By Roz Curnow

A number of recent cases have highlighted the need for care where executor’s commission is sought by a ‘professional’ executor such as a legal practitioner, in particular where the will makes no specific provision for the payment of commission.

A useful starting point for a discussion of a claim for commission by any executor is section 65 of the Administration of Probate Act 1958 which provides that ‘It shall be lawful for the court to allow out of the assets of any deceased person to his executor, administrator or trustee for the time being such commission or percentage not exceeding five per centum for his pains and trouble as is just and reasonable.’

It should be noted here that executor’s commission is effectively an exception to the general rule that a fiduciary cannot profit from his position as executor or trustee, and therefore the courts scrutinise such agreements very closely, are ‘extremely cautious and wary’ in upholding them, and will refuse to enforce them at the slightest sign of unfairness or undue pressure and, in practice, a full five percent overall is rarely awarded. See Bray & Anor v Dye & Anor (No 2) [2010] VSC 152.

Where there are two or more executors, the total commission percentage awarded will be shared between them; although this will not necessarily be evenly distributed between those executors, but may be dependent upon their respective contribution(s).

Then we move on to consider what is meant by ‘pains and trouble’ in terms of section 65. There are many cases containing reference to this: see Re Estate of Zsusanna Gray [2010] VSC 173 for recent commentary. It has been explained by the court in the following terms:

1. ‘pains’ relates to the responsibility, anxiety and worry generated by the executorial function; and
2. ‘trouble’ relates to the administration of the estate.

It has also been stated by the court in Patterson v Halliday [2003] VSC 298 that in assessing commission ‘at least’ the following should be considered:

• the work and judgment involved in the realisation of assets and earning income,
• the extent of administrative activities,
• the responsibility generally,
• the amount of work done not reflected in financial terms,
• how long the estate was administered,
• the size of the estate and its capacity to pay,
• the work of a non-professional character not undertaken by the applicant and performed by professionals, and
• (the) executors’ pains and troubles relative to the result.

So we can gather from this that an application for commission by any executor is by no means a simple process, and detailed consideration needs to be given to all of the above aspects.

Then we move to an additional overlay of duties imposed upon a legal practitioner who seeks the payment of executor’s commission; including points 3 and 4 below which are particularly relevant where the payment of commission is sought by way of the consent of sui juris beneficiaries rather than by order of the court:

• A higher level of fiduciary duty: see Dimos v Skaftouros & Ors [2004] VSCA 141.
• The absence of ‘double dipping’*.
• The absence of unfairness or undue pressure on beneficiaries*.
• Evidence that the beneficiaries are ‘fully informed as to any potential benefit to be made by the fiduciary before [they] … give an informed consent to the fiduciary receiving that benefit’ – Bray & Anor v Dye & Anor (No 2) [2010] VSC 152 and cited with approval in Legal Services Commissioner v Hession (Legal Practice) [2010] VCAT 1328 – with disclosure taking into account the beneficiaries’ sophistication, and including at a bare minimum:
  • The work that (the executor) has done to justify the commission. This should be done with particularity i.e. by assessment: Re Estate of Zsusanna Gray.
  • If (the executor) is invoicing the estate for legal fees and disbursements he ought to identify with particularity what constitutes the basis for same i.e. providing the beneficiaries with such information as is necessary to enable them to distinguish between legal work and the performance of executorial functions: see Re McClung (dec’d) [2006] VSC 209. Only then can a beneficiary accurately measure the ‘pains and troubles’ occasioned to the executor beyond the subject matter of those legal fees and disbursements.
  • That the beneficiaries are entitled to have this court assess his (the executor’s) commission pursuant to s 65 of the Act. This needs to be explained fully.
  • That it is desirable that the beneficiaries seek independent legal advice as to their position on this issue of consent. In many cases where the beneficiaries are unsophisticated people and the issues are complex he (the executor) ought to insist upon them receiving independent legal advice and ought not enter into any commission agreement until they have.

* See the cases Re Estate of Zsusanna Gray [2010] VSC 173 and Bray & Anor v Dye & Anor (No 2) [2010] VSC 152 in particular.

