Would you risk your house to help deal with a deceased relative’s assets? What if you were potentially put in that position without even agreeing to it?
Personal representatives – including both executors, who are named in a will, and administrators, who are not – are most often relatives or close friends, who may have no legal training or prior experience.
They may have agreed to act as an executor many years or even decades before, probably for free, and it may not have crossed their mind that they could find themselves with huge personal liabilities as a result. They may not even have agreed to act at all, and might have been named in a will without their knowledge.
Increasingly, the complex nature of modern estates is leaving personal representatives to untangle complicated financial instruments or insurance contracts, or to resolve existing or threatened litigation.
This can take years, but the beneficiaries of the estate will be pressing for distributions immediately. A wrong move can leave the personal representative personally liable to make payments, while the money in the estate is gone.
This article explains:
- The general rule that all debts are paid only from assets in the estate;
- The exception by which personal representatives can be personally liable;
- The issue this creates; and
- The main potential solutions.
The general rule: all debts and legacies are paid from the assets in the estate
The starting point is that any debts of the deceased will be paid only from assets in the estate and never from the personal representative’s own assets.
If Alice dies with £100 to her name, that is all her creditors can recover, no matter how wealthy her personal representative might be. They are said to 'step into the deceased’s shoes'.
If a creditor brings a claim, but there are not sufficient assets in the estate to meet it, the personal representative will raise a technical defence. As with many terms in estate litigation, this is still known by its Latin term – in this case 'plene administravit', or 'administration completed'. If the administration is still in progress but the remaining assets are not sufficient to meet the claim, the defence is instead 'plene administravit praeter', or 'administration partly completed'.
Once the personal representative has raised one of these defences, the creditor has a choice. They can accept the defence, in which case they will receive a judgment in their favour, but limited to the assets in the estate. Alternatively, the creditor can argue that the lack of assets in the estate is because of a breach of duty by the personal representative, called a 'devastavit' – that is where the personal representative might have some vulnerability.
The exception: personal representatives can be liable personally if they have breached their duty
If the personal representatives have reduced the assets in the estate by breaching their duties, they will be personally liable for any debts that go unpaid. That liability is unlimited, and so a personal representative who breaches their duty and causes a loss of £1mn can be liable for that full £1mn, even if the estate was very small. The creditor must prove the breach of duty to be successful.