Administration of estates - Liabilities and protection of pe...

Learning Outcomes

This article outlines the administration of estates—liabilities and protection of personal representatives, including:

• The core statutory and fiduciary duties of personal representatives, with emphasis on collecting and safeguarding assets, paying funeral, testamentary, tax, and administration expenses, and distributing the estate correctly under a will or the intestacy rules
• How personal liability arises through devastavit, focusing on common exam scenarios such as premature distributions, failure to insure or realise assets, sales at an undervalue, ignoring priority rules, and the court’s power to relieve honest and reasonable PRs
• The statutory order of payment of debts in both solvent and insolvent estates, the treatment of secured liabilities, and the impact of will provisions such as gifts expressed to be “free of mortgage”
• The scope, mechanics, and limitations of key protections for PRs, including s.27 Trustee Act 1925 notices, prudent searches, indemnities, insurance products, court directions (e.g. Benjamin orders), and the six‑month time limit for most claims under the Inheritance (Provision for Family and Dependants) Act 1975
• Practical risk‑management strategies before distribution, such as setting appropriate waiting periods, maintaining detailed estate accounts and records, and evaluating when to seek professional advice or court guidance to minimise personal exposure

SQE1 Syllabus

For SQE1, you are required to understand the administration of estates—liabilities and protection of personal representatives, with a focus on the following syllabus points:

• 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.

In addition to these headline responsibilities, the Administration of Estates Act 1925 imposes a clear duty “to collect and get in” the estate and administer it according to law. A practical benchmark is the informal “executor’s year”: PRs are not compelled to distribute within a year of death, but they are expected to progress administration efficiently so that distribution can occur thereafter. During the administration period, PRs should keep accurate, contemporaneous records and estate accounts showing receipts, payments, and how the residue has been calculated.

PRs exercise wide administrative powers necessary to fulfil these duties, including powers to sell assets, insure, invest, appropriate in satisfaction of entitlements, run the deceased’s business (where appropriate), and delegate in line with trust law controls. A sole PR can give a valid receipt for capital money, but all PRs must join in transfers of land and shares. Although executors derive their authority from the will (and can act before grant), administrators obtain authority only on the grant. In practice, third parties will usually insist on production of a sealed grant.

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.

Fiduciary duties include safeguarding estate assets, considering beneficiaries’ interests as a whole, and avoiding courses of action that unnecessarily expose the estate to expense or loss. Paying legacies or distributing residue while ignoring outstanding debts, known claims, or the statutory order of payment will breach these duties. Where professional PRs act, they commonly rely on a charging clause or statutory remuneration provisions; otherwise, PRs recover only out‑of‑pocket expenses.

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.

The Trustee Act 2000 duty of care applies to PRs in exercising core administrative functions, including investment, acquisition of land, use of agents, nominees and custodians, and insuring assets. It requires reasonable care and skill with regard to any special knowledge or experience the PR has, and what is reasonably expected of professionals acting in the course of business. Breach of this duty may give rise to personal liability unless excused by the court (see below).

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.

Devastavit encompasses misappropriation, maladministration (for example, distributing to the wrong people, or too early), or negligence (such as unreasonable delay, failure to insure or secure property, or selling at an undervalue). Importantly, PRs are not generally liable for a co‑PR’s breach unless their own negligence is implicated—such as failing to supervise or prevent a foreseeable breach.

Courts retain a statutory discretion to relieve PRs from personal liability where they have “acted honestly and reasonably and ought fairly to be excused.” Many wills also contain exoneration clauses that protect PRs against mistakes made in good faith, though they do not shield against deliberate wrongdoing.

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

Where a PR pays a debt knowing of a superior debt, they risk personal liability to those with priority. Even without knowledge, preferring one creditor in the same class can be problematic; the general rule is pari passu payment within classes. Very limited statutory protection exists for PRs who, without reason to believe the estate is insolvent, pay a creditor in full but later find the estate cannot satisfy all equal‑ranking debts.

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.

Worked Example 1.2

A PR decides not to renew the household insurance on an unoccupied property pending sale. A storm causes major damage before exchange. Can beneficiaries seek recovery from the PR?

Answer:
Yes. Failing to insure is a breach of the duty of care. If reasonable insurance would have prevented or reduced the loss, the PR may be personally liable to make good the shortfall.

Worked Example 1.3

A residuary beneficiary is made bankrupt during the administration. The PR pays the beneficiary their share after distribution is calculated. A trustee in bankruptcy later seeks the proceeds. Is the PR exposed?