We must also note particular professional rules and regulations within the context of the above:

1. Where a legal practitioner draws a will appointing the practitioner or an associate of the practitioner as an executor, the client must first be informed in writing of any entitlement of the practitioner/the practitioner’s firm/associate to claim executor’s commission; of the inclusion in the will of any provision entitling the aforementioned to charge legal costs in respect to administration of the estate; and, if there is an entitlement by the aforementioned to claim executor’s commission, that the testator could appoint an executor who might make no claim for commission: rule 10, Law Institute of Victoria Limited Professional Conduct and Practice Rules 2005, as emphasised in the Registrar of Probates’ recent Notice to Practitioners “Receiving a benefit under a Will or other instrument” and Re McClung (dec’d) [2006] VSC 209;
2. Where a legal practitioner receives instructions to prepare a will under which any of the aforementioned may receive a substantial benefit (other than any proper entitlement to commission if applicable, and reasonable professional fees) then the legal practitioner must decline to act and offer to refer the person concerned to an independent legal practitioner: see rule 10 supra, including some very limited exceptions; and, for completeness, see also reference to preparation of any other instrument under which the aforementioned may receive a substantial benefit in addition to reasonable remuneration; and
3. Relevant information must be included in the (firm’s) Register of Powers and Estates in respect to trust money: regulation 3.3.32 Legal Profession Regulations 2005.

Finally, but not least, any executor, administrator or trustee needs to consider the aspect of personal liability should he or she fail in his or her duty towards the estate. This duty will generally be assessed at a higher level should that executor, administrator or trustee be a ‘professional’ such as a legal practitioner, accountant and the like; and consequently a higher potential for liability may also arise.

Tip Box

Whilst written for Victoria practitioners this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Most property lawyers will also be involved in the administration of deceased estates and, on occasions, may in fact act as the executor of a deceased estate. This is entirely appropriate, as there will always be clients who do not have a close friend or relative who they can appoint to fulfil this role and would prefer to appoint their solicitor, rather than an impersonal trustee company.

Rule 10 of the Professional Conduct and Practice Rules 2005 requires a lawyer to inform the client in writing before the will is signed that the will entitles the lawyer to charge commission and that the client could appoint an executor who might not charge commission. Signing of the will after receipt of that advice operates as client consent to the charging of commission, thereby negating any potential conflict of interest. However, like many other examples of the lawyer-client relationship, simply establishing the relationship on a solid footing does not ensure that problems will not arise thereafter. The recent case of Walker v. D’Alessandro [2010] VSC 15 confirms that the lawyer continues to owe duties to the client and the estate.

The lawyer was appointed as executor of the estate and was authorised to charge commission. The estate consisted largely of cash accounts valued at approximately $1.6m and all of the six beneficiaries were nieces and nephews of the deceased with legal capacity. As the time for distribution approached the lawyer wrote to the beneficiaries advising that, subject to two minor matters, the estate could be finalised and an interim distribution of $1.4m could be made. This letter sought consent from the beneficiaries to the charging of commission at the rate of 3%.

The alternative was for the beneficiaries to require the executor to apply to the Court for an order authorising commission, in which case commission of up to 5% could be awarded. The estate would be liable for the costs of this application and the lawyer was ‘unable to say with any degree of accuracy’ when the distribution might be made.

In these circumstances the beneficiaries all returned the signed consent forms and an interim distribution was made. However some of the beneficiaries thereafter had second thoughts and issued these proceedings to overturn the claim for commission.

The duty owed by the executor to the beneficiaries is perhaps the purest example of the concept of a fiduciary duty. The beneficiary depends entirely on the executor to well and truly administer the estate and distribute the proceeds upon finalisation of the estate. The task of the executor in fulfilling these trust obligations was regarded by the common law as an honorary one, but statutes regulating the administration of estate have long recognised an entitlement to commission to compensate the executor for ‘pains and trouble’: s65 Administration and Probate Act 1958. Importantly, the object of the payment is compensatory, rather than profit-based and the Courts take seriously their supervisory role.

The Court suggested that the lawyer/executor must:

1. detail the work performed as executor;
2. differentiate between work performed as executor and legal work;
3. fully explain the right to have a Court assessment; and
4. insist upon independent legal advice.

