Guidance on Solicitors Acting as Executors and Agents

1. Introduction

This guidance is produced in light of the Scottish Solicitors’ Discipline Tribunal’s findings in The Law Society of Scotland v David Haddow Campbell (11 March 2013) in which the respondent was exonerated. He found himself as sole executor while acting as solicitor to the deceased’s estate. The widow was the sole residuary beneficiary. There was some doubt on whether he was under an obligation as an executor to inform the deceased’s son from a previous marriage of his entitlement to legal rights. The widow did not wish the son to be informed. His solution was to ingather the deceased’s estate, assume the widow as sole executor and resign. He resigned whilst there were still sufficient funds in the estate to pay the legal rights and after advising her of her requirement as the executor to inform the son of his entitlement. However he continued to administer the estate, acting as her law agent.

An important finding by the Tribunal was that there was no clear authority on the obligation of executors to inform a potential legal rights claimant of his entitlement. Whilst there may be no specific judicial authority as to there being a duty to inform there is nevertheless clear judicial authority that (i) legal rights are in the nature of a debt on the estate, and (ii) that executors have a duty to pay debts. The Society has been informed that it necessarily follows that executors have a duty to inform a potential legal rights claimant of his or her entitlement. Accordingly, this guidance is intended to clarify the situation for the future.

Of course, executors should always endeavour to ensure that a way forward in relation to legal rights is agreed. But this is not always possible.

In this guidance references to “marriage” (however expressed) means parties to a same or opposite sex marriage and includes civil partners; and references to “potential claimants”are to potential legal rights claimants. 

2. Application

This guidance applies in different ways to solicitors and/or their trust companies acting:-

  • as the only executor(s);
  • as executor(s) with other non-solicitor executor(s); and
  • only as law agents for the executor(s).

Usually, where solicitors and/or their trust companies act as executors they also act as law agents. Although this is not always so this guidance focuses on such situations. The guidance is however also relevant (at least in part) where solicitors act as executors and another firm acts as law agent.

The guidance is not aimed at cases where the deceased dies intestate. In intestacy there is unlikely to be difficulty on the question of legal rights as they form part of the clear statutory scheme that quantifies what each person is entitled to.

References below to “executor(s)” are to executors who have accepted office. In relation to that one further incidental point is made: whilst a sole-executor who has accepted office may not resign without assuming other executors a sole-executor who is nominated under a will may nevertheless decline office. This will then generally allow for an executor-nominate to be appointed under s. 3 Executors (Scotland) Act 1900.

3. Legal background – key aspects

It is assumed that solicitors referring to this guidance will be familiar with the general scheme and functioning of legal rights.  (See SME, Vol. 25 paras. 772-815 for full and helpful coverage of legal rights.) Certain points of particular relevance to this Guidance are however mentioned.

Legal rights vest on death in the surviving spouse and children (or, where applicable, remoter descendants). They are in the nature of a debt on the estate (albeit postponed to ordinary creditors). Executors have a duty to discharge the deceased’s debts - including in particular legal rights - before distributing the estate to beneficiaries. In principle, if executors distribute the estate to beneficiaries without legal rights (and other debts) being discharged, the executors will be personally liable. In relation to solicitor-executors the Master Policy does not cover such liability. 

Usually, legal rights are discharged by:

  • those entitled accepting a larger benefit under the will (without a formal discharge being granted); or
  • payment; or
  • those entitled granting a formal discharge of legal rights (having been both (i) provided with all relevant information, and (ii) advised in writing to take independent legal advice).

(There are other less usual methods of discharge covered in SME, Vol. 25 paras. 798-800; 806-808; and 1105.)

It follows that executors must inform all potential claimants of the scope for claiming the legal rights vested in them. Their identity may be clear; or it may not. As to identifying them there is some statutory protection in relation to ex-nuptial and adopted children. Executors will not be personally liable if they distribute the estate ignoring ex-nuptial or adopted children of whose existence they had no notice at the time of distribution. (See, respectively, s. 7 Law Reform (Miscellaneous Provisions)(Scotland) Act 1968 and s. 24 Succession (Scotland) Act 1964.)

Two ancillary points relevant to this guidance generally are made:

  • Whilst executors are trustees for most purposes they are not trustees for creditors and those entitled to legal rights are creditors (albeit postponed to ordinary creditors).
  • Executors must not be deflected from fulfilling their duties - including, in particular, the discharge of legal rights - by the residuary beneficiaries (see Cochrane's Executors v Inland Revenue 1974 S.C. 158 at 165):

“ ... the only directions which the residuary legatee is entitled to give to trustees or executors are in relation to the estate remaining in their hands when they have fulfilled all the prior purposes of the settlement and have otherwise completed the administration of the estate.”

4. Solicitor(s) as the only executor(s)

In executries where the only executors are solicitors in the practice unit instructed to act in the administration of the estate, the Society recommends that the solicitor-executor(s) should send information to the residuary beneficiaries giving a basic statement of the basis on which fees will be calculated and charged for that administration. 