Answer:
Yes. A bankrupt beneficiary’s entitlement vests in their trustee in bankruptcy during administration. Payment direct to the bankrupt rather than to the trustee risks personal liability to the trustee to account for the sum paid.

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.

In a solvent estate, debts secured on specific property are ordinarily paid from that property unless the will directs otherwise (for example, a devise “free of mortgage,” shifting the burden to residue). The statutory power to appropriate can be used to satisfy entitlements with specific assets of equivalent value. If assets are insufficient to meet liabilities and legacies, abatement rules apply: specific legacies are prioritised over general legacies, and demonstrative legacies are treated as specific to the extent the named fund suffices.

Marshalling may assist where multiple creditors have recourse to different pools and one is overpaid from residue to the prejudice of another. PRs should be alert to interest accruing on debts and the potential for deferred debts (for example, loans by the deceased’s spouse) to rank behind ordinary claims.

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.

To maximise protection and discover latent liabilities, PRs should also make prudent searches, mirroring those a careful purchaser of land would undertake: Land Registry, Land Charges, local land charges, and appropriate bankruptcy searches against the deceased and beneficiaries (the latter protects against a trustee in bankruptcy later claiming a beneficiary’s share). For business estates, advertising in relevant trade journals may be sensible.

Worked Example 1.4

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

s.27 does not protect where a PR knows of a beneficiary or creditor but cannot trace them. In such cases, other options must be considered.

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.

Although indemnities are common, they are only as good as the beneficiary’s solvency when a claim arises. Missing beneficiary insurance can be purchased to cover a known risk that someone cannot be found, although it adds cost and may not cover interest accruing on delayed entitlements.

Insurance for PRs

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

Where risks persist despite diligent searches, PRs can apply to court for directions. A Benjamin order—authorising distribution on the assumption that a missing claimant has died—protects PRs personally while preserving the missing person’s right to follow assets into recipients’ hands if they later appear. Courts require evidence of exhaustive enquiries before granting such relief. In some circumstances, PRs may pay the sum due to a missing claimant into court and distribute the remainder.

Worked Example 1.5

A residuary beneficiary cannot be traced despite genealogical research, press advertisements, and address checks. The PR wishes to complete distribution. What options minimise personal risk?

Answer:
The PR may apply for a Benjamin order authorising distribution on the assumption the beneficiary has died (with evidence of exhaustive enquiries), or pay the missing beneficiary’s share into court, or proceed with beneficiary indemnities and missing beneficiary insurance—recognising that indemnities may be ineffective if the indemnifier lacks funds.

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.

Once the six‑month period for family provision claims has passed, the risk of a claim is reduced. Nevertheless, the court can extend time, particularly where PRs had notice of a possible claim and have distributed, or distribution would unfairly prejudice an applicant. If PRs must distribute earlier (for example, pressing beneficiary needs), they should obtain written indemnities, consider insurance, and record the basis for deciding the timing. Where appropriate, PRs can postpone distribution in exercise of express or implied powers.

Worked Example 1.6

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. The six‑month claim window from grant is standard; distributing within it without adequate protections risks personal exposure.

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.

In insolvent estates, secured creditors are paid from their security first; funeral and administration expenses have priority; preferential claims follow; ordinary unsecured debts are then paid rateably. No distribution to beneficiaries should occur. PRs should be mindful of joint assets passing outside the estate (for example, beneficial joint tenancies by survivorship) and assets held on trust for third parties (such as life policy proceeds written into trust). These do not swell the estate for creditors, but certain anti‑avoidance provisions and equitable doctrines may be relevant in exceptional cases.

Complex assets (such as businesses, foreign property, or settled land) may require specialist advice and additional steps to protect PRs from liability. Running or winding down a business must be approached with care: PRs have limited powers and should act with a view to preservation and sale as a going concern rather than taking on commercial risks inconsistent with prudent administration. Valuation issues also arise in estates with private company shares, agricultural property, or art collections; PRs should commission appropriate expert valuations and consider tax implications on sales (for example, capital gains on post‑death disposals).

Worked Example 1.7

A PR anticipates sufficient residue to pay pecuniary legacies but later discovers significant unsecured debts exceeding assets. The PR has paid two legacies already. What are the consequences?

Answer:
Paying beneficiaries before settling debts in an insolvent estate is a devastavit. The PR risks personal liability to unpaid creditors. Limited statutory protection for payments made without knowledge of insolvency may not apply to payments to beneficiaries; urgent advice and engagement with creditors are required.

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