7. Executors’ costs and commission

Introduction

Terms of reference

  1. 7.1 Almost all executors are trusted friends or relatives of the will-maker. The remainder provide executorial services in a professional capacity. They include legal practitioners, accountants, financial advisers and trustee companies and are referred to as ‘professional executors’ in this report.
  2. 7.2 Executors cannot claim money from the estate for their time and trouble unless they are authorised to do so. Trustee companies are authorised by legislation to charge for executorial services.1 All other executors need the informed consent of the will-maker or beneficiaries, or otherwise can seek authorisation from the Supreme Court.
  3. 7.3 Payments to executors are commonly in the form of commission, expressed as a percentage of the capital and income of the estate. Some professional executors charge fees instead of claiming commission; others claim commission for their executorial responsibilities and charge fees for any additional services they provide.
  4. 7.4 The Commission has been asked to review and report on two issues relating to payments made to executors:
  • whether there should be special rules for legal practitioners who act as executors and also carry out legal work on behalf of the estate, including rules for the charging of costs and commission
  • whether a court should have the power to review and vary costs and commission charged by executors.
  1. 7.5 The first issue concerns executors who are legal practitioners. The second concerns all executors but is particularly relevant to professional executors because they are more likely than a will-maker’s friend or relative (who is also often a beneficiary) to charge for their services.
  2. 7.6 At the heart of both issues lies the conflict between duty and interest that can arise when an executor charges the estate for their time and trouble. An executor has a duty to act in the interests of the beneficiaries. However, in claiming a reward from the estate for meeting their executorial responsibilities, they are drawing from assets to which a beneficiary might otherwise have been entitled.
  3. 7.7 Unless the conflict of duty and interest is carefully managed, the assets are at risk of being depleted by excessive or unnecessary charges. The risk is exacerbated when:
  • The executor is a professional who also drafted the will and it contains a clause that authorises the payment of commission. Here, a further conflict of duty and interest arises because the professional owes a duty to act in the best interests of the client but has a personal interest in securing appropriate remuneration for all services rendered in the administration of the estate.
  • The executor is a professional who is authorised by a remuneration clause in the will to charge the estate for any professional services they provide in addition to charging commission for their executorial responsibilities. Here, it is left up to the executor to determine which services attract the operation of the remuneration clause and which attract the operation of the commission clause.
  1. 7.8 Although the terms of reference draw attention to the actions of legal practitioners, it is important to note that other professional executors are increasingly being appointed and are charging for their services. Compared to the legal profession, there is less regulation of the executorial services they provide, yet conflicts of interest can similarly arise.2

Legal practitioner executors

  1. 7.9 There are cogent reasons why legal practitioners are appointed as executors, and it is in the community’s interest that they continue to provide executorial services. Most legal practitioners act in the best interests of will-makers and beneficiaries. Their duty to act in their client’s interests is the cornerstone of the profession’s ethical standards and legal obligations.
  2. 7.10 It is therefore concerning that some legal practitioner executors have taken unfair advantage of their position by:
  • charging the estate without the informed consent of the will-maker or beneficiaries
  • claiming excessive amounts
  • receiving both commission and professional fees for the same services.3
  1. 7.11 In this chapter, the Commission considers a number of measures to reduce the incidence of unethical and unlawful charging practices by legal practitioner executors. Its recommendations aim to improve compliance by legal practitioner executors with their ethical and legal obligations, and assist beneficiaries in understanding those obligations and enforcing them when necessary. They also recognise that some of the problems identified are not confined to the legal profession and need broader solutions.
  2. 7.12 Decisions about whether specific rules for legal practitioners are necessary, and the form they should take if they are, need to be made in the context of the existing regulatory framework. The regulatory framework within which legal practitioner executors currently operate is described briefly in the next section. The discussion then turns to the rules that should apply.4

Regulation of the legal profession

Legal Profession Act

  1. 7.13 The legal profession in Victoria is regulated under the Legal Profession Act 2004 (Vic). The Act establishes a co-regulatory framework, along the lines of a national model developed by the former Standing Committee of Attorneys General.5
  2. 7.14 The peak regulator is the Legal Services Board, which is an independent authority established by the Act. Among its functions is the responsibility to make and approve legal practice rules.6
  3. 7.15 With the board’s approval, the Law Institute of Victoria may make legal practice rules for legal practitioners other than barristers, and the Victorian Bar may make rules for barristers.7 The Law Institute of Victoria’s Professional Conduct and Practice Rules 2005 are applicable to legal practitioner executors and are discussed in more detail later in
    this chapter.
  4. 7.16 The chief executive officer of the Legal Services Board is the Legal Services Commissioner, another statutory office created under the Legal Profession Act. The Legal Services Commissioner has an obligation to:
  • ensure that complaints against legal practitioners are dealt with in a timely and effective manner
  • educate the legal profession about issues of concern to the profession and consumers of legal services
  • educate the community about legal issues and the rights and obligations that flow from the client-practitioner relationship.8
  1. 7.17 A number of the functions of the Legal Services Board and the Legal Services Commissioner have been delegated to the Law Institute of Victoria and the Victorian Bar.9

Complaints and discipline

  1. 7.18 A complaint to the Legal Services Commissioner may involve a civil complaint, a disciplinary complaint, or both.10
  2. 7.19 A civil complaint is a civil dispute, including a costs dispute, between a law practice or legal practitioner and a person about the provision of legal services. A beneficiary under a will can complain to the Legal Services Commissioner about legal fees charged to the estate, if the disputed amount is $25,000 or less and the complaint is made within the prescribed time limit.11 The definition does not extend to disputes about commission charged by a legal practitioner executor for executorial services, as these services are not considered to be legal services.
  3. 7.20 The Legal Services Commissioner must attempt to resolve civil disputes, taking any action necessary. This may include referring the matter for mediation and, in the case of a costs dispute, arranging for a non-binding assessment of legal costs.12 If the dispute is unable to be resolved, the Commissioner notifies the parties accordingly and informs them of their right to apply to the Victorian Civil and Administrative Tribunal (VCAT) for an arbitrated resolution. VCAT can make any of a range of orders set out in the Legal Profession Act, or any order it thinks fit, to finalise the dispute.13
  4. 7.21 A disciplinary complaint is a complaint about a legal practitioner’s conduct that, if established, would amount to either:
  • unsatisfactory professional conduct,14 or
  • professional misconduct.15
  1. 7.22 The Act sets out the conduct that does, or could, fall within each of these categories. A contravention by a legal practitioner executor of the Professional Conduct and Practice Rules may fall into either category.16
  2. 7.23 Anyone may make a disciplinary complaint, including a beneficiary under a will.17 The Legal Services Commissioner may also investigate the conduct of the legal practitioner
    in the absence of a disciplinary complaint, or if the complaint is withdrawn.18
  3. 7.24 If the investigation of the complaint shows that the legal practitioner would be likely to be found guilty of unsatisfactory professional conduct, the Legal Services Commissioner has a number of options available. These include:
  • taking no further action
  • cautioning the practitioner
  • reprimanding or fining the practitioner
  • requiring the practitioner to pay compensation, or
  • seeking to prosecute the practitioner in VCAT.19
  1. 7.25 If it is likely that the legal practitioner would be found guilty of professional misconduct, the Legal Services Commissioner must seek to prosecute the practitioner in VCAT. If a legal practitioner is found guilty:
  • they may be fined
  • their ability to practise law may be amended, suspended or curtailed, or
  • they may be subject to any other order that VCAT thinks fit.20

Proposed new uniform law

  1. 7.26 Victoria is developing a new regulatory scheme for the legal profession in conjunction with New South Wales, and the enabling legislation is expected to be introduced to Parliament during 2013. It is based on draft national legislation that was prepared in 2011 under the auspices of the Council of Australian Governments.21
  2. 7.27 Although only Victoria and New South Wales are proceeding with the reform at this time, they have agreed to changes that are intended to reduce costs and make the scheme more attractive to smaller jurisdictions.22
  3. 7.28 The new scheme has many of the same features as the co-regulatory scheme established by the Legal Profession Act. The role of peak regulator will be assumed by a joint Legal Services Council, and a Commissioner for Uniform Legal Services Regulation will be established. Both entities will be created by Victorian legislation but located in New South Wales. Functions will also be conferred directly on the Victorian Legal Services Board and Legal Services Commissioner.23
  4. 7.29 The new uniform law will be underpinned by uniform rules. The Law Council of Australia has issued a set of Australian Solicitors’ Conduct Rules24 that were prepared with a view to the introduction of uniform rules across all jurisdictions. These rules are likely to be submitted to the new Legal Services Council for consideration and adoption.
  5. 7.30 The Australian Solicitors’ Conduct Rules are very similar to the Law Institute of Victoria’s Professional Conduct and Practice Rules. Significantly, the rule that applies to legal practitioners who draft wills that appoint them as executor, discussed later in this chapter, is almost identical.25
  6. 7.31 At the time of writing this report, the proposed new uniform legislation had not been introduced into Parliament but was well advanced. Recommendations to amend the Legal Profession Act would not be relevant, but the Commission has not seen the legislation that will underpin the new regulatory scheme. Therefore, when the Commission has identified shortcomings in the current scheme, it has directed its recommendations to ensuring that the problems will not persist under the new scheme.

