In the recent Victorian decision of Caruana & Ors v Caruana the deceased's son was removed as executor of the estate and was not allowed to access estate funds for his costs. Instead, he had to pay his own legal costs and was also ordered to pay the other beneficiaries' costs of the litigation.
This case illustrates the care executors must take when administering estates, particularly where there are financial dealings between that person and the deceased, as the consequences for them can be significant.
During his lifetime, the deceased loaned $300,000 to his son to purchase a property. During the final five years of the deceased's life, he moved into the property and was cared for by his son and his son's wife until he died. As the deceased required a wheelchair, his son also had to make renovations to the house to make it wheelchair friendly.
After the deceased died, the executor son proposed to repay only $50,500 of the loan to the estate, claiming the remaining balance as reimbursement for nursing fees, renovations to the house and a weekly living allowance for the deceased for the time that he spent living with them.
The deceased's other children (the other beneficiaries of the estate) successfully brought proceedings to have their brother removed as executor on the grounds of a conflict of interest and for orders that he repay the whole loan.
When considering what costs orders to make, the court said:
"... the [son's] position reflects a clear case of conflict of interest and duty whereby he preferred his own interests to that of the estate. That, in turn, has created hostility and friction between the parties with a consequent failure by him to administer the estate of the deceased."
To avoid this situation brought about by the conflict of interest, the son should have renounced as executor if he wanted to pursue his claim for reimbursement from the estate.
This case also reinforces the importance of proper estate planning where parents have given loans or gifts of money to their children during their lifetime.
In this case the deceased could have:
- considered a different executor;
- put a loan agreement in place setting out the terms if he intended the loan to be repaid;
- forgiven the loan in his Will if he did not intend the son to repay it (which might have been the case here); or
- explain what he would have liked to have happened, and for example, acknowledge he did not require the repayment of some of the money spent for his benefit; and/or
- if his son was also his attorney under an enduring power of attorney, deal with the issue of presumed undue influence appropriately, which is often overlooked in families.
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