What happens to a person’s assets when they die? In most cases there is a formal process that must be completed before any Estate assets can be distributed.
Where the deceased has a Will
If a person owns real estate, shares or other investments, Probate is applied for at the Wellington High Court unless the assets only comprise no more than $15,000 in each case in any bank account, superannuation fund, life insurance policy, wage or salary arrears or otherwise as provided by section 65(2) and (5) of the Administration Act 1969 (“Act”).
Probate is a document sealed by the High Court that formally acknowledges the appointment of the executors named in the Will as the administrators of the deceased’s Estate.
The Probate document is required to close bank accounts (where the balance exceeds $15,000) and transfer assets such as shares, investment portfolios and real estate into the executors’ name(s) so that the assets may then be dealt with in accordance with the terms of the Will.
A lawyer will usually be required to draw up an application for grant of Probate, an affidavit to be sworn by the executors, and the Probate document itself. Any assets owned as joint tenant with another person (or persons) will pass by survivorship and are not subject to Probate or covered by the deceased’s Will.
If assets are held in a tenancy in common (distinct separate shares), Probate will be required in the case of real estate, or if the deceased’s separate share of any asset is worth more than $15,000 and is covered by sections 65(2) and (5) of the Act as referred to above.
Once Probate is granted by the High Court, the document will be produced by the executors to asset registers and banks together with instructions as to how to deal with the assets in question.
Executors are personally liable for any successful claims made against an Estate during the six month period following the date of grant of Probate if assets have been distributed and there are insufficient assets left in the Estate to meet successful claims.
Whether assets are distributed before the expiry of the six month period is generally up to the executors, but we strongly recommend executors hold all assets until the six month period has expired.
Claims may be made for outstanding debts incurred by the deceased prior to their death, or claims under statute such as the Family Protection Act 1955, Law Reform (Testamentary Promises) Act 1949 or Property (Relationships) Act 1976.
If a claim is received, the assets generally cannot be distributed or disposed of until the claim has been settled. A Notice to Creditors may be placed in the Public Notices section of the newspaper as an advertisement to potential creditors to forward claims to the executors for consideration.
This indicates that the executors have made reasonable efforts to notify potential creditors of the administration of the Estate of the deceased, and can be useful if someone tries to bring a claim against the Estate out of time Generally, bank accounts are closed and funds forwarded to the solicitors acting for the Estate.
Real estate may be sold once Probate is granted, however in some cases, where families do not wish the property to be sold, it can be transferred to the beneficiaries in nominated shares (depending on the number of beneficiaries).
This may also be the case with share portfolios, as many people are reluctant to sell shares unless the share price is high. The Estate solicitors will hold funds in their trust account earning interest until such time as the Estate can be distributed.
In the case of real estate or other assets that are not being sold, these will be held in the name(s) of the executors until such time as they can be distributed/transferred to the beneficiaries.
After six months from the date of grant of probate, any bequests payable under the Will may be distributed. Interest is not payable on bequests unless they are distributed more than one year from the date of the will maker’s death.
If the possibility of a claim being made against the Estate is considered to be low, bequests can be paid to the relevant beneficiaries after the six month period from date of grant of probate has passed.
The balance of the Estate after distribution of bequests and specific gifts is called the residuary estate. This is usually subject to a tax return being completed for income earned on the residuary estate.
A tax return may also need to be completed for the deceased to the date of death. The executors will apply for a separate IRD number for the Estate, and at the time of distribution, a tax return for the Estate will be completed from date of death to date of distribution. Tax is payable only on Estate income, not capital.
Examples of Estate income are interest earned on funds on deposit, rental income, and share dividends. Once the final Estate tax return has been completed (and the 6 month period has passed without notice of a claim) an interim distribution of the bulk of the Estate assets can be made to the beneficiaries.
A small amount is usually withheld pending tax clearance from the IRD, which may take up to 10 weeks. During this time, the remaining funds will not earn income, therefore not incurring any further tax liability. Upon receiving confirmation of tax clearance, the remaining Estate funds are distributed.
Where the deceased does not have a Will
Letters of Administration are required where the deceased did not leave a Will, or where the Will is invalid, or where the executors appointed under the Will have either pre-deceased the deceased, or are unable or unwilling to act.
Letters of Administration with Will Annexed:
These are applied for where there is a Will but the executors named in the Will have pre-deceased, or are unwilling or unable to act.
The Will is attached to the Letters of Administration and upon grant being made by the High Court, the person(s) appointed as administrator(s) of the Estate must carry out the terms of the Will in much the same way as executors where Probate has been granted.
Letters of Administration:
These are required where the deceased has died intestate (not leaving a Will). Who may be appointed as an administrator of an Estate is governed by the Administration Act 1969.
Where the deceased is survived by a spouse, and no separation order is in place, the deceased’s spouse is the person entitled to apply to be administrator. Where the deceased is not survived by a spouse, the deceased’s children are entitled to apply. There are further provisions where no spouse or children survive the deceased.
A similar process to an application for a grant of Probate is required, where the intended administrators will need to apply to the High Court to be appointed. A solicitor will need to draw up the application and the Letters of Administration, and the administrators will need to sign an affidavit. Once Letters of Administration have been granted by the High Court, the deceased’s Estate will be administered in much the same way as with Probate, however who is entitled to a share of the Estate and the size of that share is dictated by section 77 of the Administration Act 1969.
To ascertain whether a deceased person has left a Will, a solicitor will need to make enquiries of family members and advertise in the Law News (placed through their local branch of the Law Society) as to whether a Will is held by any other law firm in the country. Law firms check these advertisements and reply to the Law Society if they hold a Will on behalf of the deceased. For further information, please contact Tony Fortune, Kesha Meredith or Katherine McCarthy