Other legislation

  1. 7.32 Although the Legal Profession Act imposes obligations on legal practitioners when providing legal services, and avenues for resolving disputes and complaints, the Australian Consumer Law also applies to the legal services they provide.26 However, it is not clear that a beneficiary would have standing to make a complaint about legal costs charged to the estate, as the estate—not the beneficiaries—is liable to pay. In any event, it is likely that any conduct that contravenes the customer service guarantees under the Australian Consumer Law will be behaviour for which the legal practitioner can be disciplined under the Legal Profession Act as well.27
  2. 7.33 Legal practitioner executors must also comply with the requirements that apply to all other executors. An executor who applies to the Supreme Court for a grant of probate must provide an affidavit containing detailed information about the will, the will-maker, the witnesses and the executors. The affidavit must also include an undertaking that, if probate is obtained,
    the executor will ‘well and truly collect and administer’ the estate ‘according to law’.
    28
  3. 7.34 Executors are assigned some specific responsibilities by legislation and various duties that arise from common law and equity and the powers of the Court.29 The Supreme Court may remove an executor who is unfit to act in that office.30 It will order the removal of an executor if satisfied that is necessary for the due and proper administration of the estate and the advancement of the interests of the beneficiaries.31

Special rules for legal practitioner executors

Obtaining informed consent

The problem

  1. 7.35 In legal terms, the relationship between an executor and a beneficiary under the will is of a fiduciary nature. The executor—the fiduciary—has been entrusted by the will-maker to exercise powers and discretions that affect the interests of the beneficiary. The beneficiary is vulnerable to any abuse by the executor of the position. As a consequence, the executor has a duty to act in the beneficiary’s interests.
  2. 7.36 The connection between the relationship and the duty was explained by Justice Mason in Hospital Products International Pty Ltd v United States Surgical Corporation:

It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter
is at the mercy of the former that the fiduciary comes under a duty to exercise his ower or discretion in the interests of the person to whom it is owed.32

  1. 7.37 The extent of the duty depends on the circumstances but there is a general requirement that executors act free of charge. They have no automatic entitlement to be paid for meeting their responsibilities.
  2. 7.38 A legal practitioner who is asked to prepare a will that appoints them as executor must obtain the client’s informed consent before including any clause that authorises them, or their law firm, to charge the estate a fee or commission for their services.
  3. 7.39 If a legal practitioner is appointed executor under a will that does not contain a commission or charging clause, they can seek the informed consent of the beneficiaries. Alternatively, they can apply to the Supreme Court under section 65 of the Administration and Probate Act 1958 (Vic). The Court may allow commission as is ‘just and reasonable’ for the executor’s ‘pains and trouble’, though it may not exceed five per cent of the value of the estate.33
  4. 7.40 Legal practitioners’ duty to avoid conflicts of interest pervades all aspects of the legal services they provide and is emphasised in their professional rules of conduct.34 However, there is persistent concern that some legal practitioner executors are charging the estates they administer without consent or in circumstances where the person who gave the consent was not fully informed about the decision they were asked to make. This concern, and the Commission’s recommendations for reform, are discussed in the next two sections.35

 The will-maker’s consent

  1. 7.41 The will-maker’s consent to the executor being paid from the estate for providing executorial services, legal services, or both, is conveyed by the inclusion of commission and charging clauses in the will. However, some legal practitioners have been drafting wills that contain commission and charging clauses without the fully informed consent of the will-maker. People making wills often do not really understand these clauses.36

Rule 10.1

  1. 7.42 The Law Institute of Victoria has approached the problem by including rule 10.1 in the Victorian Professional Conduct and Practice Rules 2005:

Receiving a Benefit under a Will or other Instrument

10.1 A practitioner who receives instructions from a client to draw a will appointing the practitioner or an associate of the practitioner an executor must inform the client in writing before the client signs the will –

10.1.1 of any entitlement of the practitioner, or the practitioner’s firm or associate, to claim commission;

10.1.2 of the inclusion in the will of any provision entitling the practitioner, or the practitioner’s firm or associate, to charge legal costs in relation to the administration of the estate, and;

10.1.3 if the practitioner or the practitioner’s firm or associate has an entitlement to claim commission, that the person could appoint as executor a person who might make no claim for commission.

  1. 7.43 Not all legal practitioners follow rule 10.1, even though a failure to comply may constitute unsatisfactory professional conduct or professional misconduct. The Supreme Court’s Probate Users Committee, a forum for legal practitioners and the Court to discuss succession law and practice, has expressed concern about the problem. Sharing this concern, the Registrar of Probates issued a reminder notice to all legal practitioners in 2010. However, there is no evidence that the level of compliance has improved. The Probate Registry has observed that a small but recurring percentage of legal practitioners consistently draft wills that contain generous commission clauses. Where it can be seen that a will was drafted after the Registrar’s notice was issued, a requisition is raised to seek proof of compliance with the rule.37
  2. 7.44 The Commission was told that legal practitioners who frequently draft wills that appoint them, or a member of their law practice, as executor do follow rule 10.1. Inexperienced practitioners look for guidance in legislation and would not think of consulting the Professional Conduct and Practice Rules.38 One legal practitioner commented that, in his experience, clients who have been given the information required by rule 10.1 no longer want to appoint the legal practitioner as executor.39

Reform proposals

  1. 7.45 The consultation paper on executors invited submissions on improving the existing rules for ensuring that will-makers are fully informed about the possible costs to the estate of appointing a legal practitioner executor. The proposals considered by the Commission included:
  • requiring a will appointing a legal practitioner as executor to be witnessed by an independent witness
  • requiring the will-maker to obtain independent advice before agreeing to the inclusion of a commission clause
  • incorporating rule 10.1 into legislation
  • incorporating a new rule on obtaining informed consent into legislation.
Independent witness
  1. 7.46 The Commission sought comments on the idea of introducing a rule that a will appointing a legal practitioner as executor must be witnessed by someone who is independent and external to the legal practice.40 Such a rule could provide some protection against unfair practices, if the witness were able to understand the consequences of any commission
    or charging clauses and assess whether or not they were reasonable.
  2. 7.47 The proposal received some support as a means of reducing problems that can arise when a legal practitioner is appointed as executor under a will.41 The Institute of Legal Executives suggested that perhaps there should be two independent witnesses.42 The Commercial Bar Association observed that merely witnessing the will would be of little benefit unless the witness also certified that they believed that the will-maker was advised appropriately in certain matters.43 Both organisations said that there would have to be exceptions to the rule.
  3. 7.48 Some of those who opposed the idea said that compliance with rule 10.1 is sufficient and that a legal practitioner always has the option of bringing in an independent witness in any case.44 Rigby Cooke Lawyers said that it would make the process unnecessarily difficult,45 and Moores Legal questioned whether it would be effective:

If the will is witnessed by another member of the same firm, it is questionable how ‘independent’ they will really be; if witnessed by someone outside the firm, it would seem even less likely that the will-maker will receive complete advice about the solicitor-executor’s rights in relation to commission and other possible costs to the estate.46

