Personal representatives and trustees in estate administrati...

Learning Outcomes

This article outlines the core legal protections, statutory mechanisms, and practical risk‑management steps available to personal representatives and trustees during estate administration, including:

• understanding the statutory framework of section 27 Trustee Act 1925 and how it protects against unknown creditors and beneficiaries
• evaluating when and how to place statutory advertisements, what publications to use, and the extent of protection they confer
• identifying when to seek court assistance through Benjamin orders or directions and the evidential threshold for such applications
• analysing the operation, strengths, and limits of indemnities, exoneration clauses, and trustee insurance as complementary protections
• applying the six‑month distribution risk period under the Inheritance (Provision for Family and Dependants) Act 1975 to distribution decisions
• distinguishing protections for unknown claimants from steps required where beneficiaries or creditors are known but missing
• assessing personal liability risks in asset distribution, delegation under the Trustee Act 2000, and the administration of insolvent estates
• working through typical exam-style scenarios involving missing beneficiaries, late creditor claims, delegated investment management, family provision claims, and potential insolvency to select the safest course of action

SQE1 Syllabus

For SQE1, you are required to understand the protections available to personal representatives and trustees during estate administration, with a focus on the following syllabus points:

• 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
• Trustee Act 2000 duty of care and safe delegation and supervision of agents
• court orders for missing beneficiaries (Benjamin orders) and directions
• the six‑month distribution risk period for Inheritance (Provision for Family and Dependants) Act 1975 claims
• the order of payment for unsecured debts in insolvent estates and the effect of paying inferior debts with notice of superior debts
• searches and checks to protect against bankruptcy and land-related liabilities

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.

1. What is the effect of placing statutory advertisements under section 27 of the Trustee Act 1925?
2. Are personal representatives personally liable for debts of the estate that arise after distribution if they have complied with all statutory requirements?
3. What is a Benjamin order and when might a personal representative seek one?
4. 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. Protection is strongest where formal steps are taken before distribution—most notably statutory advertisements under section 27 Trustee Act 1925—and where appropriate judicial relief or insurance is obtained in cases of uncertainty. A further protective consideration is the six‑month period after a grant during which family provision claims can be brought under the Inheritance (Provision for Family and Dependants) Act 1975.

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.

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.

Their standards of conduct are supported by the statutory duty of care under section 1 Trustee Act 2000. This requires reasonable care and skill, taking account of any special knowledge or experience and whether they act in a professional capacity. Wills often contain exoneration clauses limiting liability for errors made in good faith, but such clauses cannot excuse fraud or dishonesty. In addition, the court has a discretionary power to relieve from liability where a personal representative or trustee has acted honestly and reasonably and ought fairly to be excused (section 61 Trustee Act 1925).

Multiple fiduciaries act jointly and severally; one fiduciary is not automatically vicariously liable for another’s breach, but may be liable for failing to supervise or for allowing unsafe control of estate or trust assets.

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.

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.

Practical points include:

• place advertisements in the London Gazette and in a newspaper circulating in the district where any land forming part of the estate is situated
• consider “other like notices” appropriate in the special circumstances (for example, a trade journal if the deceased ran a business, or overseas notices where assets or potential claimants are abroad)
• specify a time limit of not less than two months from the date of the notice for claims to be made
• make sensible searches for land-related liabilities and bankruptcy entries against the deceased and beneficiaries, as prudent purchasers would do

Once the time limit has expired, personal representatives may distribute taking into account only claims of which they have actual knowledge and those revealed by the advertisements and searches. Unknown claimants who later appear must pursue the recipients of distributed assets, not the personal representatives, provided the section 27 procedure was properly followed.

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.

If a known claimant cannot be found, personal representatives have several options:

• pay the missing beneficiary’s or creditor’s entitlement into court and distribute the balance
• distribute on receiving indemnities from beneficiaries (recognising the risk that an indemnity may be worthless if the beneficiary has no means)
• purchase insurance against the risk of a later claim (often faster and cheaper than court, but typically requires evidence of full enquiries)
• apply for a Benjamin order giving leave to distribute based on an assumption (commonly, that the missing beneficiary is deceased), following evidence of thorough searches

Courts may also give directions requiring a putative claimant to issue proceedings by a set date or risk being barred, in appropriate case-management circumstances. Whatever route is chosen, personal representatives should document steps taken (searches, enquiries, advice, and decisions), which will support later reliance on statutory protection or court discretion.

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. Insurance against missing beneficiaries or unknown creditors can be an effective risk management tool; ensure the policy’s scope and exclusions are understood, and that sums insured reflect potential liabilities including interest.

Exoneration or exclusion clauses in wills and trust instruments can limit liability for negligence, but cannot excuse fraud. Courts will uphold reasonable exclusion clauses, and may relieve fiduciaries under section 61 Trustee Act 1925 if they acted honestly and reasonably. None of these mechanisms remove the need to comply with statutory procedures or act prudently.

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.

Estate accounts provide a further practical protection. Residuary beneficiaries commonly sign off the accounts and give a discharge and indemnity against later claims. While not absolute protection, these discharges are evidence that beneficiaries accepted the administration and distribution.

