What If A Trustee Or Executor Is Broke, Or Even Bankrupt?

If is often not appreciated by an executor of a deceased estate, or a trustee of a trust, that their role is a very important one which carries strict obligations. Primarily, that is to protect the property for the beneficiaries, to act in good faith and administer the estate/trust based on (eg) the Will, the trust deed or the law.

If an executor or trustee is financially impecunious or 'broke' (however you want to describe it), or is terrible with money or even bankrupt, it can result in them being removed from their role, but not always.

When might it be ok if the trustee or executor were broke or bankrupt?

If someone applies to have an executor or trustee removed, the Court's main concern is usually whether doing so would be in the best interests of the beneficiaries and necessary to safeguard the estate/trust assets.

A bankrupt trustee or executor would usually be removed from their role, but there can be exceptions.

However, if an executor or trustee (who isn't bankrupt) is so impecunious (broke) that he/she could be tempted to misapply the funds they're controlling, it is possible that person could be removed from their role, even if they have not engaged in any misconduct. Similarly, if a trustee/executor is so hopeless with money that the funds are at risk, that may be good reason for them to be removed.

It will almost always depend on the particular circumstances. Removal is never guaranteed. If for example an executor/trustee is bankrupt due to financial misfortune, but has not been involved in any misconduct, has largely recovered from their financial problems and/or has already administered most of the estate/trust, that person may be allowed to remain in the role of executor/trustee to finalise the administration.

Clout v Storry

This type of issue was recently considered in Clout v Storry [2025] QSC 311. In that case, a gentleman died in 2018 owning assets worth around $1.4 million to $2.5 million. He was survived by his three daughters who, under his Will, were to receive the entire estate (albeit not equally). His Will appointed one of the daughters (Victoria) executor.

As executor, Victoria's role therefore was to administer her father's deceased estate in the best interests of all beneficiaries, including her two sisters and as per the Will.

Victoria proceeded to obtain probate (as expected of an executor) and had her father's sole property put in her name as executor (also as expected). Victoria and one of her sisters at some point moved into the property. There was little evidence of Victoria having done much else to administer the estate in the years that followed.

Victoria did, however, prove to be a persistent litigator. Since her father's death she unsuccessfully applied for relief in around 20 separate actions in various courts, largely unrelated to the deceased estate. In 2024, the Federal Court held that Victoria was a vexatious litigant (a term used to describe someone who frequently commences proceedings that tie up the Court's resources and which were designed to annoy or cause delay or achieve some wrongful purpose).

In 2022, Victoria was declared bankrupt. That meant, under the laws of bankruptcy, she would no longer receive her entitlement under her father's Will – that entitlement would have to be paid to the person in charge of her bankrupt estate (the Bankruptcy Trustee) for the benefit of her creditors.

She was, however, still executor of the deceased estate.

By the time 2024 rolled around, deceased estate still had not been finalised and Victoria continued to live in the estate property.

The Bankruptcy Trustee applied to the Supreme Court seeking Victoria's removal as executor (that is, for her grant of probate to be revoked). The Bankruptcy Trustee also sought for him to be put in charge of administering the deceased estate (as an 'administrator').

Although Victoria opposed the application, she was unsuccessful. The Court held that, as a bankrupt, Victoria was unfit to act as executor. (The Court saw little need to consider how much of the deceased estate had already been administered – there wasn't much evidence on that before the Court anyway.) The Court removed Victoria from her role of executor.

Who replaced Victoria as executor? Unsurprisingly, the Court did not accept that the Bankruptcy Trustee should replace her as he would have then been "conflicted", for example:-

• As bankruptcy trustee, his duty is to Victoria's creditors. It's reasonable to assume he would have wanted the deceased estate's property to be sold so the bankrupt estate would receive Victoria's share of the deceased estate.
• If he were also put in charge of the deceased estate, his duty would have been to the beneficiaries (the sisters). Those beneficiaries residing in the property could have wanted to continue residing there (possibly even to 'buy out' the remaining beneficiary's share).

Equally unsurprising is that the Court also rejected the alternative proposal that the Bankruptcy Trustee be put in charge of the deceased estate in his personal capacity. Clearly, he would still have been conflicted.

Accordingly, the Court directed that an independent person (who ought be a suitably qualified solicitor) be put in charge to administer the deceased estate.

If you require advice about the types of issues mentioned above, feel free to call us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.