  1. 7.49 As discussed in Chapter 2, the Commission considered a similar proposal as a possible means of protecting will-makers from undue influence and concluded that it would be ineffective and would increase the complexity of the will-making process. The Commission does not support this proposal for the same reasons.
 Independent advice
  1. 7.50 It was suggested in consultations that the will-maker should receive independent advice before a commission clause is included in the will.47 A comparison was made with binding financial agreements under the Family Law Act 1975 (Cth). Each party to a binding financial agreement must obtain independent legal advice, and the practitioners who provide it must provide a written statement that the advice was given.48
  2. 7.51 Those against the idea said that clients will not want to pay the cost of independent advice, notwithstanding the fact that this is not a problem when making a binding financial agreement.49 It was also said that a client who trusts the legal practitioner enough to appoint them as executor is likely to accept their word about what a reasonable or normal rate of remuneration would be.50
  3. 7.52 The Commission agrees that clients should be encouraged to seek independent advice about including a commission clause in favour of either the legal practitioner who drafts the will or another member of the law practice. However, for the following reasons it has concluded that it should not be a statutory requirement:
  • Independent advice is not a necessary component of informed consent. The Commission considers that the courts should continue to determine what the components of informed consent should be in any given circumstance.
  • It could be of uncertain net benefit to the client in view of the cost and delay. The Commission is mindful of the need not to discourage members of the public from using legal practitioners when making a will.
  • The circumstances in which a person enters a binding financial agreement with a current or former partner that could affect their future financial security, and the associated risks, are quite distinct from those that exist when a person makes a will for the distribution of their estate after death.
Incorporate rule 10.1 into legislation
  1. 7.53 An idea that the Commission put forward in the consultation paper on executors was to incorporate rule 10.1 into the Wills Act 1997 (Vic).51 By appearing in legislation that any legal practitioner seeking information about the requirements for preparing a valid will would consult, it would be more likely to be noticed and followed. Elevating the requirement to a statutory duty would also reinforce the need to seek the will-maker’s consent.
  2. 7.54 Mixed views were expressed in submissions that commented on this idea. Some supported it,52 some opposed any statutory duty53 and some suggested modifying the rule.54 Reasons given for supporting the idea were that it would create a general rule rather than applying only to legal practitioners,55 and that the current failure of practitioners to comply with the rule shows that it is not well known and its force is not sufficiently felt.56
  3. 7.55 The idea was opposed by those who argued that compliance with professional rules is sufficient (even if rule 10.1 needs to be modified)57 or that the common law should apply.58 The Law Institute of Victoria maintained that rules can be more easily changed than legislative provisions when new problems are identified.59
  4. 7.56 The Commission does not support the incorporation of rule 10.1 into legislation. Although there would be benefits in giving statutory recognition to the need to obtain the will-maker’s informed consent, complying with rule 10.1 does not ensure that the will-maker’s informed consent is obtained.
  5. 7.57 Rule 10.1 merely requires the legal practitioner to draw the client’s attention to what the will states. The client is notified about commission and legal costs that the practitioner, law practice or associate will charge the estate under the terms of the will, and the fact that the client could appoint as executor someone who might not claim commission. The wording of the rule does not suggest that the procedure is more than a formality; that it is in aid of gaining the consent on which the entitlement to be paid from the estate is based.
  6. 7.58 The limitations of rule 10.1 are illustrated in Szmulewicz v Recht.60 In that case, Justice Habersberger found that the legal practitioner who drafted a will failed to fully disclose all relevant facts about a commission clause to the will-maker. The will-maker should have been given more details than required by rule 10.1, including that:
  • the executors had no automatic right to receive commission, so the will-maker did not have to include the clause
  • in the absence of the clause, the executors could still apply under section 65 of the Administration and Probate Act and be allowed commission not exceeding five per cent for their ‘pains and trouble as is just and reasonable’
  • including the commission clause entitled the executors to receive 3.5 per cent of capital and five per cent of income irrespective of the amount of work performed by them in the administration of the estate and without any independent scrutiny, such as by the Supreme Court under section 65
  • including the commission clause meant that the beneficiaries would be unable to challenge the level of remuneration or subject it to independent scrutiny, such as by the Supreme Court under section 65
  • the rates included in the clause were those decided by the solicitor and accountant who were nominated as executors; they were not fixed by law and thus could ultimatelybe reduced by the will-maker.61
  1. 7.59 The Commission considers that rule 10.1 should be revised to align with the standards now required by the Court. Currently, any decision to amend rule 10.1 to overcome its limitations is a matter for the Law Institute of Victoria. An almost identical rule appears in professional conduct and practice rules made by the Law Society of New South Wales62 and, as noted in [7.30], the Australian Solicitors’ Conduct Rules prepared by the Law Council of Australia. All three professional associations may well be involved in preparing uniform conduct rules under the proposed uniform law.
  2. 7.60 The introduction of the uniform rules provides an opportunity for the profession to revise the rule in all its forms. It should be amended to ensure that a legal practitioner preparing a will that includes commission and charging clauses complies with their fiduciary duty to obtain the will-maker’s informed consent.

Recommendation

51 The Law Institute of Victoria or other relevant body should revise the conduct and practice rules that apply to legal practitioners who prepare a will or other instrument under which they receive a benefit to expressly require the practitioner to obtain the client’s informed consent to the payment of the benefit. 

Incorporating a new rule on informed consent into legislation
  1. 7.61 Rather than giving rule 10.1 in its current form statutory force, a modified version could be incorporated into legislation. It could explicitly require the will-maker’s informed consent to any commission or charging clauses that benefit the drafter of the will, and set out the range of details that must be explained to the will-maker, along the lines of the comments made by Justice Habersberger in Szmulewicz. This would raise awareness of the need to seek informed consent and overcome the limitations of rule 10.1.
  2. 7.62 The Commission has concluded, however, that it would be unwise to specify in legislation what the will-maker should be told because the details depend on the circumstances.
    As the High Court observed in Maguire v Makaronis:

What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given.63

  1. 7.63 A provision covering all possible scenarios would be so comprehensive that compliance would introduce unnecessary formality into the process of making a will. In addition, legal practitioners could be tempted to simply give will-makers a page of fine print to read and sign, to create evidence of compliance with the provision rather than ensuring that the client is fully informed about the decision they are being asked to make. Once in legislation, it would be difficult to amend and would constrict the development by the courts of the law around informed consent.
  2. 7.64 The Commission’s preferred solution is to introduce a statutory provision that draws attention to the need to seek the will-maker’s informed consent without prescribing what the will-maker needs to be told. What constitutes informed consent will depend on the circumstances of each case, including the nature of the clause in question, the nature of the information given to the will-maker at the time, and such other matters to which the Court would have regard.
  3. 7.65 The new provision would clarify the obligation while accommodating different circumstances and allowing for the law concerning informed consent to continue to be developed by the courts. In addition, it would amend Victorian legislation in a way that would not cause material inconsistencies with other jurisdictions.
  4. 7.66 The consultation paper on executors indicated that any such new provision should be in the form of an amendment to the Wills Act, as it is the natural repository of all provisions dealing with the drafting and execution of wills. However, the Commission has come to the view that all rules concerning the payment of commission and other amounts to executors should be co-located in the Administration and Probate Act. 

Recommendation

52 A new provision should be inserted into the Administration and Probate Act 1958 (Vic) to the effect that a professional executor is unable to rely on a remuneration or commission clause in a will unless the will-maker gave their informed written consent to the inclusion of the clause, before the will was executed. 

The beneficiaries’ consent

  1. 7.67 What the beneficiaries need to know in order to give their informed consent to the payment of commission to an executor also depends on the circumstances. In Walker v D’Alessandro, Justice T M Forrest set out the ‘bare minimum’ that the executor should disclose:

(a) The work that he has done to justify the commission. This should be done with particularity.

(b) If he is invoicing the estate for legal fees and disbursements he ought identify with particularity what constitutes the basis for same. Only then can a beneficiary
accurately measure the ‘pains and troubles’ occasioned to the executor beyond the subject matter of those legal fees and disbursements.

(c) That the beneficiaries are entitled to have this Court assess his commission pursuant to s 65 of the [Administration and Probate] Act. This needs to be explained fully.

(d) That it is desirable that the beneficiaries seek independent legal advice as to their position on this issue of consent. In many cases where the beneficiaries are unsophisticated people and the issues are complex he ought insist upon them receiving independent legal advice and ought not enter into any commission agreement until they have.64

  1. 7.68 Legal practitioner executors commonly tell beneficiaries that, if they do not agree to the payment of commission, there will be a greater cost to the estate because the executor would then apply to the Supreme Court for authorisation. The cost of the application, which may be $10,000 or more,65 is usually met from the estate. They are also told that, if they give their consent, the estate will be distributed sooner.
  2. 7.69 As a result, beneficiaries can feel coerced into agreeing to the payment of commission because they fear that otherwise their share of the estate will be depleted by legal costs. In some cases, the commission charged is significantly higher than what the Supreme Court would be likely to authorise.
  3. 7.70 Sometimes the beneficiaries’ consent is not sought at all. For example, where the beneficiaries include charities, executors are known to have drawn a commission from the estate without consent in the expectation that the charitable beneficiaries will not notice.66 The executors in these cases are not necessarily legal practitioners, which suggests that any legislative response should apply generally rather than being directed to legal practitioner executors.
  4. 7.71 The Commission sought submissions on whether the principles in D’Alessandro should have a statutory basis.67 All but one of the submissions received in response agreed that the common law concerning the minimum information that should be disclosed to beneficiaries when they are being asked to consent to the payment of commission should be in legislation.68 The exception was the submission from the Association of Independent Retirees, which suggested that perhaps they should be set out in the Professional Conduct and Practice Rules.69
  5. 7.72 The proposal to provide a statutory basis to the principles in D’Alessandro was welcomed because it would set out a clear requirement in legislation that would apply to all executors and could be considered by beneficiaries who are thinking of making a complaint. However, members of the advisory committee cautioned against it. They said that the common law is sufficient and warned that setting out the principles in legislation would create uncertainty for executors about whether an agreement they made with the beneficiaries would subsequently be set aside.70
  6. 7.73 Although it would be convenient to have the principles in legislation, the Commission has decided not to recommend it, for the same reasons that it did not recommend giving statutory backing to the common law requirements when seeking a will-maker’s consent to charge for executorial services.71
  7. 7.74 However, there would be benefit in introducing a statutory provision that highlights the need to seek the beneficiaries’ informed consent. It would apply to all executors and alert them to the requirement while allowing for the common law to continue to develop and avoiding inconsistency with equivalent legislation in other jurisdictions. The general wording should assuage concern that a failure to provide all details as listed in legislation, even if informed consent was given in the circumstances, would be grounds for the agreement to be set aside.

Recommendation

53 A new provision should be inserted into the Administration and Probate Act 1958 (Vic) to the effect that an executor may receive commission from the assets of an estate providedthat the executor obtains the fully informed consent of all interested beneficiaries.