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. When appointing an investment manager:

• appoint the delegate in writing and provide a written policy statement setting out investment objectives, risk profile, and restrictions
• review the delegate’s performance and adherence to the policy at suitable intervals
• ensure the delegate is appropriately regulated and competent
• keep records of due diligence, appointment terms, and periodic reviews

Trustees should take proper advice when exercising investment powers (sections 4–5 Trustee Act 2000) and review investments periodically. Reliance on professional advice (legal, tax, or investment) is protective where the advice is sought and followed in good faith, and the trustees’ decision-making process is documented.

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 or distributing before the notice period expires)
• knowingly ignoring a valid claim
• paying inferior debts with notice of higher-ranking debts
• improper preference of one creditor over another in the same category in an insolvent estate

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 (subject to fraud or reckless breach). In insolvent estates, the order for unsecured debts must be observed to obtain protection: reasonable funeral and administration expenses first, then preferred debts (limited wages/salaries), ordinary debts (including HMRC), interest on preferred and ordinary debts, and deferred debts (e.g., loans from a spouse). Payment of an inferior debt when aware of a superior debt implies an admission of sufficient assets to meet higher debts, risking personal liability. Limited protection exists if, without undue haste and without knowing the estate is insolvent, a personal representative pays a creditor in full; the payment will not create liability to other creditors in the same class, but it does not protect against higher-priority creditors.

The six‑month period following the grant is critical for potential Inheritance (Provision for Family and Dependants) Act 1975 claims. Distribution within this window may expose personal representatives to personal liability if a successful claim later reduces or rearranges entitlements. A prudent approach is to delay distribution until six months have elapsed or retain sufficient funds to meet any likely award.

Bankrupt beneficiaries present particular risks. If a beneficiary is or becomes bankrupt during administration, the right to compel proper administration (a chose in action) and any vested entitlements may vest in the trustee in bankruptcy. Personal representatives should make bankruptcy searches and, where applicable, pay the trustee in bankruptcy rather than the individual beneficiary.

Worked Example 1.4

An estate is later discovered to be insolvent. Before that was apparent, the personal representatives paid an unsecured creditor in full without notice of other debts. Other unsecured creditors now demand payment. Are the personal representatives personally liable?

Answer:
Not to other creditors within the same category, provided the payment was made without undue haste and they had no reason to believe the estate was insolvent. However, this protection does not extend to higher-priority creditors; if the personal representatives had notice of superior debts when making the payment, personal liability may arise.

Worked Example 1.5

Personal representatives distribute the residue three months after the grant. A dependent brings a successful claim under the Inheritance (Provision for Family and Dependants) Act 1975 within six months. Are the personal representatives personally liable?

Answer:
They may be personally liable if they distributed without waiting for the six‑month period or without retaining sufficient funds to meet a potential award. A prudent practice is to delay distribution or set aside an appropriate reserve.

Worked Example 1.6

Residuary beneficiaries provide indemnities to allow early distribution. A significant unknown claim later emerges, and the beneficiaries who gave indemnities have no assets. Are the personal representatives protected?

Answer:
Indemnities are helpful but only as good as the indemnifiers’ means. If the indemnities are worthless and statutory protections or insurance were not in place, personal representatives may face personal exposure. Insurance or payment into court would have provided stronger protection.

Worked Example 1.7

A residuary beneficiary is declared bankrupt during administration. The personal representatives pay the beneficiary directly. The trustee in bankruptcy later demands payment. What is the position?

Answer:
Payment should have been made to the trustee in bankruptcy. The personal representatives risk personal liability to the trustee for the amount wrongly paid to the bankrupt beneficiary.

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 under section 27 Trustee Act 1925 in the London Gazette and appropriate local/trade press
• ensure the statutory notice period (not less than two months) has expired before distribution
• make prudent searches (Land Registry, Land Charges, and bankruptcy registers) to identify secured liabilities and bankruptcy issues
• consider applying for a Benjamin order if beneficiaries or creditors cannot be found after full enquiries, or pay into court
• obtain indemnities and consider insurance against missing claimant risks, recognising the limits of indemnities
• delay distribution until six months have passed from the grant to guard against family provision claims, or retain sufficient funds
• seek professional legal, tax, and investment advice; document instructions, advice received, and decisions taken
• when delegating, appoint regulated agents in writing, provide a policy statement, and review performance periodically
• keep comprehensive records and prepare estate accounts; obtain beneficiaries’ discharges and indemnities on approval of accounts

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 (London Gazette, local, and any other appropriate notices) protects against personal liability for unknown claims arising after distribution.
• Searches and due diligence should accompany advertisements to mitigate risk.
• Benjamin orders allow distribution where beneficiaries cannot be found, after reasonable searches; payment into court and insurance are alternative protections.
• Indemnities and insurance can provide additional protection but do not cover fraud or dishonesty and are only as strong as the indemnifier’s resources and the insurance policy terms.
• Trustees may delegate functions but must exercise reasonable care in selection, written appointment and policy setting, and ongoing supervision under the Trustee Act 2000.
• Delay distribution or retain funds within six months of the grant to reduce exposure to family provision claims.
• In insolvent estates, follow the statutory order for unsecured debts; avoid paying inferior debts with notice of superior debts, and do not prefer one creditor over another in the same category.
• Liability is typically limited to the value of assets received or distributed, except in cases of fraud or reckless breach.
• Failure to follow statutory procedures or prudent steps may result in personal liability.

Key Terms and Concepts

• personal representative
• trustee
• statutory advertisement
• Benjamin order
• indemnity
• trustee insurance