Skip to content
Get free consultation!

Address any unexpected issues or contingencies

CM Law's Ultimate List: The top 50 FAQs on Administration of Estates #28: Address Contingencies

Administering an estate can often involve unexpected issues or contingencies that require prompt attention and resolution. Contingencies may arise from unforeseen claims, undisclosed assets, errors in the will, disputes among beneficiaries, or changes in the value of assets. In New South Wales, Australia, executors must be prepared to handle these contingencies appropriately to ensure that the estate is administered smoothly and in accordance with the law. This section provides guidance on understanding contingencies, how to manage them, and the legal framework in NSW.

Understanding Contingencies in Estate Administration

Contingencies are unforeseen events or circumstances that may impact the administration of an estate. They can vary widely in nature and complexity, and their resolution may require flexibility, prompt decision-making, and in some cases, legal intervention. Executors must be vigilant in identifying potential contingencies and taking timely action to address them.

Types of Contingencies and How to Manage Them

Common contingencies that may arise during estate administration include:

  1. Undisclosed Assets or Liabilities: Discovering assets or debts not initially identified can require adjustments to the distribution plan.

  2. Will Disputes: Challenges to the validity of the will or claims for family provision may arise, requiring legal action or mediation.

  3. Beneficiary Disagreements: Conflicts among beneficiaries over distributions or entitlements may necessitate mediation or court intervention.

  4. Tax Issues: Unanticipated tax liabilities, such as capital gains or estate taxes, may need to be addressed.

  5. Asset Depreciation or Appreciation: Changes in the value of assets, such as property or investments, can impact distribution plans.

  6. Executor Conflicts: Disputes or conflicts involving the executor themselves may require resolution through legal advice or court orders.

The Role of the Executor in Handling Unexpected Issues

The executor’s role in managing contingencies involves several key responsibilities:

  • Anticipating Potential Issues: Proactively identifying potential contingencies that may arise during the estate administration process.

  • Seeking Professional Guidance: Consulting legal, financial, or other professionals as needed to address complex issues.

  • Maintaining Open Communication: Keeping beneficiaries informed about any unexpected developments and seeking their input when appropriate.

  • Taking Decisive Action: Acting promptly to resolve contingencies in a manner that aligns with the deceased's wishes and complies with the law.

  • Documenting All Actions: Keeping detailed records of all decisions and actions taken to manage contingencies.

Legal Framework Governing Contingencies in NSW

Under the Succession Act 2006 (NSW), the Trustee Act 1925 (NSW), and other relevant laws, executors have a duty to act in good faith, with care and diligence, to resolve any issues that arise during the estate administration process. Executors must comply with legal requirements and act in the best interests of the beneficiaries to avoid potential liability.

Case Study: Handling Unexpected Contingencies in an NSW Estate

Case Overview

In the case of Re Estate of Thompson [2021] NSWSC 872, the executor encountered several unforeseen contingencies that led to a prolonged legal battle and significant financial consequences. The estate consisted of a residential property valued at $1.8 million, a commercial property worth $2.5 million, and various investment accounts totaling $600,000. During the administration, an unexpected claim arose from a previously unknown creditor, and a dispute emerged among beneficiaries regarding the distribution of the commercial property.

Behavior of the Participants

The executor, a family member, initially managed the estate's affairs with confidence. However, as the contingencies emerged, the executor struggled to navigate the complex issues. The creditor’s claim created tension, and the beneficiaries began to worry about their expected inheritance. The executor became increasingly overwhelmed, delaying decisions and avoiding communication with the beneficiaries.

As the months passed, the beneficiaries’ concerns grew into desperation. They feared that the unresolved issues and lack of transparency would diminish their inheritance. Accusations of mismanagement began to surface, and relationships between the beneficiaries and the executor became strained. Feeling helpless and frustrated, the beneficiaries sought legal advice to compel the executor to address the contingencies.

Legal Process and Court Involvement

The beneficiaries filed an application with the NSW Supreme Court to compel the executor to resolve the outstanding contingencies and provide a clear plan for the estate’s administration. The court reviewed the evidence, including the creditor's claim and the lack of resolution regarding the commercial property's distribution.

The court found that the executor had not adequately fulfilled their fiduciary duties by delaying action and failing to communicate with the beneficiaries. The court ordered the appointment of an independent administrator to manage the estate and address the contingencies. The independent administrator resolved the creditor's claim through negotiation, distributed the assets according to the court's guidance, and completed the estate administration.

Financial Consequences

The estate suffered significant financial consequences due to the delayed handling of contingencies. Legal fees for the court proceedings and the appointment of an independent administrator totaled $150,000. The dispute over the commercial property led to a decline in its market value by $200,000 during the delay. Additionally, the costs of negotiating and settling the creditor's claim amounted to $50,000. These losses significantly reduced the estate’s overall value, impacting the beneficiaries' expected inheritance.

Lessons Learned

  • Act Promptly on Contingencies: Executors must address unexpected issues as soon as they arise to prevent delays and financial losses.

  • Seek Expert Advice: Engaging legal and financial professionals can help executors navigate complex contingencies effectively.

  • Maintain Transparency: Clear communication with beneficiaries about any contingencies can help prevent misunderstandings and build trust.

Statistics on Estate Administration and Contingency Management in NSW

  • Executor Delays: Approximately 15% of estate disputes in NSW involve delays due to unforeseen contingencies.

  • Legal Costs: The average legal cost for disputes involving contingencies in NSW ranges from $80,000 to $300,000.

  • Executor Removal: About 8% of probate cases in NSW result in the removal of an executor due to failure to address contingencies.

  • Impact on Estate Value: Estates affected by delays in addressing contingencies may see a reduction of 10-15% in their overall value.

  • Complaints to Legal Authorities: The NSW Legal Services Commissioner receives around 100 complaints annually related to failure to manage contingencies in estates.

  • Resolution Time: The average resolution time for disputes over contingencies in NSW is between 10 and 20 months.

  • Mediation Success: Mediation resolves about 70% of disputes in NSW related to contingencies without a full court hearing.

  • Beneficiary Concerns: Around 18% of beneficiaries report concerns about the handling of contingencies during estate administration.

  • Professional Assistance: Approximately 9% of estates in NSW involve professional assistance to address unexpected issues.

  • Executor Liability: Executors in 12% of probate cases face potential liability due to failure to manage contingencies properly.

Resources

Government Resources

Non-Profit Organizations