AMANDA VISSER: The nomination of executors in deceased estates by a testator really warrants careful consideration. Getting it wrong can unduly delay matters, increase costs and, even worse, it can lead to insurmountable conflicts of interest and major family disputes. Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa [Fisa], explains that nominating a family member who may also be an heir can cause a conflict of interest. In a recent case, Brimble Hannath vs Hannath and others, the court even found that the conflict of interest was insurmountable. Louis, what happened in this case?
LOUIS VAN VUREN: Amanda, thank you for the opportunity to talk to you and to the readers of Moneyweb. The case was brought as an application by the surviving spouse of a deceased person. She brought an application for the removal of the executors in the deceased estate. The surviving spouse was the heir of a right-to-reside in the property in which she and the deceased had lived. The executors were the two daughters of the deceased from a previous marriage. A trust – of which they were trustees as well – was the heir of the residue of the estate.
Now the surviving spouse also submitted a claim under the Maintenance of Surviving Spouses Act against the estate, amounting to more than R6 million. The two executors in their capacity as trustees of the trust lodged a claim for R4 million against the deceased estate on the basis that they alleged that the father had borrowed the money, the R4 million from the trust, to buy the house in which their father, the deceased, and the surviving spouse had resided, and to which the surviving spouse would get a right-to-reside for the rest of her life out of then the deceased estate, according to the will.
The court then had to look at the two competing claims and the executors in the estate, prior to the application, asked the surviving spouse for substantiating evidence for the claim for R6 million under the Maintenance of Surviving Spouses Act.
Now this piece of legislation was promulgated in 1990 to prevent a situation where a surviving spouse is left destitute in cases of a marriage out of community of property, and where the surviving spouse is then disinherited or does not receive sufficient means from the deceased estate of the deceased spouse to maintain the surviving spouse on the same standard of living as though the marriage were still in existence.
Now the act itself prescribes the factors that should be taken into account to determine what the size of this claim could be and should be. And it’s something like all the factors are the following: the amount in the estate available for distribution, the existing and expected means, earning capacity and needs and obligations of the surviving spouse, the duration of the marriage, the standard of living of the survivor during the marriage, and the age of the surviving spouse. And of these factors, none of the required information was supplied by the surviving spouse, and the two executors then rejected the claim on that basis.
The surviving spouse then brought an application to have the executors removed on the basis that they were conflicted, and that they suffered from an irreparable conflict of interest because they were also the trustees of the trust that had instituted a claim of R4 million based on the alleged loan by the deceased from the trust to buy the house in which they resided.
The court, Mr Justice Binns-Ward, held that the mere fact that the two executors were trustees of the trust inheriting the residue of the estate, and at the same time had lodged a claim against the estate, caused an irreparable conflict of interest and they were not in a position to exercise their fiduciary duty as executors properly.
AMANDA VISSER: The judge was quite displeased by this matter. Why was that so?
LOUIS VAN VUREN: The judge starts the judgment with the following words, and I quote from the judgment:
“This is a case that should never have come before court if only the parties on both sides had dealt with the issues more constructively than they did.”
The judge then pointed out that these two competing claims, if added together, were substantially more than the total value available for distribution in the estate.
So the judge frowned upon the whole situation and on the fact that the parties could not come to an agreement and chose to have the matter settled in court – with the attendant costs and the fact that that would further erode the available assets in the estate.
AMANDA VISSER: When are the risks of conflict particularly high?
LOUIS VAN VUREN: Amanda, I think any situation involving what is called a ‘reconstituted family’ these days, where the deceased and the surviving spouse are not in their first marriage, and where there are children from a previous marriage for either or both of the spouses, and the executor nominated in the will of the deceased person is a close family member and an heir in the estate – if that person is then appointed by the Master of the High Court as executor, that executor is then placed in a similar position to that which happened in this case, in that the executor has to decide about conflicting claims against the state, and whatever the executor decides is either going to impact on his or her own rights under the will, or the rights and benefits of others who are also family members but may not be related.
Even where that is not the case, where the executor is one of the siblings, or one of the descendants of the deceased, it could lead to a situation where there is a conflict of interest with serious consequences after the death of the deceased.
AMANDA VISSER: What happens if the executor is removed because of potential bias or conflict of interest?
LOUIS VAN VUREN: Well, in this case, the court ordered the removal of the executor and ordered the Master of the High Court to appoint a new executor within 15 days after the delivery of the court order to the master. In this case, there was a co-executor who was a professional person, and there would be a very good chance that such a person would then be appointed by the master, an independent professional who can then carry on and administer the estate.
AMANDA VISSER: Knowing all this, what are the main considerations when nominating the executor of your estate?
LOUIS VAN VUREN: Amanda, I think the most important consideration is independence. And then, with that, trustworthiness and technical knowledge, the required knowledge to know how to do this, how to deal with competing claims, how to deal with a claim under the Maintenance of Surviving Spouses Act.
I think in any profession, the two most important things that a client would want to know about the professional are that (a) the person is trustworthy, has a reputation for trustworthiness, and (b) the person has a reputation for being on top of the technical situation, the technicalities that the person possesses, the required technical knowledge to deal with the situation.
AMANDA VISSER: Thank you. That was Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa.
You can visit Fisa’s archive of fiduciary-related court case summaries here.
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