Interim Distributions (NSW)
An executor usually delays the distribution of a deceased estate in New South Wales for a year while finalising the estate administration. Sometimes an executor gives some money from the estate to the beneficiaries before this time as an interim distribution. The NSW Supreme Court can also order an interim distribution from a deceased estate. Although they are not uncommon, the rules of early distributions can be confusing. Making interim distributions can also expose the executor to personal liability risk. This article explains the purpose of interim distributions in NSW.
Administering An Estate
An executor is responsible for administrating an estate according to the instructions in a will. In NSW, an executor needs to wait twelve months after the testator’s death before giving out bequests. This delay allows an eligible person to challenge the validity of the will or claim against the deceased estate. The executor will also discharge any liability or debts of the estate during that time.
However, a beneficiary can ask the executor for an interim distribution under certain circumstances. A beneficiary can also apply directly to the court if the executor is unwilling to make this distribution.
What Is An Interim Distribution In NSW
An interim distribution is a provisional or interim payment made to a beneficiary before the final distribution of the deceased estate. An interim distribution cannot exceed the beneficiary’s total entitlement under the will. An executor typically makes an interim distribution because a beneficiary has an urgent need, such as insecure housing, medical bills or other pressing financial liabilities.
The executor may also need to make an interim distribution if they cannot finalise the estate within the expected time frame. Delays can occur because of ongoing contested will proceedings, a neglectful executor or merely due to the sheer size and complexity of the estate. In that case, the executor may not finish the estate administration in the typical year. Given that a legal battle over a will can stretch on for years, it may be appropriate to make an interim distribution to the beneficiaries. This may be a practical necessity, especially if beneficiaries were financially dependent on the testator. The dependent may struggle to meet their living expenses without the interim distribution.
Can An Executor Make Interim Distributions In NSW?
An executor can make interim distributions to a beneficiary even when they have not completed their administrative duties. In NSW, the Probate and Administration Act 1898 sets out the conditions that apply to interim distributions, namely:
- Section 92A(1) states that an executor can make an interim distribution to a beneficiary who was at least partially reliant on the deceased at the time of death. This is often the case with minor children of the deceased.
- Section 92A(2) and s92A(3) states that an executor can make an interim distribution in good faith for the proper support, maintenance or education of a beneficiary.
However, the executor needs to be aware of the risks of making early distributions from the estate. Delaying the distribution until the end of the year protects the executor from liability if they give away property that might end up belonging to someone else. Executors must consider whether it is a good idea to provide early access to entitlements, given the likelihood of claims against the estate. Early distribution is less risky for an executor if the estate is straightforward and there is no prospect of claims against the estate.
Should An Executor Make Interim Distributions In NSW?
The executor should consider several factors before making an interim distribution. Specifically, they should determine whether the estate has sufficient funds to cover:
- all pecuniary (i.e. money) bequests;
- all outstanding debts (including tax liabilities); and
- the size of the final distribution of the estate less the interim distribution.
An executor who distributes an estate too early without accounting for these bequests and debts can be held personally liable for any shortfall that results from giving out an interim distribution.
The Supreme Court of NSW examined the role of interim distributions in estate administration in a recent case, Angius v Salier . Laura Angius died in 2012, leaving an estate of thirteen million dollars to her son Robert as sole beneficiary. Her former husband John and daughter Gianna brought separate legal proceedings against the estate, tying up the assets for the foreseeable future.
In 2018, Robert applied to the Supreme Court seeking an interim distribution from the estate. The court considered several factors in deciding this case, including the following.
- Is the interim distribution for a “safe” amount? In other words, if the former husband and daughter’s claims were successful, would Robert still be entitled to at least the interim distribution amount?
- Could Robert demonstrate sufficient financial need for an interim distribution?
Ultimately, the court decided that Robert could receive an interim distribution of three million dollars from the estate. Allowance was also made for Gianna of a similar amount, leaving more than seven million in the estate. The court found that Robert had pressing legal costs from the estate conflict (in excess of a million dollars) and personal financial need. Robert did not have secure housing and suffered from a significant hearing loss that required cochlear implants.
Beneficiaries are often impatient to receive their entitlement, and executors are usually keen to finalise their duties as quickly as possible. However, an executor should use caution before making an interim distribution, as they can jeopardise the administration of the estate. Contact the experienced team at Armstrong Legal on 1300 038 223 for any advice about interim distributions or legal assistance on any testamentary or probate matter.