What Is an Executor's Personal Liability and How Do You Protect Yourself?

Key Takeaways

An executor in England and Wales can be personally and financially liable for mistakes made during estate administration, and that liability is not confined to their share of the estate – in some circumstances it extends to their own personal assets, making it one of the more significant legal responsibilities an individual can take on.
The most common sources of executor liability are distributing the estate before all debts and tax liabilities have been settled, failing to identify creditors, missing the time limits for certain claims, and making distributions to the wrong beneficiaries or in the wrong proportions.
There are practical steps an executor can take to reduce their exposure, including advertising for creditors under section 27 of the Trustee Act 1925, obtaining indemnity insurance, taking professional advice on the tax position, and instructing a solicitor to handle the administration where the estate is complex or disputed.

What Executor Liability Actually Means

When someone accepts the role of executor, they take on a set of legal duties that carry real personal consequences if not carried out correctly. Under the Administration of Estates Act 1925, the executor’s duties include collecting all assets of the estate, paying all debts and liabilities before making any distributions, accounting to HMRC for any tax due, preparing accurate estate accounts, and distributing the estate to the correct beneficiaries in the correct proportions. A failure at any of these stages can give rise to a personal liability.

This is not a theoretical risk. Executors are pursued by creditors, beneficiaries and HMRC for losses arising from mistakes made during administration, and the courts have consistently held that the executor’s personal assets can be reached where the estate itself has been depleted through their error. The legal authority and the personal liability sit with the executor throughout the process, instructing a solicitor to carry out the work does not change that, unless the solicitor has been negligent in the work they undertook.

The Most Common Sources of Liability

Distributing before settling debts.

This is the most frequently encountered problem in estate administration. An executor who distributes the estate to beneficiaries before ensuring that all creditors have been paid can be required to make good any shortfall from their own funds. The order of priority for paying debts is fixed by law — funeral expenses take priority, followed by secured debts, then unsecured debts. Our article Dealing with Debts and Liabilities in the Probate Process (/legal-news/dealing-with-debts-and-liabilities-in-the-probate-process) sets out that order and the risks of getting it wrong.

Unknown or late creditors.

Creditors do not always come forward promptly. An executor who distributes the estate and then receives a valid claim from a creditor who came forward after distribution has taken place is personally liable for that debt if the estate no longer holds sufficient funds to meet it. The deceased may have had liabilities that were not immediately apparent — personal guarantees, informal loan arrangements, or outstanding business obligations can all come to light during the administration period.

Tax liabilities.

An executor is responsible for ensuring that all income tax owed by the deceased up to the date of death has been paid, and for accounting for any income or gains arising during the administration period itself. Where a property in the estate has increased in value since the date of death and is sold during administration, a capital gains tax liability may arise. Our article Capital Gains Tax on Inherited Property (/legal-news/capital-gains-tax-on-inherited-property) explains how that liability is calculated. Errors in the inheritance tax account submitted to HMRC can also give rise to penalties and interest, and it is the executor who is held responsible.

Distributing to the wrong beneficiaries or in the wrong proportions.

Where a will is ambiguous, or where the executor misreads its terms, distributions made to the wrong person or in the wrong amount create a liability to the beneficiaries who were underpaid. The executor cannot recover those funds from beneficiaries who received them in good faith without taking legal action, and in the meantime they remain personally exposed.

Insolvent estates.

Where an estate is insolvent, where debts exceed assets, the rules governing the order of payment become critical. An executor who pays beneficiaries before creditors in an insolvent estate is personally liable to those creditors for the shortfall. Identifying whether an estate may be insolvent early in the administration is one of the most important steps an executor can take, and it is an area where seeking professional advice before taking any action is strongly advisable.

How Executors Can Protect Themselves

Advertise for creditors under section 27 of the Trustee Act 1925.

Section 27 of the Trustee Act 1925 allows an executor to place a notice in The London Gazette and in a local newspaper circulating in the area where the deceased lived or owned property. This gives creditors a period of two months and one day from the date of publication to come forward with any claims. Once that period has expired, an executor who distributes the estate in good faith is protected from personal liability to creditors who did not respond to the notice, provided the correct procedure has been followed.

It is worth being clear about the limits of this protection. Placing a notice is not a legal requirement, and it does not provide complete protection in all circumstances, a creditor may still pursue the estate itself, and some practitioners now recommend indemnity insurance as a supplement or alternative. The Gazette itself also offers a notice placement service, and the cost of publishing in both the Gazette and a local newspaper is typically in the range of £200 to £400.

Do not distribute early.

The executor should allow a reasonable period before making any final distributions. The standard guidance is to wait at least six months from the date of the grant before distributing, because that is the time limit within which claims under the Inheritance (Provision for Family and Dependants) Act 1975 must ordinarily be brought. As a claimant has up to 4 months to serve a claim often it is best not to distribute for 10 months from the date of the grant. Distributing before that period has elapsed leaves the executor exposed if a claim is subsequently made.

Obtain missing beneficiary insurance.

Where a beneficiary cannot be traced, distributing their share to the remaining beneficiaries without protection is a risk. Missing beneficiary indemnity insurance is available and covers the executor and the other beneficiaries if the missing beneficiary later comes forward. It is not expensive relative to the risk it covers and is worth obtaining in any estate where a beneficiary has not been located.

Take advice on the tax position.

The inheritance tax account and the income and capital gains tax position during the administration period are areas where professional advice is well worth the cost. An error in the IHT account that is later identified by HMRC can result in penalties and interest on top of the additional tax due.

Keep clear records throughout.

The executor’s strongest protection in any dispute is a clear paper trail showing what decisions were made, when, and on what basis. This means retaining all correspondence with institutions, keeping a record of all assets collected and all debts paid, and ensuring that the estate accounts accurately reflect every transaction. Beneficiaries are entitled to an account of the administration, and an executor who cannot produce one is in a significantly weaker position if challenged.

Consider whether to instruct a solicitor.

Where the estate is complex, disputed or involves significant assets, instructing a solicitor to handle the administration reduces the risk of error considerably. It does not remove the executor’s personal liability, but it does mean the work is carried out by someone with the expertise to identify risks that a lay executor might miss. Do I Need a Solicitor for Probate and Estate Administration? sets out the considerations in full.

What Happens If a Beneficiary or Creditor Makes a Claim Against the Executor?

A beneficiary who believes the estate has been mishandled can apply to the court for an order requiring the executor to produce accounts, to restore assets to the estate or to compensate them for loss. A creditor who has not been paid can pursue the executor directly if the estate has been distributed without their debt being settled.

In serious cases, the court can remove an executor from their role entirely and appoint someone else to complete the administration. Where the executor has acted dishonestly rather than simply making an error, criminal proceedings may follow in addition to civil liability.

The courts do take into account whether an executor acted honestly and took reasonable steps throughout. An executor who made a genuine mistake, kept proper records and sought professional advice where appropriate is in a materially different position from one who was careless or disregarded obvious risks. The protective steps set out above are not just good practice, they are the foundation of any defence an executor might need.

Insights

What Is an Executor’s Personal Liability and How Do You Protect Yourself?