Glossary: Terms used in estate administration

Abatement

Abatement is the reduction of a gift that cannot be paid in full. It occurs where the estate does not have sufficient assets to pay all gifts at their full value.

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For example, if a Will gifts $100,000 each to 5 beneficiaries (total gifts = $500,000), but there is only $300,000 in the estate, the 5 beneficiaries can only receive $60,000 each. The reduction is called abatement.

Abatement Priority

Abatement priority is the order in which abatement occurs. Gifts with a higher abatement priority are abated first. Gifts with the same abatement priority are abated rateably.

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Ademption

Ademption is the name for the failure of a gift because the asset gifted is not owned by the deceased at the time of death.

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Administration

Administration is the process of administering the estate of a deceased person. The Legal Personal Representative (LPR) — being the Executor or Administrator — conducts the administration by taking possession of the deceased's assets, paying debts from those assets, resolving disputes, and distributing the assets to the beneficiaries.

Administrator

An administrator is the person appointed by a Court to administer a deceased estate where there is no Executor named in the Will, where there is no Will, or where the named executor is unable or unwilling to act, or has been removed by the Court.

Beneficiaries

Beneficiaries are the people who benefit under the Will or on an intestacy. Beneficiaries may receive specific gifts of assets, a legacy, and/or a share of residue.

Estate

Estate is the term used to describe the assets and liabilities of the deceased. The deceased's estate is collected in and distributed to the beneficiaries by the Legal Personal Representative (LPR).

Executor

An executor is a person appointed by a Will, and if a Grant of Probate is obtained, by the Court, to administer the deceased estate.

Executors' Year

Executors' year is a common law concept that an executor should be able to complete the administration, finalise the estate and pay the gifts to the beneficiaries within 12 months of the date of death.

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A beneficiary who has not received their entitlement by the end of the executors' year may seek Court intervention, for example to direct distribution of the estate or remove the executor. However, there are many valid reasons why an administration may not be completed within that period, and many estates are not finalised within 12 months.

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The concept has limited practical application in modern estate administration.

Grant

A Grant is the Court order appointing a Legal Personal Representative to administer an estate. The most common types of Grant are Probate and Letters of Administration. A Grant is required in all but the simplest estates.

Instituted Executor

The Instituted Executor is the first-choice executor nominated in a Will. If an alternative is nominated, that person is referred to as the Substitute Executor.

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Intestate / Intestacy

A person who died without a valid will is said to have died 'intestate'.

An estate where the deceased died without a Will is called an 'intestacy'.

The laws that govern how the assets of an intestate are distributed are known as the 'laws of intestacy', and they are different in different parts of the world.

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Inventory

Inventory is a list of the Estate's assets and liabilities - that is, a Balance Sheet.

Legacy

A legacy is a gift of an amount of money, without requiring a specific source of funds. For example: “I leave my son, George, the sum of $100,000”.

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Legacies should generally be paid within 12 months of the date of death, or legacy interest may become payable.

Legacy Interest

Legacy interest is an entitlement to interest on the amount of a legacy. In Australian jurisdictions, this entitlement generally accrues if the legacy has not been paid within 12 months of the date of death.

Legal Personal Representative (LPR)

Legal Personal Representative, or LPR, is an umbrella term for the person performing the role of administering the deceased's estate. An Executor and an Administrator can both be referred to as an LPR.

Letters of Administration

Letters of Administration is a form of Grant issued where there is no Will, or where the Grant is not being issued to the person nominated in the Will as Executor.

Life Interest

In a life interest, the right to the income from an asset, including use and occupation, is gifted separately from the right to the capital — that is, the underlying asset itself — for a period of time, usually the lifetime of the life tenant.

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For example: “I give to my husband a life interest in my home at 1 Jones Street, and the remainder to my children in equal shares.”

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A life interest is generally portable.

Portable

Portable means that the form of the assets does not need to stay the same throughout the life interest.

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If a gift is a life interest in a house, and the interest is portable, then the house can be sold and the proceeds invested in another asset, which may be another house or a financial investment such as shares or a term deposit.

If this occurs, the life tenant receives the income, use and occupation from the replacement asset or assets, and the remainderman receives the changed underlying asset when the life interest ends.

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Generally, a life interest is portable and a right to reside is not.

Probate

Probate is the name of the Grant issued by a Court to an Executor nominated in the Will. It is a court order and acts as proof of the valid last Will of the deceased and of the executor's valid appointment.

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Probate is the most common form of Grant.

Rateably

Rateably means “in proportion to the total”. For example, a rateable abatement of $100 would be applied as $50 against a beneficiary who receives half of the gift, and $25 against a beneficiary who receives 25%.

Remainder

Remainder is the capital value remaining after a life interest or right to reside. A life interest or right to reside gives the income, use and occupation separately from the capital.

Remainderman

Remainderman is the historical term used to describe the beneficiary entitled to the remainder after the end of the life tenancy or right to reside.

Residue

Residue is the remaining assets of the estate after legacies, specific gifts, liabilities and administration expenses have been dealt with.

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In a simple estate, the whole of the estate may be residue. For example: “I give the whole of my estate in equal shares to my three children”.

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Residue may also be referred to as the 'residuary estate' or 'rest and residue'.

Right to Reside

A right to reside is similar to a life interest, but is generally for a shorter period, such as a fixed number of years, and generally is not portable. Like a life interest, a right to reside separates the right to use and occupy the asset, or receive income from it, from the gift of the capital (remainder).

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Succession Law

Succession law is the law governing the administration and beneficiaries of the assets of a deceased person. Laws relating to Wills, passing of ownership of a deceased's assets, executors, administration processes, challenges to Wills' validity and claims for further provision are all 'succession laws'.

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Specific Gift

A specific gift is a gift of a particular asset, or set of assets, to a particular beneficiary or set of beneficiaries.

For example: “I give my house at 3 Smith Street to my friends Louise and Georgina in equal shares.”

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Substitute Executor

A Substitute Executor is a person who becomes executor because the first-nominated executor is unavailable, having predeceased or is unable or unwilling to act.

Voucher

A voucher is a source document evidencing a transaction. An invoice and receipt are vouchers.

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Vouching

An executor may be required to produce vouchers to prove their expenditure and receipts were appropriate and correctly recorded - this is known as 'vouching'.