The Society does not consider it necessary or appropriate in those circumstances to issue full terms of business in accordance with normal practice to the residuary beneficiaries in recognition of the fact that the residuary beneficiaries are not the clients of the practice unit for the purposes of the instructions.  Similarly, as parties who are not clients of the practice unit, the residuary beneficiaries should not be asked for and may not give instructions to the solicitor-executor(s) for the purposes of the administration of the estate.  In particular, residuary beneficiaries may not instruct the solicitor-executor(s) to refrain from informing potential claimants of their entitlement but the Society would remind members that residuary beneficiaries are entitled to complain to the SLCC in connection with issues related to the administration of the estate.

As previously stated all executors must inform all potential claimants of the scope for claiming the legal rights vested in them.

5. Solicitor as executor along with other executors who are not solicitors

As occasion requires, the solicitor-executor must advise the other executors as to their duties in relation to legal rights and potential personal liability. If, despite that advice, a majority of the executors resolve not to inform potential claimants the solicitor-executor should:

  • dissent from the decision and ensure his or her dissent is properly  recorded and intimated in writing to all the other executors to include a declaration that the decision of the majority of the executors is contrary to the legal position; and
  • then immediately resign as executor to avoid being taken to acquiesce in the decision that potential claimants are not informed.

Only by taking these actions can the solicitor-executor avoid breaching the duties of an executor and potential personal liability. In addition, obtaining an indemnity from the other executors in relation to such personal liability might be considered. 

There are two schools of thought as to whether the solicitor- executor who is in the minority can or should take further action after resigning as executor. A.Paterson and B.Ritchie , Law, Practice and Conduct for Solicitors ( 2nd edn, 2014 )  state at para 12.13.01 on p.397 that a solicitor –executor acting with other executors is under a “legal and ethical” duty to inform those entitled to legal rights, even if the majority co-executors disagree, and that this obligation does not disappear if the solicitor resigns as executor. There is some support for this position in the judgment of Lord Malcolm in Frank Houlgate Investment Company Limited v Biggart Baillie LLP [2014] CSIH 79. The other school of thought takes the view that executors are entitled to make decisions binding on them all by a quorum. Apart from cases of fraud and dishonesty, a dissenting executor should not be able to take action independently that is contrary to the majority decision. On this line of thinking, it follows that a solicitor-executor in this position who resigns as executor, is under no obligation to inform those who are entitled to claim legal rights in the estate of this entitlement.  It will probably take further clarification from an authoritative tribunal to decide which school of thought is correct.

Nevertheless, it is considered that a solicitor-executor having held office as executor but who has resigned as executor in such circumstances must also cease (personally or via the firm or trust company) to act as law agent for the remaining executors. A parallel may be drawn with the rule that a trustee cannot escape liability for a breach of fiduciary duty by resigning when he or she knows a breach of trust is in active contemplation. 

6. Solicitor only as law agent for the executors

Where a solicitor acts only as law agent to the executors he or she must inform them of their duties in relation to legal rights and their potential personal liability. Despite that advice the executors may nevertheless instruct the law agent not to inform potential claimants.  It is essential to get such instructions in writing.

A Paterson and B Ritchie, Law, Practice and Conduct for Solicitors (2nd edn 2014), para 12.13.01 on p 398, dealing with solicitors who are not and never have been executors state:

“Such solicitors have no legal liability to account to beneficiaries or potential claimants for legal rights, other than the duty ....not to harm them by providing an inadequate professional service to their client(s) – the executor(s).  Accordingly, in most circumstances they have no obligation to advise a party who might be entitled to claim legal rights if the executor instructs them to refrain from doing so, whether or not that would reduce the executor’s own share.  That said, in that situation we have no doubt that it is the ethical duty of the solicitor who is instructed not to intimate to potential claimants that they are entitled to legal rights, to withdraw from acting....”

Such an ethical duty to resign as legal agent would have the result that no solicitor would be able to administer the estate, as any replacement solicitor would come under the same obligation to withdraw. This may seem extreme, but by either not resigning or not refusing to accept instruction, a solicitor must by implication be getting close to defrauding a creditor of an entitlement to be paid. The solicitor should  also seriously consider whether it is appropriate to continue acting where legal rights are being disregarded given the risks that this may compromise their professional duties (for example, the question of legal rights will often have an impact in relation to Inheritance Tax – particularly with the introduction of the “transferable nil rate band” for IHT.) In any event, the solicitor-client relationship may have deteriorated to such an extent that it will be terminated by one side or the other.

7. Continuing Obligations after Resignation

Following resignation as agents and subject to satisfactory arrangements regarding payment of fees, affected solicitors should hand over all the relevant paper work to the new agents if appointed, whom failing to the executors. They should be available to answer all reasonable enquiries relating to the work carried out. Solicitors should also be mindful of their client confidentiality obligations which continue beyond the termination of agency.