PRACTITIONER EXECUTORS DEALING WITH ESTATE ASSETS:
PRACTICAL ETHICAL DILEMMAS
by
Dr John de Groot
Special Counsel
Accredited Specialist in Succession Law
de Groots Wills and Estate Lawyers – Brisbane, Sydney, Melbourne
1. Should Solicitors be Executors? – An Ethical Perspective1
While there are no ethical or other prohibitions on a solicitor being appointed as the executor of a will and, in particular, a client’s will, there are good reasons why this would not be the normal situation. Additionally, there are special requirements that must be complied with where the solicitor or associate of the solicitor drafts the will making the appointment. Although the judgment of Evans M in Re Will of McClung [2005] VSC 209 predated the adoption of The Australian Solicitors Conduct Rules 2012, the following remarks made at [34] to [36] of the judgment are apposite:
The occasion on which a solicitor receives instructions for the preparation of a will for a client by a solicitor can place the solicitor on the horns of a dilemma if the solicitor is asked to act as executor under the will. It is not a position which the solicitor should seek. It is reasonable for the solicitor to preface acceptance with a requirement that the will contain a charging clause in relation to any legal services performed for the estate. To request inclusion of a charging clause so wide as to enable the solicitor to charge for all executorial functions is not reasonable unless the solicitor ensures that the will provides that such charges may be made in lieu of any entitlement to commission and the full import of the clause is explained to the client.
The solicitor is under a duty to inform the client seeking his services as executor that he would be entitled to make a claim for commission for doing so, as to the maximum rate of commission which could be charged and the possible burden such commission may impose both on the corpus and income of the estate.
Given the very real potential for a conflict arising between the interests of the client and the interests of the solicitor on such an occasion, it would be preferable that solicitors declined to act as executors. At the very least, the solicitors’ code of conduct should provide very clear guidelines as to the proper course of conduct on such an occasion and require the provision of written advice in relation to the decision to appoint a solicitor as executor.
1.1 Reasons against being the executor
1.1.1 Most clients have family and friends who, if asked, are likely to be appropriate for the role and agreeable to appointment. In the writer’s view, this option should be explored before any consideration is given to the appointment of a solicitor.
Inexperience in the role will apply to most people, so clients should be encouraged to dismiss experience as a pre-requisite. Common sense and integrity are the essentials, in the writer’s view. With those qualities and engaging and following the advice of a solicitor, should result in a satisfactory administration of the estate. It is beyond the scope of this paper to further explore identifying an appropriate executor but it is surprising how often clients propose appointing two siblings who have never ‘got on’ as a strategy for healing the rift – “They’ll have to cooperate with each other to get the job done, won’t they?”
1.1.2 ‘Imposing’ a solicitor as the executor will likely be resented by a family and viewed with suspicion, even where all the requirements discussed below2 have been complied with.
1.1.3 A solicitor’s skillset is overwhelmingly as an advisor, not acting as an executor.
1.1.4 Much of the work required cannot properly be charged at professional rates but can be extremely time-consuming. Where a home must be sorted, for example, even supervising the work of others can be considerable.
Some charging clauses in wills authorise the payment of all time spent by an executor solicitor to be at professional rates. Such a clause, even when stated that it excludes the right to claim executor’s commission as an additional remuneration, is unlikely to be viewed favourably by the court.
The implications of any charging clause should be fully and properly explained to the client, i.e. informed consent should be given for the inclusion of it. Further, the authors of Hutley’s Australian Wills Precedents add additional cautions3, which highlight the danger of a solicitor drafting inappropriate charging clauses. Clearly, a charging clause, which allows all work attended to by the executor to be charged at professional rates is extremely unwise and invites challenge. It might also be considered unethical.
In the writer’s view, professional charges should apply only to professional work and the claim for executor’s commission should be the basis of the remuneration for all other work required to administer the estate4.
1.1.5 The scrutiny of all work attended to is likely to be considerable so an extra high level of care and attention should be anticipated.
