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Payment of exit entitlements to deceased estates

07 Apr 2016

Background

When a retirement village residence contract is terminated, the former resident or their estate will usually be entitled to a refund of the original ingoing contribution less any applicable fees and charges (an exit entitlement). Section 63 of the Retirement Villages Act 1999 (Qld) (Act), provides that a scheme operator is required to pay the exit entitlement to the person entitled to receive it.

What happens when the residence contract is terminated due to the death of the last surviving resident?  In those circumstances the scheme operator will be dealing with the former resident’s estate, which will typically be represented by relatives of the former resident or an appointed solicitor.

Naturally the representatives of the estate will be interested in, and indeed legally obliged, to realise the assets of the estate in a timely manner.  That includes seeking payment of the exit entitlement from the scheme operator as soon as reasonably practicable.

Role of executors and probate

An executor of an estate is responsible for collecting the deceased's assets, paying any debts and then distributing the assets to the beneficiaries. Probate is a grant by the court which authorises the executor to manage the estate of a deceased person in accordance with the provisions of the deceased's will.

There is no general legislative requirement for an executor to obtain probate of a will, although arguably it is prudent to do so where there are significant assets involved.  Some estates may prefer not to obtain probate in order to limit the liability of the estate to additional costs.  That can cause disputes with scheme operators when it comes to payment of exit entitlements.

Where a resident dies without a will or where there are no executors, the estate may obtain a grant of letters of administration from the court (which is essentially the same as probate).

Risk to scheme operators

Without probate being provided a scheme operator, as debtor, cannot be sure that the will provided is able to be relied upon, nor that the persons claiming to act on behalf of the estate have any legal entitlement to do so.

It is commonplace for significant debtors of a deceased estate (such as banks) to require a grant of representation to be provided before making a payment to the estate rather than relying on a copy of a will provided.

If a payment is made to a person claiming to represent the estate, without probate being provided, there is a risk that the scheme operator could be liable to the estate in the event that payment was not in fact authorised.  That could be the case, for example, if a later will of the deceased resident existed that provided for different executors and/or beneficiaries.

Who is the person entitled to receive it?

The scheme operator will not be able to firmly establish that the estate or other representative are the person entitled to receive the exit entitlement as required by the Act without probate.  Accordingly it is strongly recommended, and arguably a legal requirement, that scheme operators do not pay the exit entitlement until such time as probate is provided. 

Probate aside, a scheme operator is typically not required to repay the exit entitlement to the former resident for several months (or even years) due to the resale process.  That means there is usually plenty of time for the estate to obtain probate before the date for payment arises, provided that they do not unreasonably delay the application process.

Recommendations

To limit their exposure to risk and avoid unnecessary disputes in relation to payments of exit entitlements in deceased estate matters, scheme operators should:

  • Ensure that their residence contracts expressly require the estate to obtain a grant of probate and provide that to the scheme operator before the exit entitlement is paid to avoid any arguments on that issue.
  • Obtain copies of the former resident’s last will and death certificate from the estate.
  • Notify the former resident’s estate of the requirement to obtain probate as soon as reasonably practicable after the death of the last surviving resident.  That will give the estate time to obtain probate before a resale of the right to reside in the unit occurs.
  • Only pay the exit entitlement once a full copy of the grant is provided to the scheme operator together with payment directions.
  • Make payment of the exit entitlement to the estate and not the executors or other parties individually (and preferably provide payment to the solicitor acting for the estate where practicable).
  • Keep an open and frank dialogue with the estate and document any discussions and agreements to avoid any issues.
  • Seek legal advice as required.

Conclusion

It is important that scheme operators take all prudent steps and obtain the right advice to avoid any unexpected issues and to limit risk when dealing with deceased estates of former residents.  This article is only intended to highlight some of the issues you need to consider when dealing with deceased estates of former residents.  The matters listed above are by no means an exhaustive list of issues to be considered.

Further information

For further information please contact Julie McStay on (07) 3193 0503.

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