 

Distinguishing between executorial and professional services

The problem

  1. 7.75 There are widespread concerns about executors ‘double dipping’ by charging both commission and professional fees for the same services. 
  2. 7.76 The problem of double dipping was illustrated in Re the Will and Estate of McClung,72 which concerned an application for commission by joint executors of a will: one a legal practitioner, and the other an accountant. The legal practitioner executor had drafted the will, which contained a widely expressed charging clause that permitted him to charge for executorial as well as legal services. He had provided most of the executorial services, and charged the estate accordingly. Not surprisingly, the Court rejected any claim for commission under section 65 of the Administration and Probate Act. The legal practitioner executor had effectively been paid for executorial services rendered by him. The accountant executor had provided little in the way of executorial services.

Reform proposals

Ability of legal practitioner executors to provide legal services to the estate
  1. 7.77 The Commission sought submissions on whether legal practitioner executors should be prohibited from providing legal services to the estates they administer.73 The idea was they would be required to instruct another, unrelated, law practice to act for the estate. The other law practice would provide legal services and hold the estate money in its trust account. The proposal would address the problem of double dipping, as it would separate payments for executorial services by the executor from charges for legal services by the other law practice.
  2. 7.78 Some legal practitioners said during consultations that they thought it would be good practice,74 or that they already do it.75 However, overwhelming opposition was expressed in submissions for the following reasons:
  • This is a matter for the will-maker.76
  • It would cost the estate more.77
  • It would draw out the process of administering the estate.78
  • Trustee companies can provide professional services to the estates they administer.79
  1. 7.79 The Commission is persuaded by these arguments and has concluded that it does not support the proposal.
  2. 7.80 While maintaining that legal practitioner executors should be able to continue to engage their own firms to provide legal services to the estate, some submissions made suggestions to increase transparency and accountability. These suggestions included:
  • requiring the legal practitioner to demonstrate the bases on which the estate is being charged80
  • preparing guidelines, including requirements to obtain the consent of the will-maker or beneficiaries to any particular rate of charging (as distinct from rates based on the Professional Remuneration Order or equivalent).81
  1. 7.81 Later in this chapter, the Commission makes recommendations about costs disclosure to beneficiaries and the preparation of guidelines that help legal practitioners distinguish between legal and executorial services.82
A policy of declining to act as executor
  1. 7.82 In McClung, Master Evans said:

Given the very real potential for a conflict arising between the interests of the client and the interests of the solicitor on such an occasion, it would be preferable that solicitors declined to act as executors.83

  1. 7.83 Many practitioners told the Commission during consultations that the policy of their firm was not to agree to be appointed as executor other than in exceptional circumstances and that they consider this best practice in view of their fiduciary duties.84 Retired legal practitioner Patricia Strachan observed in her submission:

I always told clients point blank that I preferred not to be appointed an executor and that I would not allow them to leave me anything in their will. Only once I agreed to accept a legacy ($1,000) on the insistence of a client, a secretary of another solicitor at the firm.85

  1. 7.84 It was also pointed out that there may be few options for referral.86 One practitioner said that he would prefer to take on the role of executor for a client who had no other friends or family to nominate, rather than refer the client to an institutional executor such as State Trustees.87 Another observed that a legal practitioner would be likely to charge a longstanding client a commission that is far less than the amount a trustee company would charge.88 Other reasons put forward for not impeding the appointment of legal practitioners as executors included:
  • they are more highly regulated than accountants and other professionals89
  • they are likely to be careful to draft a will that avoids problems when administering the estate later on90
  • will-makers want to use local lawyers who know their family and financial affairs91
  • will-makers who have experienced or observed family provision claims tear families apart feel it is undesirable to appoint a relative as executor.92
  1. 7.85 In its submission, the Law Institute of Victoria summarised the circumstances in which it is appropriate or desirable to appoint a legal practitioner as executor:

1. Where the legal practitioner has particular knowledge of the testator’s family or business affairs gained over (many) years of dealing that would be demonstrably difficult for a third party to pick-up by reading of the estate papers. For example, this may be the case with disabled children or other dependants, with family owned farms and businesses and with assets held in several jurisdictions;

2. Where the estate is likely to be subject to Part IV (Family Provision) or other litigation and it would be inappropriate to set one part of the family up as defendants against the others as plaintiffs;

3. Where the terms of the trusts of the will are complex and require the skills of a legal practitioner competent in trust law and administration to be the executor;

4. Where the will-maker has no family or friends in Australia; and

5. Where a will-maker does not reside in Australia and makes a will in an Australian jurisdiction regarding assets in Australia.93

  1. 7.86 Although not all of these situations present an equally compelling reason to appoint a legal practitioner as executor, the Commission agrees that there is a public interest in legal practitioners continuing to be able to provide executorial services for their clients. That said, it is all the more reason why the provision of executorial services should be squarely recognised as a function that law practices perform and brought within the regulatory framework of the legal profession. The need for regulatory reform is discussed later in this chapter.94
The need for legal practitioner education
  1. 7.87 The Law Institute of Victoria’s cost lawyers have observed that legal practitioner executors need to be better educated about when they can charge commission, and particularly the need to obtain informed consent. Instances where the practitioner simply misunderstands the requirements far outnumber those of fraudulent behaviour.95
  2. 7.88 According to a legal practitioner, a particular problem with legal practitioners acting as executors is that many of those who take on the role are inexperienced. Many experienced practitioners will not do it.96 Another problem is that, although drafting wills is one of the more difficult tasks that a lawyer undertakes, the legal profession reportedly has a general disregard for it and sees it as work to be given to less experienced and junior staff. This attitude and the resulting poor drafting lead to impractical and invalid wills. Promoting integrity in the drafting process prevents serious problems later.97
  3. 7.89 These observations are consistent with comments made at a roundtable convened by the Legal Services Commissioner in 2010 in response to the high number of complaints being made about probate and estate matters.98 Representatives of the judiciary, the legal profession, consumer advocacy groups and service organisations attended. It emerged from the discussion that there is a generally poor understanding among legal practitioners of:
  • the costs they can legitimately charge when acting as executor
  • whether they can charge commission for their executorial duties
  • the fact that they cannot charge both legal fees and commission for the same work
  • the fact that a clause in a will that authorises them to charge for legal work does not give them an automatic right to claim commission for meeting their responsibilities as executor.99

 

  1. 7.90 Following the roundtable, the Legal Services Commissioner identified and committed to a number of activities arising from the discussion that would either directly or indirectly improve the knowledge and skills of legal practitioners about executorial duties they may perform. They included educating the profession about:
  • the issues which commonly arise in succession law matters that can have an impact on the lawyer-client relationship, for example client emotions, family disputes, client expectations and delays
  • the importance of providing clear and detailed information about legal costs
  • avoiding potential problem areas when drafting wills
  • working with professional associations to encourage lawyers involved in will-drafting to attend regular training in succession law
  • the problems and complexities involved in solicitors acting as executors of a will, and the rules and obligations associated with charging executorial fees and commission.100
  1. 7.91 The Legal Services Commissioner directly engages approximately 1000 lawyers per year via seminars, presentations and workshops, and the insights gained at the roundtable have informed the Commissioner’s education function generally.
  2. 7.92 Talks, consultations, seminars and workshops have addressed issues relating to probate, wills and estates, and staff of the office have informed practitioners and consumers about issues that commonly arise. Outreach and education visits have also raised issues identified by the roundtable. They have included visits to community legal centres, law practices and community organisations. In addition, information has been published on the Legal Services Commissioner’s website.
  3. 7.93 Many firms do not provide executorial services or provide them only occasionally. It is therefore essential that legal practitioners have ready access to information about charging for executorial services and know the importance of consulting it in order to avoid breaching their duty to the beneficiaries. Educational activities in this area of the law should be continually available and widely promoted.
  4. 7.94 The Commission has no evidence to suggest that a change is needed to the approach being taken by the Legal Services Commissioner and would support this function being strengthened under the new uniform law.

Information given to beneficiaries

The problem

  1. 7.95 The Legal Services Commissioner has commented that, in many complaints about legal practitioner executors, there has been a lack of transparency and accountability to beneficiaries.101D’Alessandro and other cases where an executor’s claim for commission has been challenged also illustrate the need for good communication between executors and beneficiaries.102
  2. 7.96 Beneficiaries are reliant on a person that they did not select for the position, so the executor cannot expect to be trusted or continue to be trusted without maintaining an effective flow of communication. A particular problem identified in consultations arises where the beneficiaries perceive overcharging.103 The Commission was told that even if there is a charging or commission clause in the will, an absence of communication on the method of charging can create tensions with beneficiaries.104