1.1.6 The authors of Hutley’s Australian Wills Precedents also suggest other reasons worthy of consideration, such as:
You may become a parent figure to teenage children and you might be pressed for continual increases in allowances and distributions of capital5
They also refer to the likely negative perspective of beneficiaries in relation to a costs agreement over which they can have no control6. Notwithstanding the above, there may be compelling reasons to accept the appointment and the writer has acted as an executor. The circumstances have included:
– The client had no family or close friends and wished the estate to pass to a number of charities;
– The client’s only child was overseas, the assets were in Australia and the child asked that her parents’ solicitor look after the estate’s administration as executor;
– The client had no surviving family and wished to provide for a number of friends living around Australia; and
– The client’s family were dysfunctional and an independent executor was considered by the client to be essential.
As discussed in section 1.2 below, certain requirements follow from the decision that a solicitor will prepare the will with his or her appointment as executor. However, in view of the unusual circumstances in which a solicitor executor appointment may be appropriate, certain practical considerations should be addressed with the client, such as funeral arrangements and other matters covered in the attached Executor’s Dossier, which appears as Attachment I to this paper and is drawn from the author’s Wills Probate & Administration Practice text for Queensland and New South Wales.
1.2 Ethical requirements where a solicitor executor appointment is considered appropriate
1.2.1 Rule 12, Australian Solicitors Conduct Rules 2012
Assuming that there are compelling reasons that would make the appointment of a
solicitor as executor appropriate, there is a key ethical obligation on the solicitor
contained in the Australian Solicitor’s Conduct Rules 2012 – Rule 12. It relevantly
provides as follows:
12 Conflict concerning a solicitor’s own interests
12.1 A solicitor must not act for a client where there is a conflict between the duty to serve the best interests of a client and the interests of the solicitor or an associate of the solicitor, except as permitted by this Rule.
12.2 A solicitor must not exercise any undue influence intended to dispose the client to benefit the solicitor in excess of the solicitor’s fair remuneration for legal services provided to the client.
12.4 A solicitor will not have breached this Rule merely by:
12.4.1 drawing a Will appointing the solicitor or an associate of the solicitor as executor, provided the solicitor informs the client in writing before the client signs the Will:
(i) of any entitlement of the solicitor, or the solicitor’s law practice or associate, to claim executor’s commission;
(ii) of the inclusion in the Will of any provision entitling the solicitor, or the solicitor’s law practice or associate, to charge legal costs in relation to the administration of the estate; and
(iii) if the solicitor or the solicitor’s law practice or associate has an entitlement to claim commission, that the client could appoint as executor a person who might make no claim for executor’s commission.
12.4.2 drawing a Will or other instrument under which the solicitor (or the solicitor’s law practice or associate) will or may receive a substantial benefit other than any proper entitlement to executor’s commission and proper fees, provided the person instructing the solicitor is either:
(i) a member of the solicitor’s immediate family; or
(ii) a solicitor, or a member of the immediate family of a solicitor, who is a partner, employer, or employee, of the solicitor.
1.2.2 What constitutes compliance with this rule
It will be noted that the advice required is to be in writing and provided prior to the execution of the will.
This advice is normally provided in the form of a letter. A specimen of such a letter, which, in the writer’s view, should sufficiently ensure compliance with the rules appears as Attachment I to this paper.
Because of the importance of compliance with this rule, it would be prudent to have the client acknowledge receipt of the advice prior to executing the will, as envisaged by the attached letter. This would normally be by way of an endorsement at the foot of the letter along the following lines:
“I acknowledge having received a copy of this letter prior to executing my will today.
Dated this day of 2023
_____________________________
[Will-maker’s signature]”
Because of the essential nature of this letter, as a protection for the solicitor that her or his ethical obligations have been fulfilled, a copy of the letter endorsed as received would be retained with the client’s original will, assuming the law firm has agreed to hold the original will in safe custody.
Where the original will is being released to the client, a copy of the letter should be retained on the solicitor’s file and the original retained on a special file held by the firm along with any other letters of the same type.
