estate, making the PR personally liable for the loss.

Examples of Personal Liability

• Failing to collect or protect assets, leading to loss or theft
• Paying beneficiaries before settling debts, causing creditors to go unpaid
• Selling assets at an undervalue due to lack of care
• Distributing the estate before the expiry of the statutory period for claims

Worked Example 1.1

A PR distributes the estate to beneficiaries six weeks after the grant of probate, without placing any statutory advertisements. Two months later, an unknown creditor claims £20,000. Who is liable?

Answer: The PR is personally liable to pay the creditor, as they failed to take reasonable steps (such as placing statutory advertisements) to protect themselves from unknown claims.

Order of Payment of Debts and Liabilities

PRs must pay debts in a strict order:

1. Funeral, testamentary, and administration expenses
2. Secured debts (e.g., mortgages)
3. Preferential debts (e.g., certain taxes)
4. Unsecured debts (e.g., personal loans, credit cards)
5. Beneficiaries’ legacies and shares

If the estate is insolvent, PRs must follow the statutory order and may need to seek professional advice.

Exam Warning

If a PR pays beneficiaries before settling all debts, they may be personally liable to unpaid creditors—even if they acted in good faith.

Statutory Protection for Personal Representatives

The law recognises the risks faced by PRs and provides mechanisms to limit their personal liability if they act properly.

Statutory Advertisements (s.27 Trustee Act 1925)

PRs can place advertisements in the London Gazette and a local newspaper inviting creditors and claimants to submit their claims within a specified period (usually at least two months).

Key Term: s.27 Trustee Act 1925 advertisement A public notice placed by PRs to invite claims against the estate and limit their personal liability for unknown debts.

If PRs distribute the estate after the notice period and a claim later arises, they are not personally liable—provided they did not know of the debt. The creditor can only claim against the beneficiaries who received the assets.

Worked Example 1.2

A PR places s.27 advertisements and waits two months before distributing the estate. Six months later, a previously unknown creditor claims £5,000. Is the PR personally liable?

Answer: No. The PR is protected by s.27, as they followed the statutory procedure. The creditor’s claim is now against the beneficiaries.

Limitations of s.27 Protection

• Does not protect against debts the PR actually knew about
• Does not protect against claims by HMRC for unpaid tax if the PR failed to make proper enquiries
• Does not protect against claims by beneficiaries who were wrongly excluded

Indemnities and Insurance

PRs may seek indemnities from beneficiaries before distributing the estate, especially if there are unresolved risks. Professional PRs may also have professional indemnity insurance.

Key Term: indemnity A contractual promise by a beneficiary to reimburse the PR for any future claims or losses relating to the estate.

Insurance for PRs

Some insurers offer executor’s insurance policies to cover PRs for certain risks, such as unknown creditors or missing beneficiaries.

Distribution of the Estate and Time Limits

PRs should not distribute the estate until:

• All known debts and liabilities are settled
• The statutory period for claims (including s.27 advertisements) has expired
• Any potential claims under the Inheritance (Provision for Family and Dependants) Act 1975 have been considered (usually six months from the grant)

Distributing too soon exposes PRs to personal liability.

Worked Example 1.3

A PR distributes the estate three weeks after the grant of probate. Four months later, a claim is made under the Inheritance (Provision for Family and Dependants) Act 1975. Who is liable?

Answer: The PR may be personally liable to satisfy the claim if they failed to wait a reasonable period before distribution.

Special Risks: Insolvent Estates and Complex Assets

If the estate is insolvent (debts exceed assets), PRs must follow the statutory order of payment and may need to apply for an administration order. PRs should seek legal advice before distributing any assets.

Complex assets (such as businesses, foreign property, or settled land) may require specialist advice and additional steps to protect PRs from liability.

Summary Table: PRs’ Duties, Liabilities, and Protections

Key Point Checklist

This article has covered the following key knowledge points:

• The statutory and fiduciary duties of personal representatives in estate administration
• The risks of personal liability for breach, devastavit, or premature distribution
• The strict order in which debts and liabilities must be paid from the estate
• The use and effect of s.27 Trustee Act 1925 advertisements to protect PRs from unknown claims
• The limitations of statutory protection and the importance of indemnities and insurance
• The need to wait for statutory claim periods before distributing the estate

Key Terms and Concepts

• personal representative (PR)
• fiduciary duty
• duty of care
• devastavit
• s.27 Trustee Act 1925 advertisement
• indemnity