Reform proposals

Costs disclosure
  1. 7.97 Law practices are required by section 3.4.9 of the Legal Profession Act to disclose their costs to their clients, including—among other things—the basis on which they are calculated and either an estimate of the likely costs or the range of estimated costs. They must also inform clients about the avenues of dispute resolution available to them. Accordingly, a legal practitioner must disclose details of this type to an executor to whom they provide legal services.
  2. 7.98 When the legal practitioner is also the executor, the disclosure requirement is ineffective. There is no equivalent obligation to make full costs disclosure to beneficiaries before the administration of the estate is completed105 or inform them about what they can do in the event of a dispute.
  3. 7.99 The Commission sought submissions on whether legal practitioner executors should be required to disclose to beneficiaries the basis on which they will charge the estate for their executorial and legal work.106 All responses expressed support for the idea.107
  4. 7.100 Reasons given for introducing costs disclosure included:
  • It is a way of discouraging legal practitioner executors from claiming they are entitled by law to charge a commission of five per cent.108
  • It creates transparency and takes the pressure off the executor. Beneficiaries will be less likely to suspect dishonest practice and applications for review will be less likely.109
  • State Trustees and licensed trustees are subject to separate statutory regimes in respect of their remuneration.110
  1. 7.101 The Law Institute of Victoria considers it good practice for legal practitioners to provide cost disclosure to beneficiaries and would support reintroduction of a requirement to make costs disclosure under Part 3.4 of the Legal Profession Act.111 It proposed in its submission that:
  • Costs disclosure should be required to beneficiaries only where the legal practitioner
    is the sole executor. Where the legal practitioner is one of two or more executors, costs disclosure is likely to be required to the other executor in any event under the existing provisions.112
  • Costs disclosure should be required only to residuary beneficiaries, as they will be the only beneficiaries affected by legal costs. In some situations, the residuary beneficiaries will be minors or not legally competent for another reason and will be yet to be ascertained, in which case it will not be possible to provide costs disclosure.113
  1. 7.102 Moores Legal commented that it would assist to have a standard form.114
  2. 7.103 The Commission agrees with these suggestions and considers that many of the costs disclosure provisions in Division 3 of Part 3.4 of the Legal Profession Act concerning disclosure to clients could form the basis of new provisions for disclosure to beneficiaries. 

Recommendations

54 Legal practitioner executors should be required to disclose to beneficiaries details about their charges to the estate for executorial and legal services,
and associated information, along the lines currently required by section 3.4.9 of the Legal Profession Act 2004 (Vic) in respect of costs disclosure to clients.
In particular:

55 Costs disclosure to beneficiaries about their rights to receive information, seek costs review and make a complaint should be possible by providing a written statement. As is currently permitted in respect of cost disclosure to clients, the written statement should be prepared in accordance with the regulations, and supplemented by fact sheets and documents prepared by the Legal Services Commissioner in consultation with the profession. 

Charging a fee rather than commission for executorial services
  1. 7.104 In response to a proposal by the Legal Services Commissioner,115 the Commission questioned whether legal practitioner executors should no longer have the right to a set percentage of the estate as commission. They would instead charge an hourly rate for executorial work, which may be lower than the rate for legal work. As a consequence, they would only be paid according to the amount of work performed rather than the value of the estate.
  2. 7.105 None of the responses favoured the idea, and nor does the Commission. It would deny legal practitioner executors a form of remuneration that is available to other executors, and disregard the freedom of will-makers to choose the manner in which they wish to compensate them. The Commission’s other recommendations, if implemented, would provide clarity for beneficiaries about the basis on which the estate is charged by legal practitioner executors for executorial and legal services.
  3. 7.106 The Commission also explored whether legal practitioners should be able to elect to charge a fee for executorial services, rather than claiming commission to which they would otherwise be entitled. Most responses endorsed the idea and the following benefits were identified:
  • Commission claimed on the basis of a percentage of the estate or its income can produce outcomes that are cost ineffective in the case of large estates.116
  • It will help to avoid ‘double dipping’ from the estate.117
  • It would resolve the problem of delineating between legal costs and commission.118
  1. 7.107 The submission from the Law Institute of Victoria supported the status quo.119 The Association of Independent Retirees agreed with the idea but noted that it would not necessarily reduce the amount claimed.120
  2. 7.108 A number of legal practitioners said that they routinely charge fees for executorial services rather than commission.121 However, the basis on which the fees are calculated was not always clear. The charges were variously referred to as legal fees and professional fees, even though neither legal nor professional skills may be required in performing executorial tasks. Many executorial tasks are performed by clerical staff rather than by the appointed legal practitioner. Where the law practice for which the executor works also provides legal services, there is even less call on the executor’s professional skills:

Often, virtually all the work is done by the firm. The only work, apart from the minimal work relating to obtaining a grant and signing the transmission application, are attendances on the solicitors of their firm and to read letters from their firm, for which the firm has charged the estate.122

  1. 7.109 The Commission was told that the Practitioner Remuneration Order provides sufficient guidance on how to calculate fees for executorial services.123 The Practitioner Remuneration Order sets out the costs that law practices may charge for legal services other than in relation to litigious matters and is prepared in accordance with section 3.4.22 of the Legal Profession Act.
  2. 7.110 Some legal practitioners routinely have the file costed by the Law Institute of Victoria’s Cost Lawyers Service, which is a useful way of checking that they have understood the distinction between executorial and legal work.124 The Cost Lawyers Service has confirmed that there is adequate scope to charge for executorial activities under the Practitioner Remuneration Order, as the provisions for attendances distinguish between tasks that require the exercise of skill or legal knowledge and those that do not.125
  3. 7.111 The Commission accepts that the Practitioner Remuneration Order can be applied to costing for executorial services but is not confident that it is interpreted consistently. The amount that a legal practitioner may charge in obtaining a grant of representation is prescribed by regulation126 and it may be useful for other charges associated with executorial duties to be prescribed in the Practitioner Remuneration Order or in a special order for practitioner executors. Legal practitioners have certainly welcomed the idea of being able to charge a standard rate for executorial services.
  4. 7.112 On the other hand, the Law Institute of Victoria’s Cost Lawyers Service would give priority to ensuring that legal practitioners are better educated about the circumstances in which they may charge for executorial services at all.127
  5. 7.113 This is a matter that will need to be monitored if the Commission’s recommendations on costs disclosure are implemented. The requirement to be transparent about costing practices may well create pressure to be clear and simple.
  6. 7.114 The Commission has concluded that it would be useful for legal practitioners and beneficiaries alike if there were a statutory provision that clearly permitted legal practitioner executors to elect to charge a fee for executorial services instead of claiming commission to which they are otherwise entitled. In formulating a recommendation, the Commission considered and rejected a model provision devised by the National Committee for Uniform Succession Laws to enable a personal representative to renounce commission.128 The meaning of the provision is not clear on its face because of the terminology used and it is not easily adapted to Victorian legislation.

Recommendation

56 A new provision should be inserted into the Administration and Probate Act 1958 (Vic) to the effect that, where a will contains a provision authorising a professional executor to charge commission, the professional executor may elect to charge fees for executorial work rather than relying on the provision in the will. The ability to make an election would be subject to conditions, including that the fees:

Court review of costs and commission

Proposed reforms

National Committee for Uniform Succession Laws

  1. 7.115 The Commission has been asked to review and report on whether a court should have the power to review and vary costs and commission charged by executors. The National Committee for Uniform Succession Laws made a recommendation to this effect in response to concern about legal practitioners drafting wills that give them a more generous commission than a court would:

The issue is not so much a problem where the will provides for the charging of professional fees (and commission is simply allowed by the court), but where the will itself includes a provision setting a rate of commission that is higher than that which the court would be likely to allow in its discretion.129

  1. 7.116 Excessive charging may not always be caused by greed. Estates can change significantly in value between the time a will is prepared and when the will-maker dies. The amount a will-maker expects the executor to receive may be far less (or far more) than the amount that the commission clause in the will eventually provides in practice. The reform proposed by the National Committee would allow review of a windfall gain to the executor that may not be justified by the work involved.130
The National Committee’s recommendation
  1. 7.117 The National Committee had initially proposed that an executor would be able to rely on a commission clause in a will only if the will had been approved by the court. The Public Trustee of New South Wales and the New South Wales Law Society responded that it was better to empower the court to review commission and other amounts charged,
    as provided by section 86A of the Probate and Administration Act 1898 (NSW), than to require the court’s approval in every case.131
  2. 7.118 The National Committee came around to this view and decided to include a similar provision in the model uniform legislation it was preparing.132 It recommended as follows:

The court’s power to review the remuneration of personal representatives and trustees

27-5 Subject to the following modifications, the model legislation should include a provision to the effect of section 86A of the Probate and Administration Act 1898 (NSW):

(a) for consistency with Recommendation 27-1, the model provision should refer to ‘payment of an amount for services’, rather than to ‘commission’; and

(b) to ensure that the court may review and, if necessary, reduce the fees and charges of a public trustee or trustee company that acts as the personal representative or trustee of the estate of a deceased person, the model legislation should provide that the court’s power to review may be exercised despite:

(i) any provision of a will authorising the charging of the amount; or

(ii) any statutory provision authorising the amount charged or proposed to be charged.133

  1. 7.119 The provision that the National Committee recommended appears as clause 432 of the model legislation.134 In accordance with the recommendation, clause 432 is a modification of section 86A of the NSW Probate and Administration Act.
  2. 7.120 The modifications import concepts and terminology that are not relevant to the Commission’s current reference. Clause 432 uses terms that are defined in the model legislation but are different to those used in Victorian law, and it has been drafted to apply to trustee companies, which are now regulated by the Commonwealth.
  3. 7.121 As there is no need for it to consider the modifications conveyed in clause 432, the Commission has referred back to the original provision at section 86A of the NSW Probate and Administration Act when considering the National Committee’s proposal.
Section 86A of the NSW Probate and Administration Act
  1. 7.122 Section 86A of the NSW Probate and Administration Act provides as follows:

86A Reduction of excessive commission etc

Where the Court is of the opinion that a commission or amount charged or proposed to be charged in respect of any estate, or any part of such commission or amount, is excessive, the Court may, of its own motion, or on the motion of any person interested in the estate, review the commission, amount or part and may, on that review, notwithstanding any provision contained in a will authorising the charging of commission, amount or part, reduce that commission, amount or part.