This ensures that evidence of compliance with Rule 12 is retained by the law firm and it has the added benefit of identifying those wills in which a member of the law firm has been appointed as an executor or alternate executor.
It may provide some added protection to the solicitor if the will itself incorporates a reference along the following lines:
“I acknowledge having received a letter from my solicitor who prepared this will in compliance with the solicitor’s obligations under Rule 12 of the Australian Solicitor’s Conduct Rules 2012 and having had my attention directed to the charging clause in [clause –] of this, my will.”
Such a provision may be helpful in the event that the solicitor’s letter has somehow been misplaced.
Where a copy of the letter is retained on the file, there is always the risk that the file could accidently be disposed of after the normal seven-year period provided under many client agreements. However, a provision along those lines should not apply to files dealing with the making of the will as the solicitor’s file notes on that file [discussed further below] can always be of potential relevance should a challenge to the will arise after the death of the will-maker. The challenges most commonly relate to whether or not the will-maker had testamentary capacity. Another challenge can arise from the allegation that the will itself does not comply with the instructions provided by the will- maker to the solicitor and that accordingly a rectification of the provisions of it is required.
The file may also be of relevance where there is an allegation of any unreasonable delay or failure to finalise a will as alleged by a disgruntled beneficiary. See, for example, Queensland Art Gallery Board of Trustees v Henderson Trout (a firm)7. In that case the detailed file notes proved invaluable, in the writer’s view, in showing that the law firm was not guilty of negligence in failing to finalise a will for the testator which, it was alleged, would have substantially benefited the Queensland Art Gallery.
1.2.3 Contents of the letter
Some practitioners are of the view that the letter should incorporate the current schedule of fees of the firm and provide a general overview of executor’s commission and the common range of commission awarded by the courts.
The writer’s view is that such a level of detail is unnecessary, particularly in relation to a discussion of executor’s commission, where the variables are so significant that no meaningful estimate of what might be awarded is viable. However, reference to the New South Wales Supreme Court’s website8 might be worth noting.
1.2.4 Subsequent wills
It is not uncommon for a client to make a subsequent will which continues the appointment of the solicitor as executor. The question arises as to whether or not this requires a further letter to be provided. In the writer’s view, the answer to this question is prudently “yes”. The client should always be given the opportunity to reconsider his or her decision to appoint a solicitor as an executor. Additionally, circumstances may have changed such that a beneficiary may now be considered as an appropriate person to be appointed as an executor (rather than the solicitor) or a suitable third party may have emerged as appropriate.
1.2.5 Subsequent codicils
In the writer’s view, the same arguments referred to above apply to the desirability of providing a further letter to the client.
1.2.6 Form of appointment
As the authors of Hutley’s Australian Wills Precedents observed, the form of appointment used has often proved troublesome9 and suggests at [10.14] that, “It seems that it is not possible to draft a waterproof form for appointing a particular solicitor or firm of solicitors to be executor or to do the legal work of the estate.”
Sometime the appointments has been found to be void for uncertainty, such as the expression, “Appoint my solicitor [NN] or any other solicitor in her employ to act as my executor.”10
The writer offers the following form of appointment, which he considers addresses most of the issues that have led to various forms of appointment failing to be effective in the circumstances that prevailed at the time of the will-maker’s death:
1. I appoint the principal or a partner or director for the time being of [the Firm] (or the firm or company which may succeed to its business or the larger or largest part of its business) as the executor and trustee of this my will.
2. In the event of there being a dispute or uncertainty as to which firm or company has succeeded to the larger or largest part of the business of the Firm, or any other issue concerning the interpretation or operation of this clause of my will then the President for the time being of [jurisdiction’s Law Society or Institute] or any successor organisation shall decide the issue and the President’s decision shall be final.
