Some issues if executor of a will is a bankrupt

Aug 24, 2008

YOUR PERSONAL ADVISER: FINANCE

Some issues if executor of a will is a bankrupt

Q My father has appointed my sister, who is a bankrupt and a divorcee, as the sole executor of his will. His intention is to ensure that my sister, who has a child, gets a certain amount of care should he die prematurely.

What will happen when my father dies? Will the authorities take this inheritance into account and consider it for distribution to my sister's creditors?

A It is not advisable for your father to appoint your sister as sole executor of his estate. As a bankrupt, she will not be able to administer his estate or manage his assets. The Official Assignee (OA) would have been appointed to manage her financial affairs and if she is named executor, the OA will take over this function for her.

The OA will do what is necessary to obtain the grant of probate and distribute the estate to the beneficiaries in your father's will. But it is better if your father appoints someone else to be executor and trustee of the will.

As for your second query, the OA will certainly take this inheritance into account and use it to offset your sister's debts.

Any asset or money that she comes into possession of during the period of undischarged bankruptcy can and will be used to pay off her debts. So it would defeat the purpose of your father leaving his assets to her.

It is better if he appoints a family member or friend to be executor and trustee of the estate and establish a trust out of the estate for a monthly sum to be paid to your sister and her child.

The monthly sum payable to your sister, if it is not too much, may not be accessible to the creditors for payment of her debt.

If it is, then a reasonable portion each month may be allocated towards progressive debt payment by the OA.

Whatever is set aside for the child will not be available to the creditors. There is usually a clause to say that pending the child turning 21, his share of the estate is held on trust for his maintenance and expenses. Once the child is 21, the balance of the estate is to be given to the child absolutely.

There can be a similar provision to state that after a certain time lapse, the unspent portion of your sister's share of the estate will be given to her absolutely.

Lim Choi Ming
Partner
KhattarWong