  1. 7.123 It has been in force since 1981and no other jurisdiction has an equivalent provision. However, until recently, the trustee legislation in every state and territory other than Western Australia empowered the court to review commission or fees payable to trustee companies in relation to the administration of estates.135

Other proposals

  1. 7.124 Within Victoria, the Supreme Court’s Probate Users Committee and the Law Institute of Victoria have developed separate proposals in recent years to empower the Supreme Court to review and reduce amounts charged by an executor or administrator. Both proposals would insert a new section 65A into the Administration and Probate Act but differ from each other with regard to the scope of the Court’s power.136
  2. 7.125 The Commission’s consultation paper on executors discussed these proposals and asked whether the Supreme Court of Victoria should have the power to review amounts charged by executors and, if so, what the scope and nature of the power should be.
  3. 7.126 All submissions received in response to the paper favoured the introduction of a review process, particularly as it would apply to all executors, but they put forward disparate views about the details. The Supreme Court’s submission favours adopting the National Committee’s model unless there is a demonstrated policy reason to depart from it.137

The Commission’s approach

  1. 7.127 The Commission supports in principle reforms that promote national consistency in succession law, and for this reason has given weight to the National Committee’s recommendation when assessing reform options. Creating a scheme in Victoria that is distinctly different from the one operating in New South Wales, against the recommendation of the National Committee, would not promote national consistency.

Scope and nature of the review power

Amounts that may be reviewed

  1. 7.128 Under section 86A of the NSW Probate and Administration Act, the Court can review any amount charged, or proposed to be charged, to an estate. The amount is not confined to commission. The Law Institute of Victoria put forward a proposal under which the Court would be able to review commission only.
  2. 7.129 Almost all of the submissions that commented on this issue said the Court should have a broad power to review the amounts charged to the estate, including commission, as permitted by section 86A of the NSW Probate and Administration Act.138
  3. 7.130 An issue that arose was whether the Court should be able to review disbursements incurred or claimed by the executor. The Probate Users Committee’s proposal expressly referred to disbursements. The reference in section 86A of the NSW Probate and Administration Act to review of ‘a commission or amount charged or proposed to be charged’ arguably includes amounts claimed against the estate in respect of disbursements. Four submissions expressed concern about the Court having the power to review disbursements. The points made included the following:
  • Disbursements are often set by government bodies or third parties beyond the control of an executor and it would be difficult for the Court to determine the reasonableness of such expenses.139
  • It could produce punitive outcomes where disbursements incurred in good faith are unable to be recouped from the estate.140
  • Executors are already subject to a duty to account under section 28 of the Administration and Probate Act, and the Legal Services Commissioner can deal with complaints from beneficiaries about fees and costs charged to the estate.141
  1. 7.131 In the Commission’s view, the Court should have the ability to review all charges to the estate, including disbursements, when determining whether the executor has overcharged for executorial services. It is feasible, for example, that the Court would find that generous disbursements have been paid to a company of which the executor is a director.
  2. 7.132 An associate judge of the Supreme Court observed during consultations that, when considering claims for commission, it is necessary to ‘lift up the lid’ on the estate and see what work has actually been carried out.142 The Commission considers that the same latitude is necessary in order to review whether amounts charged are excessive. Restricting the scope would inhibit review of fee-for-service charges for executorial services, inappropriate charges for legal costs and disbursements, and the identification of double-dipping.

Court-initiated review

  1. 7.133 A review under section 86A of the NSW Probate and Administration Act can be initiated by either a person interested in the estate or the Court itself. The proposals by the Law Institute of Victoria and the Probate Users Committee allowed a review to be initiated only by an interested person.
  2. 7.134 Most submissions on this issue favoured introducing a provision that enables the Court to conduct a review on its own initiative.143 The arguments advanced for opposing court-initiated review were that the Court is reluctant to spend time and expertise in passing accounts144 and that it should not take on the role of a watchdog.145
  3. 7.135 The Commission agrees that the Court should not be given a monitoring role. It expects that the Court would initiate a review only where it becomes aware in the course of other, related, proceedings that there are irregularities in the charges made to the estate.
  4. 7.136 Executors have a duty to present accounts only when required by the Court.146 Empowering the Court to initiate a review strengthens the effect of the provision as a deterrent against excessive charging. Legal practitioners have acknowledged that, if they know there is a chance they can be held to account by a Supreme Court judge, they might be more prudent in their charging practices.147 Section 86A of the NSW Probate and Administration is considered to be a prime reason why the Probate Office of the Supreme Court of New South Wales rarely sees evidence of abuse of charging or commission clauses.148
  5. 7.137 The Commission sees no harm in the Court having the power to initiate a review; indeed, in certain circumstances positive benefits would flow from the exercise of such jurisdiction. Accordingly, the Commission supports the conferral on the Court of power to review on its own motion.

Exemption

  1. 7.138 The Law Institute of Victoria proposed that the Court should be unable to conduct a review where either the will-maker obtained independent advice in relation to the executor’s entitlement to commission under the will, or the executor is a legal practitioner who complied with rule 10 of the Professional Conduct and Practice Rules.
  2. 7.139 The suggested exemption aims to ensure that the informed consent of the deceased cannot be overridden by a court. It was endorsed by practitioners who cautioned against retrospectively unravelling arrangements properly made and under which work has been performed.149 There is concern that legal practitioners will withdraw from providing executorial services because they cannot rely on the agreement made with the will-maker.150
  3. 7.140 The Law Institute of Victoria is also concerned that the review provision could be used as a blunt instrument in a broad range of circumstances.151 Legal practitioner executors want to avoid the prospect of being taken to Court unnecessarily.152
  4. 7.141 The Commission notes that section 86A of the NSW Probate and Administration Act is rarely used and expects that the experience in Victoria will be similar.153 Although the review provision could weaken the certainty of agreements made between legal practitioners and their clients, the remedial purpose of the proposed reform—to protect beneficiaries when executors draw excessive amounts from the estate—should be overriding.
  5. 7.142 The Commission considers that it is clearly in the community’s interest that the legal profession provides legal and executorial services to estates and continues to do so. However, it has found no evidence of a decline in the provision of such services in New South Wales following the introduction of section 86A in 1981.
  6. 7.143 Providing an exemption where the will-maker obtained independent advice or the legal practitioner complied with rule 10 would weaken the review provision. As discussed earlier in this chapter, compliance with rule 10.1 does not necessarily mean that the will-maker gave informed consent.154 Even where informed consent was given, the will-maker may not have anticipated the legal practitioner’s subsequent conduct in the office or subsequent changes in circumstances making the agreed provision no longer appropriate.
  7. 7.144 Almost all submissions on this topic opposed the exemption155 and the Commission does not support it.

Time limit

  1. 7.145 Section 86A of the NSW Probate and Administration Act does not impose a time limit. The Law Institute of Victoria proposed that an application under the review provision should be made within three months of the executor notifying the beneficiary of the relevant charges. This would:
  • prevent delay in winding up estates
  • prevent a disgruntled beneficiary or group of beneficiaries from using the review provision as a means of delaying distribution of the estate to others, thereby securing concessions for themselves or achieving other ulterior purposes.156
  1. 7.146 Submissions on this topic generally favoured the idea of imposing a time limit within which applications would need to be made, though they differed on what that period should be and the circumstances in which extensions of time should be given.157
  2. 7.147 The difficulty in imposing a time limit is in determining when the prescribed period should begin. A review provision based on section 86A of the NSW Probate and Administration Act would apply to amounts already charged as well as those proposed to be charged. Those amounts may be commission but could be other charges. Where commission is authorised by the will, the executor need not notify beneficiaries in advance of the payment nor seek their consent, so the circumstances in which the beneficiary learns of the actual or proposed charges will vary. A beneficiary who lives overseas might not be able to monitor the administration of the estate as closely as a local resident and may need time to obtain advice and assistance from a third party.158 The executor may be a testamentary trustee who charges as a trustee over a different period of time.159
  3. 7.148 For the reasons advanced by the Law Institute of Victoria, the Commission considers that it would be sensible to have a time limit and that it should be three months from the time the applicant beneficiary first knew, or ought to have known, of all commission and charges exacted or claimed by the executor out of the estate. The time limit would be subject to any extension of time granted by the Court. Although imposing a time limit would be a departure from section 86A of the NSW Probate and Administration Act, it would not create an inconsistency that would be significant or problematic.

Costs against the applicant

  1. 7.149 The Law Institute of Victoria proposed that the Court be empowered to order costs against the applicant where the application was made frivolously, vexatiously or with no reasonable prospect of success, as it may already do in family provision matters.160 The idea was supported by a number of submissions.161
  2. 7.150 However, the Commission does not recommend any interference with the Court’s discretion to order costs in these cases. Clearly, where an unsuccessful claim is brought without proper foundation, costs will follow the event—in other words, the unsuccessful party will pay the costs of the successful executor.