2. Administrative challenges
2.2 The demanding beneficiary
Some beneficiaries do not appreciate the timeframes that apply to an estate’s administration and assume funds will be available very quickly after the will-maker’s death. Based on that assumption, they enter into contracts which require the receipt of their entitlements under the will to enable them to comply with their obligations under the contract. The resulting pressure on an executor, solicitor or otherwise to make a premature distribution can be enormous. The same pressure can arise where a beneficiary is in financial difficulties at the time of the will-maker’s death and is looking to their entitlement under the will to resolve their difficulties.
Attempts to assist a beneficiary in these circumstances are fraught with danger. Two unwise approaches of which the writer is aware, have been adopted in the past to placate or satisfy the demands of a beneficiary in such circumstances, are:
1. Making an interim distribution to the beneficiary.
First, preferring one beneficiary over another or others is clearly a breach of the solicitor executor’s duty to treat all beneficiaries equally and no beneficiary should be preferred over another. But an equal danger that I have seen played out in practice is that the estate finishes up not having sufficient assets to satisfy the other beneficiaries’ entitlements. In that particular case, the solicitor considered, when making the interim distribution, that there was an abundance of estate assets to meet the entitlements of all beneficiaries. That view proved to be mistaken and was further compounded by a considerable diminution in the value of the estate assets arising from a change in the economic circumstances that prevailed subsequently.
2. Making a loan to a beneficiary.
Similar difficulties to those referred to above, can apply, although technically, at least, the executors’ position may be slightly better. Recovery of the loan, if required, can be the issue.
Regrettably, there are many examples where solicitors have succumbed to client pressure which have led to their being struck off. One such example is the case of Council of the Queensland Law Society v Wakeling11 where the circumstances could equally have applied where a solicitor executor might have been concerned. In that case, there were two wills, both in the same terms, except for the appointment of executor. The practitioner submitted to probate the penultimate will, his explanation for his conduct being that his client had subjected him to pressure and had flustered or overborn him.
The writer recalls a not dissimilar level of pressure he experienced to witness a signature he had not seen made. In the circumstances, which involved a significant fraud scheme, the consequences for the writer would have been the same as Mr Wakeling
3. “Better faded ink than a faded memory”
This is a comment from a bygone era in the practice of law. As the expression indicates, it commends making a file note of activity on a file rather than relying on one’s memory.
Since the received wisdom of this expression had currency, the professional obligations on solicitors have moved on considerably. It can no longer be said that keeping detailed file notes is desirable. It is ethically and professionally essential in the practice of law today.
The keeping of a file note and, in many instances, a detailed file note is especially important in the area of wills and estate law practice. This was highlighted in the case of Legal Services Commissioner v Given [2015] QCAT 225. The following remarks made at [98] to [103], put the duty in some context.
[98] Whether a person has the capacity to make a will is, of course, a matter for the court (not the practitioner). However, the solicitor’s evidence is likely to be important. As the Adult Guardian Guidelines themselves suggest in relation to an enduring power of attorney, “when assessing competence, be prepared for any challenges to your assessment of the principal”. Written and adequate notes are likely to be important in that context. The cost of making such notes is not significant. The ‘cost-benefit analysis’ falls heavily in favour of making the notes.
[99] The importance of detailed notes will vary depending on the circumstances. The importance increases if any indicia are present which should alert the practitioner to be vigilant.
[100] In this case Mr Given says he was sufficiently aware of the issues surrounding his client’s condition that he aimed to act with greater than normal care. In those circumstances, a practitioner, acting with the required standard of competence and diligence should make and retain adequate notes as to the attendances on his client. The notes should have included details of the questions. This is an important aspect of the solicitor’s duty in the circumstances.
[101] In the cases of De Brenni, Comino and Ford one aspect of the conduct of the practitioners was that adequate notes were not taken, and in each decision, this was found to be conduct which fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent practitioner.
[102] The notes prepared by Mr Given were inadequate. Mr Given conceded this and it was the conclusion reached by Mr Whitney. His method of dictating the instructions in the presence of the client is not an adequate substitute for notes of the interview dealing with matters such as those outlined in the Adult Guardian Guidelines.
