Learning Outcomes
After reading this article, you will be able to identify the main legal protections available to personal representatives and trustees during estate administration, explain how statutory advertisements and indemnity provisions operate, recognise the limits of personal liability, and apply these principles to SQE1-style scenarios. You will also be able to distinguish between the roles of personal representatives and trustees and understand the practical steps required to minimise risk.
SQE1 Syllabus
For SQE1, you are required to understand the legal protections available to personal representatives and trustees in the administration of estates. Focus your revision on:
- the statutory mechanisms that protect personal representatives and trustees from personal liability
- the use and effect of statutory advertisements under the Trustee Act 1925
- the operation of indemnity clauses and insurance
- the limits of liability for unknown creditors and beneficiaries
- the consequences of failing to follow statutory procedures
- practical steps to reduce risk during estate administration
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the effect of placing statutory advertisements under section 27 of the Trustee Act 1925?
- Are personal representatives personally liable for debts of the estate that arise after distribution if they have complied with all statutory requirements?
- What is a Benjamin order and when might a personal representative seek one?
- How can a trustee limit their liability for losses caused by an agent or delegate?
Introduction
Personal representatives and trustees carry significant responsibilities when administering estates and trusts. They are required to collect assets, pay debts, and distribute property to beneficiaries, all while acting in good faith and with reasonable care. However, mistakes or unknown claims can expose them to personal liability. The law provides several statutory and practical protections to reduce this risk, provided the correct procedures are followed.
Legal Duties and the Risk of Liability
Personal representatives (executors and administrators) and trustees are fiduciaries. They must act honestly, in good faith, and in the best interests of the estate or trust. If they breach these duties, or distribute assets without proper precautions, they may be personally liable for losses—even if the breach was unintentional.
Key Term: personal representative A person (executor or administrator) appointed to administer a deceased person's estate, responsible for collecting assets, paying debts, and distributing to beneficiaries.
Key Term: trustee A person holding legal title to trust property for the benefit of others, with duties to manage, invest, and distribute assets in accordance with the trust instrument and the law.
Statutory Protection: Section 27 Trustee Act 1925
The main statutory protection for personal representatives and trustees is provided by section 27 of the Trustee Act 1925. This section allows them to advertise for claims against the estate or trust before distributing assets. If the correct procedure is followed, they are protected from personal liability for unknown debts or claims that arise after distribution.
Key Term: statutory advertisement A public notice placed in specified publications (e.g., the London Gazette and a local newspaper) inviting creditors or claimants to notify the personal representatives or trustees of any claims against the estate or trust.
Worked Example 1.1
A personal representative places statutory advertisements in the London Gazette and a local newspaper. After distributing the estate, a previously unknown creditor comes forward. Is the personal representative personally liable?
Answer: No, provided the advertisements were properly placed and the distribution was made after the statutory notice period expired, the personal representative is not personally liable for the unknown debt. The creditor's claim is now against the beneficiaries who received the assets.
Limiting Liability for Unknown Beneficiaries and Creditors
Even with advertisements, there may be uncertainty about missing beneficiaries or creditors. The law provides further protection through court orders and indemnities.
Key Term: Benjamin order A court order permitting personal representatives to distribute an estate on the assumption that a missing beneficiary has died, after making reasonable efforts to locate them.
Worked Example 1.2
A beneficiary cannot be found despite extensive searches. The personal representatives wish to distribute the estate. What should they do?
Answer: They should apply for a Benjamin order. If granted, they may distribute the estate as if the missing beneficiary had died, and will not be personally liable if the beneficiary later appears.
Indemnity and Insurance
Trustees and personal representatives may seek indemnities from beneficiaries before distribution, especially where there is a risk of unknown claims. Indemnity clauses in trust deeds or wills may also provide protection, but these do not cover fraud or dishonesty.
Key Term: indemnity A contractual promise by one party (e.g., a beneficiary) to reimburse another (e.g., a trustee) for losses arising from specified risks, such as unknown claims.
Key Term: trustee insurance An insurance policy taken out by trustees or personal representatives to cover losses arising from claims or breaches of duty, subject to policy terms.
Delegation and Reliance on Professional Advice
Trustees may delegate certain functions (such as investment management) under the Trustee Act 2000, provided they exercise reasonable care in selecting and supervising agents. Reliance on professional advice (e.g., legal or tax advice) can also protect against liability, as long as the advice was sought and followed in good faith.
Worked Example 1.3
A trustee delegates investment decisions to a regulated investment manager and reviews their performance annually. The investments perform poorly due to market conditions. Is the trustee personally liable?
Answer: No, provided the trustee exercised reasonable care in selecting and supervising the manager, and the losses were not due to the trustee's own negligence or breach of duty.
Limits of Protection and Personal Liability
Statutory protection is not absolute. Personal representatives and trustees remain liable for:
- losses caused by their own negligence, fraud, or breach of duty
- failing to comply with statutory procedures (e.g., not placing advertisements)
- distributing assets before the statutory notice period expires
- knowingly ignoring a valid claim
If a personal representative or trustee is found liable, their liability is usually limited to the value of the assets they have received or distributed.
Exam Warning
If personal representatives or trustees distribute assets without placing statutory advertisements or obtaining appropriate indemnities, they may be personally liable for unknown claims—even if they acted in good faith.
Practical Steps to Minimise Risk
- Place statutory advertisements before distribution.
- Make reasonable searches for missing beneficiaries or creditors.
- Consider applying for a Benjamin order if beneficiaries cannot be found.
- Obtain indemnities from beneficiaries where appropriate.
- Take out trustee insurance if available and justified by the size or complexity of the estate or trust.
- Seek professional advice on legal, tax, and investment matters.
- Keep detailed records of all decisions and actions.
Revision Tip
Always check that statutory notice periods have expired before distributing assets, and document all steps taken to locate creditors and beneficiaries.
Key Point Checklist
This article has covered the following key knowledge points:
- The main statutory protection for personal representatives and trustees is section 27 of the Trustee Act 1925.
- Placing statutory advertisements protects against personal liability for unknown claims arising after distribution.
- Benjamin orders allow distribution where beneficiaries cannot be found, after reasonable searches.
- Indemnities and insurance can provide additional protection but do not cover fraud or dishonesty.
- Trustees may delegate functions but must exercise reasonable care in selection and supervision.
- Liability is limited to the value of assets received or distributed, except in cases of fraud or gross negligence.
- Failure to follow statutory procedures removes protection and may result in personal liability.
Key Terms and Concepts
- personal representative
- trustee
- statutory advertisement
- Benjamin order
- indemnity
- trustee insurance