Costs against executor

  1. 7.151 The Commission considered whether the review provision should provide for the Court to order costs against the executor if the amount is reduced by more than 10 per cent. A similar provision already exists under the Corporations Act when a court reviews the fees charged by a licensed trustee company:

(5) If the fees are reduced by more than 10%, the trustee company must, unless the Court in special circumstances otherwise orders, pay the costs of the review.

(6) Subject to subsection (5), all questions of costs of the review are in the discretion of the court.162

  1. 7.152 There was some support for the idea that the Court should award costs against an executor who has charged an excessive amount.163 Rigby Cooke Lawyers observed that:

An order in the form of a penalty would serve as a reminder that executors must not breach their fiduciary duties for personal gain.164

  1. 7.153 However, most of the submissions that expressed support did so on the basis that the Court would have a discretion. They did not envisage that the Court would be required
    to make a costs order against the executor in these circumstances.165
  2. 7.154 The submissions that opposed the idea also indicated that the Court’s discretion should not be limited.166 Moores Legal pointed out that:

Each application should be assessed on its own merits. The court, which will already be reviewing the matter anyway, is capable of making this specific assessment.167

  1. 7.155 The Commission has concluded that the Court should retain the discretion to make a costs order on the facts. Although it is possible that requiring the Court to make an order against the executor in certain circumstances would have a deterrent effect, the Commission expects that the introduction of the review provision itself will have this effect.

Trustee companies

  1. 7.156 The National Committee for Uniform Succession Laws proposed that the court’s power to review fees and charges for executorial services should apply to all executors, administrators and trustees.168 The provision in the model legislation for court review of commission and other amounts was intended to extend to trustee companies as well.
  2. 7.157 Accordingly, the Commission considered whether a review provision introduced in Victoria in response to the National Committee’s recommendation should apply to amounts charged by State Trustees.169
  3. 7.158 The Supreme Court already has a power to review commission charged by State Trustees. Under section 21(3) of the Trustee Companies Act 1984 (Vic) the Court was once able to review and reduce commission charged by any trustee company. Although section 21(3) and many other provisions of the Trustee Companies Act were repealed when trustee companies became subject to Commonwealth regulation, it continues to apply to State Trustees.170
  4. 7.159 The Court’s present power to review amounts charged by State Trustees is narrower than the power it would have under a provision based on section 86A of the NSW Probate and Administration Act. Under its present power, the Court cannot initiate a review of commission charged by State Trustees, and it cannot review other amounts.
  5. 7.160 Almost every submission on this topic said that the new provision for court review of commission and other amounts should also apply to amounts charged by State Trustees.171 The State Trustees submission argued that the rules which regulate the remuneration it receives for executorial services should be consistent with those that apply to private trustee companies.172
  6. 7.161 Private trustee companies now operate under a far different regulatory regime and their charging practices are regulated by Part 5D.3 of the Corporations Act. State Trustees is seeking legislative reform that will put it on an equal footing with licensed trustee companies.
  7. 7.162 Meanwhile, State Trustees’ entitlement to charge commission, and the Court’s power to review it, is in legislation that for all other purposes is repealed. This is unsatisfactory. Clearly, the regulation of State Trustees needs to be comprehensively reassessed. Any decision to change the Supreme Court’s current power to review commission charged by State Trustees should be made in the context of more detailed reform of the law governing State Trustees’ position in the market. For this reason, the Commission does not recommend that the new provision for Court review of commission and other charges should apply to State Trustees.

Recommendation

57 The Supreme Court should have the power to review and vary commission, charges and disbursements claimed by executors and administrators out of estates. A new provision of the Administration and Probate Act 1958 (Vic), based on section 86A of the Probate and Administration Act 1898 (NSW), should provide that:

 

Other regulatory reform

Legal Services Commissioner

Disputes about amounts charged for executorial services

  1. 7.163 While the prospect of review by the Supreme Court may act as a deterrent for legal practitioners who might be tempted to charge excessive amounts of commission, the cost of the proceedings may deter beneficiaries of small estates from challenging an unreasonable charge or payment.
  2. 7.164 Beneficiaries presently hesitate in refusing requests by executors to be paid commission because of the cost to the estate if the executor instead applied to the Court. Retired legal practitioner Patricia Strachan gave the following example in her submission:

I was consulted by a widowed pensioner, one of a large number of residuary beneficiaries in a large Victorian estate. The solicitor-executor had sent them all copies of his firm’s bill of costs and a draft statement of administration and distribution, showing himself as receiving a 5% commission. In his covering letter, he stated that he was entitled by law
to receive a commission of 5% and asked each to sign and return a form of consent.
My client’s share was less than the executor proposed to pay himself by way of commission, but she couldn’t afford to apply to the Court. I felt like crying with her but instead I phoned the Law Institute’s costs consultant, John Ahern, and we talked about costs. The upshot was that I beat the executor down to a commission of 1.5%.173

  1. 7.165 It is reasonable to expect that, particularly when disputing how much has been charged to a small estate, the beneficiaries will often not be able to afford Supreme Court proceedings.
  2. 7.166 For this reason, the Commission considers that the Legal Services Commissioner should be empowered to resolve disputes about amounts charged for executorial services by legal practitioner executors, where the amount charged does not exceed $25,000, in the same way that disputes in relation to legal costs not exceeding $25,000 can be resolved.
  3. 7.167 In view of the high cost of housing in Victoria, the value of an estate comprising a family home and modest savings will increasingly be likely to reach one million dollars. The amount of $25,000, or 2.5 per cent of an estate of that value, is a reasonable ceiling for disputes within the Legal Services Commissioner’s jurisdiction.
  4. 7.168 The Commission proposes that a dispute about amounts charged for executorial services should be a civil dispute under the Legal Profession Act. A civil dispute includes a dispute about legal costs that do not exceed $25,000. The parties to a costs dispute can be a law practice or legal practitioner and a beneficiary under a will.174 If the Legal Services Commissioner is unable to resolve the dispute, the parties can apply to VCAT for arbitration. The same process would apply to disputes about amounts charged to an estate for executorial services.
  5. 7.169 The time limit within which a costs dispute may be made is 60 days after the legal costs were payable.175 As a dispute about amounts charged for executorial services may form part of a dispute about legal costs, the time limits for both types of dispute should be similar. The Legal Services Commissioner has the discretion to accept complaints involving a costs dispute up to four months after the time limit has expired.176 This discretion should extend to complaints involving a dispute about amounts charged for executorial services.
  6. 7.170 To avoid forum shopping, the option of making a complaint about an amount charged for executorial services to the Legal Services Commissioner should be offered as an alternative to seeking review by the Court.

Recommendation

58 The Legal Services Commissioner should be given jurisdiction to resolve a dispute between a legal practitioner and a beneficiary under a will about an amount charged to an estate for executorial services, where the disputed amount does not exceed $25,000. The procedures for resolving such a dispute would be essentially the same as those that currently apply to civil disputes under Part 4.2 of the Legal Profession Act 2004(Vic) and would specify that:

 

Disputes about the conduct of legal practitioner executors

  1. 7.171 Many complaints received by the Legal Services Commissioner relate to the conduct of a legal practitioner as an executor, as distinct from their conduct as a legal practitioner, and are effectively outside the Commissioner’s jurisdiction. The demarcation is determined by the distinction that is made between the work of a legal practitioner and that of an executor.177
  2. 7.172 A beneficiary may make a disciplinary complaint about a legal practitioner executor who contravenes the Professional Conduct and Practice Rules, or a civil complaint about a legal costs dispute. However, a beneficiary cannot otherwise make a complaint about the provision of executorial services by a legal practitioner.
  3. 7.173 Despite this, the Legal Services Commissioner does attempt to resolve some of the complaints that fall outside the Commissioner’s jurisdiction:

An example of such a complaint would involve the timing and sale of assets. Unless the conduct is sufficiently bad to amount to misconduct outside the practice of law, such as involving dishonesty or a serious conflict of interest, the [Legal Services Commissioner] would generally not be able to investigate it but would try to resolve any issue. If resolution fails the [Legal Services Commissioner] would recommend complainants seek further legal advice.178

  1. 7.174 From the perspective of providing a regulatory framework that protects consumers and provides redress against legal practitioners who do not meet professional and ethical standards, the distinction is neither clear nor helpful. As noted above, it is not always apparent to the legal practitioner.179 Clients and beneficiaries do not always perceive it either, or accept it as useful.180
  2. 7.175 It is difficult to reconcile the fact that legal practitioners are appointed as executors because of their legal skills, and the fact that a dispute about their conduct as executors may not be able to be raised with the Legal Services Commissioner.
  3. 7.176 The Commission notes that beneficiaries can apply to the Supreme Court to have an executor removed if they refuse to act, are unfit to act, or are incapable of acting in the role.181 A legal practitioner executor whose conduct would cause removal by the Court may have contravened the Professional Conduct and Practice Rules.
  4. 7.177 It was observed at the Legal Services Commissioner’s roundtable in 2010 that the emotional distress experienced by bereaved relatives can lead to and inflame conflicts with the legal practitioner acting for the estate.182 This is reason to provide an avenue for genuine disputes to be mediated before positions become entrenched and legal action is initiated. As the Legal Services Commissioner already attempts to do this, the extension of jurisdiction would underpin existing practice to some extent.
  5. 7.178 The Commission considers that beneficiaries should be able to make a civil complaint about a civil dispute concerning the provision of executorial services by a legal practitioner. The types of disputes, akin to those currently defined at sections 4.4.2(2)(b) and 4.4.2(2)(c), would include:
  • a claim that the beneficiary has suffered pecuniary losses as a result of an act or omission by a legal practitioner in the provision of services to the estate in the position of executor
  • any other genuine dispute between a beneficiary and a legal practitioner arising out of, or in relation to, the provision of services to the estate by the practitioner in the position of executor.