The Court concluded that the executor has failed to satisfy three of these four requirements and had thereby failed to fulfil the fiduciary obligations owed to the beneficiaries. Criticism was also made of the inappropriate use of the potential for delay that an application for Court approval might have caused. There was nothing preventing the executor making an interim distribution pending approval, but the contrary was suggested. This also undermined the beneficiaries’ consent.

The agreement that 3% commission be paid was set aside. This was one of the orders that were initially sought by the beneficiaries and the one which became the focus of the hearing. However the beneficiaries had also sought an order that the lawyer provide an itemised bill of costs in relation to legal work performed for the estate. These costs were in the region of $16-17,000 and whilst one of the obligations propounded by the Court was the need to differentiate between estate work and legal work, no further comments were made in relation to these costs.

However the inherent conflict facing a lawyer in this situation was described In the Matter of the Will and Estate of Mary Irene McClung [2006] VSC 209 as having the lawyer ‘on the horns of a dilemma’. An executor/lawyer who is wearing two hats and seeks to charge the estate in both capacities may expect close scrutiny if challenged before a Court. Whilst it is possible to differentiate between the work performed in those two roles, it is fair to say that a Court will require clear evidence that there is no overlap in charging. Arranging and attending a clearing sale is undoubtedly an executorial role, but arranging a discharge of mortgage is merely legal work. Keeping a clear demarcation line between the two roles and maintaining separate records is an absolute minimum that will be expected if an assessment is undertaken and any suggestion of ‘double dipping’ will be disallowed.

The times they are a-changing.

Tip Box

Whilst written for Victoria practitioners this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Lawyers face difficulties as regards charging costs and/or commission when acting as a lawyer to, and executor of, a deceased estate.

Traditionally lawyers practising in all but large city firms would dabble in property law and wills & estates.

And despite moves during the past couple of decades for lawyers to build practices by concentrating on specific areas of law, these areas remain important income sources for many practitioners in small to medium size firms. However, practitioners who do not deal exclusively in those areas need to be aware of changes brought about by greater regulation of practice standards and supervision by the courts and other authorities.

One such development is the effective prohibition on lawyers acting as both lawyer to, and executor of, a deceased estate and charging both professional costs and executor’s commission. A useful summary of the law in this area was provided in an article in the LIJ in September 2002 at page 77 called “The solicitor-executor”.

Undoubtedly, it was common practice in the past for lawyers to be asked by their clients to act as executor of the client’s estate. The euphemistic reference to “the senior partner for the time being” is well known to lawyers, as is the practice of including a provision that the firm preparing the will would be appointed to act for the estate. However, just as such a provision is unenforceable (Nowakowski v Gajdobraski, unreported Vic Sup Crt, 12 April 1996) so too the habit of appointing a lawyer as executor is subject to much greater scrutiny – at least in relation to the financial consequences of that appointment.

That courts are more prepared than ever to closely scrutinise the lawyer’s role in this area was reinforced in a recent decision (In the Matter of the Will and Estate of Mary Irene McClung [2006] VSC 209) that warned that “[t]he 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” and described such a situation as giving rise to a “very real potential for a conflict arising between the interests of the client and the interests of the solicitor”.

This scrutiny also extends to the retention of estate funds, with the case of Hill v Roberts, unreported, 21 October 1995 having established that trust funds ought not lie in trust for longer than 14 days.

It is not only the courts that are taking a greater interest in such matters. The Professional Conduct & Practice Rules now require a practitioner to disclose to a client details of any commission or costs clauses included in a will and to advise the client that the client could appoint an executor who might not claim commission (r 10.1.1-10.1.3).

It may be concluded that great care must be exercised if a lawyer seeks to act as executor. Given that it is not permissible to charge both commission and costs, consideration should be given to instructing another firm to administer the estate and complete details of all “pains and trouble” should be kept to support a claim for commission.

Alternatively, the executor/lawyer’s firm undertakes the legal work and no claim is made for commission.

Tip Box

Whilst written for Victoria practitioners this article has interest and relevance for practitioners in all states.