[103] In the circumstances, Mr Given’s failure to prepare adequate notes of the interview and the fact that he did not conduct the interview with Mr Bywater alone until reviewing the documents, is conduct which falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian Legal Practitioner, and so amounts to unsatisfactory professional conduct as is contemplated by s 418 of the Legal Profession Act 2007.
It will be noted in paragraph 103 that the comment is also made that the practitioner did not conduct the interview with his client alone until after reviewing the documents. This gives emphasis to the remark made earlier of the importance of seeing a client when making a will “alone and in private”.
The requirement of keeping appropriate records received further attention and emphasis in the case of Legal Services Commissioner v Penny [2015] QCAT 108 (‘Penny’s case’) where the following remarks were made:
[47] It is usual and sound practice for a legal practitioner to maintain a record of attendances on a client. What is expected in this regard will depend on the circumstances and nature of the attendance and, again, it is a matter of degree. The greater the concern about capacity, the greater the desirability of the practitioner keeping detailed notes.
It was further said in that case that the practitioner’s conduct in failing to prepare detailed notes was conduct which fell short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.
3.1 File notes generally
In addition to the ethical obligation to keep appropriate file notes, they also obviously serve other purposes, particularly the protection of a practitioner.
The writer has had a recent example where allegations were made against him by a former client that, if true, would have potentially had serious implications. The contemporary file note made at a time when there was no expectation of an allegation or issue involving what the writer said, should satisfactorily resolve the credibility issue that might otherwise have been problematic.
Many years ago, the writer had the experience of working with a quite renowned solicitor in the United Kingdom. It was something of a privilege to spend time closely working with this person and to observe how he practised the law. While there were many lessons learned, one of the most significant, in the writer’s view, was the incredible discipline with which he maintained file notes. No matter how frantic the situation appeared to be in his office, there was never an occasion when he went on to a further task without dictating a file note of the activity (mostly a phone call) that had just been attended to.
4. Failure to maintain a file
In Penny’s case, the failure to maintain a file, and with it, the relevant notes, similarly failed to meet the requisite standards required. Additionally, it was observed that “where the practitioner’s notes or documents may be important in the context of the services provided by the legal practitioner, the file must be created where these notes and documents are maintained” [50]
4.1 How long should a file be retained?
In many client agreements, there is a provision that the client agrees to the disposal of the file (if not earlier having requested its return) after a seven-year period from the closure of the file. Such arrangements should never apply to a file relating to the drafting of a will for a client. As indicated earlier in this paper, the potential for the file and its related file notes to be required in the contesting of the validity of a will or its terms dictates the professional obligation on the practitioner to ensure the file is preserved.
4.2 Should or may a charge be made for the preparation of appropriate file notes?
There is no issue about charging for the preparation of file notes of attendances on that client and, generally, in the conduct of the file, whether with third parties or otherwise. However, it is clear that those file notes are the property of the client. For a useful discussion on this issue, see Alexiou v Alexandra White & Ors t/as HWL Ebsworth Lawyers [2021] NSWSC 485 (Ebsworth’s case). Where a file note is made purely for the interests of the practitioner or the protection of the practitioner, such a file note is not the property of the client and, it follows, in the writer’s view, that no charge is ethically made for the preparation of such a file note. Again, the observations of Ebsworth’s case is of value on this issue.
5. What executors must do if they want to avoid ethical breaches
The answer to this question can quite simply be stated as “attend to the role and responsibilities of an executor in a timely manner”.
The role of an executor is well-recorded in the literature and is beyond the scope of this paper.
There are, however, three areas which, in the writer’s experience, can become matters of contention and complaint, particularly against a solicitor executor. They are:
1. Not attending to the role in a timely fashion;
2. Failing to keep the beneficiaries informed of the progress of the administration of the estate (communication issues are frequently the genesis of disgruntled clients and, in this context, beneficiaries); and
3. A lack of transparency and compliance with a cost agreement or the making of inappropriate charges for the work being attended to.
It can reasonably be said that there is an ethical and professional responsibility to ensure that the above issues are appropriately handled/addressed.