Recommendation

59 The Legal Services Commissioner should be given jurisdiction to resolve a civil dispute between a legal practitioner and a beneficiary under a will or trust where the dispute relates to services provided by the legal practitioner to the estate in the capacity of executor or trustee. The procedures for resolving such a dispute would be the same as those which currently apply to civil disputes under Part 4.2 of the Legal Profession Act 2004 (Vic).

 

Costs review by the Costs Court

  1. 7.179 Section 3.4.38 of the Legal Profession Act allows for clients of legal services to apply to the Costs Court for a review of legal costs. Thus, a layperson executor who disputes a practitioner’s bill for services provided in connection with administering the estate can seek to have it reviewed.
  2. 7.180 When the executor is a legal practitioner who draws money from the estate for their legal costs, the client is the estate and there is no scope for review under section 3.4.38. A beneficiary cannot seek a review because they do not fall within the definition of ‘client’ for the purposes of the section.183
  3. 7.181 This has not always been the case. Until 2007, the definition of client encompassed a beneficiary whose gift under a will is diminished by legal costs payable by an executor out of the estate. It included:

a person interested in any property out of which a trustee, executor or administrator who is liable to pay legal costs has paid, or is entitled to pay, those costs.184

  1. 7.182 The definition was changed when the Legal Profession Act was amended to align with national model rules for regulation of the legal profession and improve consumer access to avenues for resolving costs disputes.185 Significantly, the amendments opened up the review process to ‘third party payers’ as well as to clients. A third party payer is someone who is liable to pay the legal costs but is not themselves a client of the law practice.186 A beneficiary under a will is not a third party payer because they are not liable to pay the legal costs of the estate.
  2. 7.183 However, the modifications to the costs review provisions to allow third party payers to apply shortened the definition of client with the effect that it no longer includes beneficiaries.
  3. 7.184 The removal of the right of beneficiaries to apply for a review may have been an unintended consequence of aligning the Victorian legislation with the national model. It was not mentioned during parliamentary debate on the amending legislation nor in the explanatory memorandum. Comments on these provisions focused on the changes that would extend consumer protection to third party payers; there was no reference to limiting the existing definition of client.
  4. 7.185 Moreover, there has been no change to the right of beneficiaries to make a complaint to the Legal Services Commissioner about a costs dispute concerning legal services if the disputed amount is $25,000 or less. If Parliament had intended to remove the ability of beneficiaries to seek redress over disputed legal costs paid from the estate, it is fair to assume that this avenue of complaint would have been closed as well.
  5. 7.186 Removal of their right to seek costs review also narrowed the scope for beneficiaries to draw the regulator’s attention to unprofessional behaviour. If the Costs Court considers during a costs review that the legal costs charged are excessive, or that there are other indications of unsatisfactory professional conduct or professional misconduct, it must refer the matter to the Legal Services Commissioner to consider whether disciplinary action should be taken.187
  6. 7.187 The Legal Services Commissioner would not object to reinstating the former definition of client to the extent that it encompassed beneficiaries, for the purposes of the costs review provisions.188
  7. 7.188 It is essential that beneficiaries are able to seek review of legal costs charged to the estate by legal practitioner executors. Legal practitioner executors should be answerable if there is reason to believe that their personal interests have taken precedence over their duty to the beneficiaries.

Recommendation

60 Review of legal costs by the Costs Court, as currently made available to clients and third party payers by section 3.4.38 of the Legal Profession Act 2004 (Vic), should once again be made available to a person interested in any property out of which a legal practitioner executor, administrator or trustee may recover legal costs.

 

Professional rules and guidelines

  1. 7.189 As noted above, the Law Institute of Victoria’s submission emphasises why it is necessary and desirable that legal practitioners are appointed as executors.189 The knowledge and skills of a legal practitioner equip them well for executorial responsibilities. They are selected for the position because of these professional capabilities. It is therefore incongruous that executorial work is sidelined in the regulatory framework of the legal profession.
  2. 7.190 The Commission’s recommendations to expand the Legal Services Commissioner’s jurisdiction aim to recognise the importance to the community of the work undertaken by legal practitioner executors. This work should also be recognised in the conduct rules and guidelines made by the legal profession.
  3. 7.191 The Commission has recommended above that rule 10 of the current Professional Conduct and Practice rules should be revised to expressly require the legal practitioner to obtain the will-maker’s informed consent.190 A number of other suggestions for amending the Professional Conduct and Practice Rules were made in submissions, including for example:
  • additional, more detailed rules for when a will-maker is being asked to consent to the payment of commission191
  • a rule that, unless expressly authorised to do so, a solicitor-executor cannot charge both legal costs and commission for the same work.192
  1. 7.192 Rather than responding to such ideas in a piecemeal way, the legal profession’s conduct rules should squarely address the conduct expected of legal practitioner executors and provide guidance on how to comply with their duties. These rules should be supported by guidelines that assist them in dealing with the challenges of the position.

Recommendation

61 The Law Institute of Victoria or other relevant body should make:

 

Community education

  1. 7.193 The National Committee for Uniform Succession Laws considered that the duties of executors, and the rights of beneficiaries to obtain information about the administration of the estate, should be set out in legislation.193 The Committee noted that expressly setting out and clarifying the law would assist the many executors who are lay persons to comply with their obligations.194
  2. 7.194 Although the Commission’s terms of reference do not extend to examining whether to incorporate the National Committee’s recommendations in this regard, the Commission acknowledges that the law needs to be clearer not only to legal practitioners who are inexperienced in succession law matters but also to members of the public.
  3. 7.195 Various materials on making wills and applying for probate are freely available to the public. Their focus and content depend on their intended audiences. Community legal centres have been at the forefront in producing and delivering information on wills and estates to the public through publications, seminars and their legal services. The Legal Services Commissioner has a pivotal role in educating the community about legal issues and has participated in a number of activities in this area, both separately and in collaboration with other organisations.
  4. 7.196 Other materials are directed to clients, customers or members of the organisation that has prepared them. For example, State Trustees and law practices publish information on their websites about their commercial and executorial services. The Probate Office of the Supreme Court provides information and over the counter advice in connection with its functions and, as discussed in Chapter 9, provides assistance in relation to probate applications for small estates.
  5. 7.197 While acknowledging the value of the information that currently exists the Commission has noticed gaps in the material information being generated. For example, little is written for non-professional executors or beneficiaries. This could contribute to the generally poor understanding in the community about wills and estates.
  6. 7.198 The Association of Independent Retirees found that ‘public knowledge of succession laws was extremely limited or just did not exist’.195 A member of the public questioned how executors who are appointed simply because they are family members can find out what their responsibilities and commitments are, and pointed out the particular difficulties for those who live overseas.196 A legal practitioner said during the Commission’s consultations in Shepparton that there are large numbers of people in the Goulburn Valley region who do not make wills because they do not fully understand their importance.197
  7. 7.199 The Ethnic Communities’ Council of Victoria drew the Commission’s attention to the large number of Victorian seniors who are from non-English speaking backgrounds and have limited or no access to culturally appropriate information in languages other than English or in plain English.198 A confidential submission described how people from culturally and linguistically diverse backgrounds are vulnerable to being misled and exploited when making a will. The meaning of terms such as ‘testator’ and ‘executor’ are confusing in English and easily misunderstood by those without proficiency in that language.
  8. 7.200 A lack of readily available information can have an impact on the work of professional executors. State Trustees is being asked by non-professional executors for ad hoc assistance in performing the functions of the position.199 The large number of complaints to the Legal Services Commissioner about probate issues could be due, at least in part, to poor public understanding of the complexity of the process. Legal practitioners told the Commission that beneficiaries of estates they are administering often place unreasonable pressure on them to release assets and to keep providing progress reports, as they do not understand the responsibilities of an executor and the costs to the estate of attending to their requests.200
  9. 7.201 These and other gaps in publicly available materials should be filled. The Commission considers that the Victoria Law Foundation is best placed to produce information that is practical, accessible and targeted to those who need it. It has the expertise in communicating information about the law and legal system simply and effectively. In addition, the Victoria Law Foundation works with other organisations in reaching the community and could develop materials on wills and estates in collaboration with community legal centres, the judiciary, the legal profession and representatives of culturally and linguistically diverse communities.

Recommendation

62 The Victoria Law Foundation should publish a guide, or series of guides, on making wills and the role of the executor. The information should encompass the following topics and be made available in community languages:

 

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