In a recent case(1) the Royal Court ruled on whether an executor has a right to remuneration and expenses where the estate is insolvent.
The will of the deceased contained a charging clause that entitled professional trustees to be paid fees and reimbursed for costs and expenses relating to administration of the estate. The affairs of the deceased had been complex, and although the estate was solvent at the date of death, as a result of subsequent issues the estate became insolvent. The executor (a Jersey solicitor, appointed as executor dative by the court) applied for directions as to the extent to which he should settle the fees of two Jersey law firms. The application raised issues as to an executor's right to preference for the costs of administration and to remuneration where the estate is insolvent.
The role of an executor is similar to that of a trustee. Although an estate falls within the definition of a 'trust' under the Trusts (Jersey) Law, executors are, by the saving provisions, excluded from that law. Nonetheless, an executor is a fiduciary and can therefore derive no personal advantage from the administration of an estate, unless expressly authorised.
In this case, the executor's remuneration was authorised under the will. However, such authorisation is not effective if the estate is insolvent, since a testator cannot impose a right to remuneration out of assets in which creditors alone have an interest. An insolvent estate brings about a shift in focus towards the interests of the creditors, similar to that of a creditors' winding-up under company law.
Personal representatives must monitor the financial position of the estate - if the estate is insolvent, they cannot continue to charge without the authority of the creditors or a court order.
The court had inherent power to allow remuneration. In allowing remuneration for the executor of an insolvent estate, the court is securing the competent administration of the estate - it being in the interests of the creditors for the estate to be administered by a professional executor, properly remunerated.
Costs of administration
Costs of administration could include work before a grant of probate is issued, provided that such work does not constitute intermeddling under the Probate (Jersey) Law 1998. The doctrine of 'relation back' applies in Jersey (ie, the executor's title related back to the time of death and he could therefore ratify actions taken by the law firms before issue of the grant, provided that these did not constitute intermeddling). Work undertaken in locating the will, advising, among other things, on domicile and arranging for the appointment of the executor dative was not intermeddling. However, the costs submitted required careful scrutiny to ensure that only those incurred for the benefit of the estate were reimbursed.
Jersey law has always recognised a right of preference for particular creditors in the context of insolvency. It is clear that this includes costs of administration of an insolvent estate, and that these had priority over other preferred claims - a position confirmed by the Wills and Successions (Jersey) Law 1993. However, there is no authority on whether an executor has preference for costs incurred by others which he or she has ratified. Under English law, personal representatives have a right of retainer, allowing an executor to withdraw from the assets sufficient to pay himself or herself, and other creditors of equal preference, in full. The court accepted that the same right of retainer exists under Jersey law. Costs incurred by the executor and third parties in the administration of the estate are all costs of administration and thus of equal degree. However, it was right in principle that an executor, who has onerous duties and is under oath, is protected and that third parties not under such oath should not be reimbursed on an equal footing. Therefore, the executor had the right to withdraw from the assets in his hands sufficient to be reimbursed in full for the costs of administration incurred by him.
As regards the executor's remuneration, there was no authority to say that this preceded or ranked equally with creditors. The charging clause in a will was effective only until the executor formed or should have formed the opinion that the estate was insolvent. The executor's remuneration up to that point was therefore authorised and was a cost of administration over which the executor had a right of retainer. The executor could apply to the court for authority to charge fees from the date of insolvency to completion of administration. In most cases personal representatives should apply to court whenever they form the opinion that the estate is insolvent and the creditors should be convened, reflecting that the estate is then being administered for their benefit. With no statutory regime for the administration of insolvent estates in place, personal representatives must make greater use of the ability to seek directions from, and protection of, the court. The court should be mindful that having estates competently administered is in the public interest, and that professional persons acting properly will not be expected to act gratuitously.
The case is reassuring in that it makes clear that an executor can be reimbursed for his or her costs incurred in administering an insolvent estate, in priority to other creditors. However, the executor can be remunerated only if authorised by the will or by order of the court, and the authorisation under the will does not apply where the estate is insolvent. An executor must consider the financial position of the estate and be aware that, at the point he or she forms the opinion that the estate is insolvent, he or she cannot continue to charge fees without the authority of the creditors or the court and, in any event, he or she should consider applying to the court for directions.
For further information on this topic please contact Corinne Barnes at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).