When can an estate be distributed in Victoria?

Distribution is a decision for the executor or administrator, who carries personal risk if it is made too early. The practical question is whether the estate's liabilities and the risk of claims are known and provided for. Timing provisions in the Administration and Probate Act 1958 (Vic) inform that decision but do not answer it on their own.

Section 49 of the Act provides that a personal representative is not bound to distribute the estate before one year after the death. In practical terms, a beneficiary cannot generally insist on distribution within that year. It is sometimes called the 'executor's year'.

The provision should be read carefully. It does not prohibit distribution before the year ends. It does not mean distribution is safe once the year ends. And it is not a substitute for analysing debts, tax and claims. An estate may be ready to distribute earlier, or may be nowhere near ready after a year.

A family provision application asks the Court to order provision from the estate for an eligible person for whom the deceased had a moral duty to provide but did not adequately provide. Section 99 generally requires the application to be made within six months after the grant, but the Court may extend that time.

Because time can be extended, the end of six months does not guarantee that no claim will be made. The Act contains provisions that may protect a representative who distributes properly in particular circumstances, but that protection depends on conditions, including whether the representative has notice of a claim or intended claim. A representative who knows of a threatened claim and distributes regardless takes a serious risk.

Proper funeral, testamentary and administration expenses and the deceased's debts are paid before beneficiaries receive their entitlements. Where the estate may not be able to pay all of its debts, special rules apply to the order of payment and advice should be obtained before any creditor is paid.

The Act also contains a statutory notice procedure for creditors and other claimants that can protect a representative who distributes after giving proper notice. Whether it is appropriate depends on the estate.

Tax is a common cause of problems. The ATO expects the representative to lodge the deceased's final return and any outstanding returns, and to deal with any estate trust returns. Its guidance on confirming tax obligations are complete is relevant before final distribution. Where land is transferred to a beneficiary, the SRO's deceased estates and duty guidance explains when a transfer may be exempt; not every transfer is.

Where the estate is clearly solvent and the risk of claims is low, a representative may make an interim distribution while retaining a reserve. The reserve should cover remaining costs, tax, uncertain liabilities and the possible effect of any claim. The size of an appropriate reserve depends on the estate and is a matter of judgement, preferably informed by advice.

• Distribute specific gifts of personal items where they do not affect claims or debts.
• Keep enough to meet all known and reasonably possible liabilities.
• Record the reasons for any interim distribution in the decision log.
• Obtain receipts for every payment or transfer.

A minor cannot generally give a valid receipt for a distribution. Where a beneficiary is a minor or lacks capacity, the will may authorise the executor to hold the share on trust or pay it to a guardian; otherwise the Act and the circumstances determine what can be done. Life interests and testamentary trusts involve continuing administration rather than an outright distribution. Obtain advice in each case.

1. 1Prepare estate accountsShow assets collected, income, payments, reserves and each beneficiary's share.
2. 2Provide the accounts to beneficiariesExplain the calculation and answer questions before paying.
3. 3DistributePay or transfer in accordance with the will or intestacy rules; transfer land through the proper Land Use Victoria transaction.
4. 4Obtain receipts and closeKeep receipts and releases where appropriate, and close the estate account after final payments.

Pressure to distribute is common, particularly where a beneficiary is in financial difficulty. The executor should explain the outstanding steps in writing and consider whether a partial interim distribution is safe. Where it is not, section 49 supports the executor's position that distribution is not required within the first year after death. After that, unreasonable delay may be challenged, so the reasons for any continuing delay should be recorded.

A beneficiary's written agreement that they will repay an early distribution if needed may reduce some practical risk, but it does not remove the executor's responsibilities and may be difficult to enforce. Take advice before relying on such an arrangement.

We can review an estate's readiness to distribute, identify debts, tax and claim risks, advise on reserves and prepare estate accounts. Where a claim has been made or threatened, we can explain the options before any distribution.

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