6. Ethical issues when managing estate property for many beneficiaries
As has been alluded to in other contexts dealt with above, the most effective ways to avoid problems are:
1. Maintain communication and transparency with all beneficiaries; and
2. Ensure all beneficiaries are treated equally in the flow of information and in distributions of the estate.
For example, any interim distribution, if considered appropriate, should be made at the same time to all beneficiaries entitled or ranking equally in relation to the distribution.
There can be occasions when beneficiaries need to be provided with additional advice from the practitioner to ensure compliance with the principles referred to above. One example encountered by the writer has been where beneficiaries have identified properties which each of them would wish to receive and, where the value may be relatively similar or so minor that they wish to ignore the difference in value. The issue that had been ignored was the impact of capital gains tax on the ultimate sale of the properties concerned. One was pregnant with significant capital gains, another property was a pre-capital gains tax asset and the other was one recently purchased by the deceased and accordingly had a minor capital gains tax issue associated with its sale.
In circumstances such as that, the ethical duty of the practitioner is clearly to bring these issues to the notice of the beneficiaries and work towards a solution that is agreeable to the beneficiaries with full knowledge of the facts.
Any deviation from the strict distributions required by the will should be the subject of a deed of agreement amongst the beneficiaries and with the strongest recommendation that each of them obtain independent legal advice before executing the deed.
In the writer’s view, distributions in specie require very careful attention so that the result is fair to all concerned and any prospect that it can be advantageous to one or another should be the subject of a deed of agreement along the lines referred to above.
In the distribution of the residue of the estate, the failsafe principle is to distribute those assets ‘in specie’ in the proportions to which the residuary beneficiaries are entitled. Thereafter, the beneficiaries are able to make whatever adjustments they wish to make amongst themselves by appropriate transfers and payments.
The general principle that the personal representative distributes the residuary estate in specie is well-established – see, for example, Re Weiner [1956] 1 WLR 579. It’s also well- established that no asset which has been specifically given under the will should be sold unless such assets must be used for the payment of debts – see Clarke v Earl of Ormonde12.
7. Other ethical and practical considerations
In the course of delivering this paper, the following matters will be referred to:
– Desirable contents of a file note (to sign or not to sign?);
– Refer to specialist checklists and practice guidelines where available;
– Seek guidance from experts as appropriate, including Law Society/Institute ethical guidance officers or senior practitioners;
– Obtain an independent costs assessment; and
– Consider filing and passing accounts of your administration or obtaining a release by the residuary beneficiaries.
8. Conclusion
As a general rule, it is recommended that solicitors should be most reluctant to accept appointment as an executor of a client’s will or, as the authors of Hutley’s Australian Wills Precedents express it, “Solicitors should not be eager to seek appointment as executors.”13
The issues likely to be encountered and requiring attention are numerous, many of which are referred to above. That said, there will be circumstances where solicitors choose to accept the role and it is hoped that the comments made in this paper will prove of assistance to him or her in those circumstances.
Appointment of partner of the Firm as executor
We note you are considering appointing a director/partner of the Firm to be an executor under the terms of your will. Please note, as a professional executor, if appointed, a director/partner is entitled to charge our usual professional fees for acting in this role. A charging clause has been included in your will to enable these professional fees to be charged.
Any work required of the director/partner will be charged at the prevailing rates applying to our professional fees for our work at the time it is undertaken or required.
If you appoint as executor an individual who is not a professional person as executor she or he will be not be entitled to charge professional fees for acting in this capacity.
Please note any person who is appointed as an executor of an estate is entitled to claim executor’s commission for the work that is undertaken by them. Executor’s commission can only be paid if it is approved by all residuary beneficiaries or by the court.
By appointing a director/partner as executor, that person could claim executor’s commission for acting in the estate. Whereas if you appoint a family member or a friend as executor of the estate, they may choose not to charge executor’s commission.
For record purposes would you please acknowledge that you have noted the remuneration of executor clause in your will and that you have received this letter of advice prior to executing your will, by signing the enclosed duplicate letter, which will be retained on our file.