The duty of care owed and actions required by executors (or the equivalent role outside England and Wales) to the beneficiaries of an estate is integral to the process of administering that estate. But what happens where an executor begins to lose, or has lost, mental capacity?
The question is an important consideration generally, particularly if the loss of capacity is permanent (eg arising from disability or disease). But loss of capacity can also be sudden and temporary due to illness or critical care, something which is particularly relevant in the prevailing circumstances of the devastating COVID-19 pandemic. Regardless of how it arises, unfortunately capacity can be lost very suddenly. If no preparation is made, the probate process could effectively be frozen until complex (and often expensive) solutions are found.
In this article we examine (i) the risks associated with an executor losing mental capacity, (ii) the steps which can be taken to remove an executor who has lost capacity, and (iii) practical steps which can be taken to reduce the risk of any loss to an estate if an executor does lose capacity.
1. The risks associated with an executor losing capacity
It can be difficult a) to define capacity; and b) to identify when a person has lost capacity, despite both being discussed at length in legislation and case law. For example, if an executor is unwell in hospital with COVID-19 and on medication, do they have capacity to make urgent decisions about an estate?
If, however, it is the case that there is a loss of capacity, then this can lead to significant issues arising in the administration of an estate, such as:
The executor may no longer be able to understand their obligations, fail to take necessary advice and/or fail to take appropriate decisions in the administration of the estate, or not be physically and mentally well enough to do what is needed in their role. Executors have to comply with a host of responsibilities and failing to carry out tasks properly can cause immediate difficulties (eg late filing of tax returns or applications for probate) or serious long-term problems.
Financial loss caused by risk taking
An executor who is losing or has lost capacity may take excessive risks with investing, administering or protecting estate property. Specifically, this is, very sadly, a hallmark of early stage dementia.
Whether caused by one of the issues set out above, or simply by an unwell executor being in a position of trusted responsibility, tensions can emerge or boil over between co-executors and/or beneficiaries which can only be handled in imperfect circumstances. In the context of the administration and the loss of a loved one, this would only exacerbate what is already a very difficult time.
Risk to co-executors
Importantly, co-executors must understand that they may also be held liable for the failures of a co-executor who is losing capacity, so it is important that any situation is addressed promptly.
Good preparation and prompt action on discovering failing capacity can circumvent, or at lease limit, the risk of the above.
2. Practicalities: removing an executor who has lost capacity
In England and Wales, the method of removing an executor who has lost capacity depends on (i) whether there is a Grant of Probate, (ii) how many executors the Will appoints, and (iii) whether the executor in question has made a Lasting Power of Attorney for financial decisions (LPA). This is a technical area where early and detailed advice is required to ensure issues do not arise and specific advice should be taken in all relevant jurisdictions.
The situation is even more complicated where the executor is also a trustee, and if the testamentary trust established by Will does not make provision for resolving the situation when a trustee is losing capacity (though this situation is often addressed in standalone trust documents). This can lead to a standstill in relation to the administration of the trust, which can be further exacerbated if decisions cannot be made without the unanimous agreement of the trustees (which is the default situation in English law trusts).
3. Practicalities: steps to limit the risks
Loss of capacity is, by nature, difficult to anticipate (particularly bearing in mind the current times), but one can take a number of practical steps to reduce the risks associated with an executor losing capacity, and to minimise the damage which loss of capacity can cause to the beneficiaries of an estate:
- When drafting a trust or Will, the person making the Will should appoint two or more executors, at least one of whom is younger than them and/or in good health. They could also consider appointing a professional trustee or trust company in the role of executor (and trustee, if applicable). Either way, the key is to ensure the document has resilience to changes in future circumstances.
- Clients should review their Will regularly, especially if their circumstances or those of their proposed executors have changed, and consider whether any change in circumstances necessitates a change in executors.
- If clients are beneficiaries or co-executors, and they notice that an executor is losing capacity, they should consider asking them to resign before the executor in question loses the ability to do so. This conversation would obviously need to be handled with considerable care and is therefore best had as early as possible.
- Once an executor has lost capacity, all necessary steps should be taken to replace them as soon as possible.
This is a complex – and often highly emotional – area of law, and dependent on individual circumstances. If you do encounter a situation in which an executor has lost capacity you should seek specialist legal advice as early as possible, to manage the risks.
Whilst this article has focused on executors who lose mental capacity, many of the practical points will also apply to executors who lose physical capacity (eg where a serious illness or car accident incapacitates them for a significant period) but still retain mental capacity. This can cause issues for the probate process, particularly in the short term in the wake of an unexpected illness. Steps can be taken in these difficult circumstances to ensure the probate process can continue, so we would urge executors and beneficiaries alike to take prompt action and to discuss whether the executor feels able to carry on their role as best they can.
If you require further information about anything covered in this briefing, please contact Richard McDermott, Adam Carvalho, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2020