A protective mechanism against unknown creditors
When carrying out estate administration duties, personal representatives or executors may worry about their protection from personal liability against creditors or claimants who come forward to make a claim after distribution of the estate. Personal liability means they can claim directly from yourself as an individual and not from the estate. A personal representative, especially one who was not close to the deceased on a day-to-day basis, may not know all their creditors. One mechanism that may be available to protect personal representatives from personal liability against unknown creditors and claimants is the section 27 notice.
What is it?
The section 27 notice is derived from Section 27 of the Trustee Act 1925. A section 27 notice is an advert placed in the London Gazette or a local newspaper inviting any creditors or claimants of a deceased person to come forward and make their claim within a specified period of time. This is usually within two months and one day from the date of publication of the notice. Placing this notice constitutes good practice as the personal representative is regarded as having taken reasonable steps to establish the estate’s creditors or claimants. Such an action protects them from personal liability for failing to handle the assets of the estate in a proper manner.
Limitations
It should be noted that the section 27 notice does not protect the personal representative from known creditors before the notice has been placed. It offers protection against unknown creditors. Further, if a creditor makes itself known after the notice has expired but before distribution and can prove his claim clearly to the personal representative, the personal representative cannot use the section 27 notice as a defence. In a case where a section 27 notice has been placed, if a creditor makes itself known after distribution of the estate, they cannot directly claim their owed sums from the personal representative. However, they can claim their sum from the other beneficiaries. The section 27 notice offers no protection to the beneficiaries of the estate; the protection it offers is limited to the personal representative.
A recommendation
Placing a section 27 notice is not mandatory. However, it is advisable and good practice to place such a notice. Personal representatives who place a section 27 notice can claim its protection from personal liability against potential claims from unknown creditors and claims for devastit (wasting of estate assets) from the estate’s beneficiaries. How it affects you? As a personal representative you are worried about being held personally liable for unknown creditors. As stated above, if you distribute an estate without taking reasonable steps to identify all creditors, the creditors and the beneficiaries can both claim against you personally.
How can we help you?
At Bhakar Greenfield LLP we can advise further on the section 27 notice and even facilitate placement of the notice at a reasonable cost for the estate.
