Sunday, September 7, 2014
Executors can steal from estates with no repercussions in Canada - is this true?
Posted by Lynne Butler
Here is what the reader said:
"There isn't a damn thing anyone can do about it because the police call it a civil issue and the lawyers are VERY expensive. Basically with my experience Executors can do what ever they want with absolutely NO repercussions in Canada. It is rampant."
I agree with the last sentence of this comment, which is that dishonest and greedy executors milking estates are rampant. This is not to say that no executors are honest and none are trying to do a good job. Of course, there are plenty who are doing their best. However, there are executors all over this country who are mishandling assets, making egregious errors that cost the beneficiaries money, and in some cases just outright stealing from the estate.
Why is it so rampant, and what can be done about it? There are several factors which together create a perfect storm for a greedy or selfish person to take advantage of an estate.
The first factor is the choice of executor. I'm sorry, but at some point, some of you are going to have to ask yourselves why in HELL Mom or Dad put the one sibling in charge who is known to be a bully, or a gambling addict, or greedy. Parents blindly put the oldest child, or the only male child, or the one who lives closest to them on the will as executor without any consideration whatsoever of how that's going to work out. Part of this is a refusal by parents to admit their child's faults, part of it is an unwillingness to insult the kids by getting an independent third party involved, and part of it is that they are trying to do everything as cheaply as possible. If parents would only make more realistic choices for their wills, they wouldn't put their kids through so much stress, anger, frustration, and fighting.
Most parents out there should be thinking about naming a trust company as their executor. Yes, I do mean "most" because all of these executors who are stealing from estates are family members, usually the kids. Of course it costs money when the trust company administers the estate, but it costs money even when the kids do it, and giving up 3% to a trust company should be easier to swallow than giving up 75 - 100% to a thief. And if a trust company makes a mistake that costs the estate money, the regulations for banks and trust companies allow for the recovery of the funds.
Parents whose estates are extremely modest should consider naming someone such as a longtime family friend, cousin, or longtime business associate to work together with one of the kids as co-executors. Yes, they do have to agree on everything and that's not always easy, but at least you will have built in an extra safeguard. By the way, don't assume that your estate is too modest for a trust company. If you have a house, a car and an RRSP/RRIF, you are in the ballpark.
A second major factor that contributes to the ease with which executors ride roughshod over estates is that executors don't know what they are doing and rarely like to hear advice that goes against their preconceived ideas.
There is a widespread belief among executors that the will gives them full legal rights to do whatever they want. They move into the deceased's home, give away personal goods to anyone they like, use estate funds to live on for months or years, set up businesses and give loans to their family members with estate funds. By the time a lawyer or a banker straightens out that misconception, the executor feels that he or she has already gotten away with it, and sees no need to change anything. You would also be surprised at how many executors only tell the estate lawyer half the story and don't even divulge the existence of some of the assets.
A third factor is that beneficiaries let things get too far before they speak up about something. Many beneficiaries write to me on this blog and tell me that is has been years since the deceased passed away and they've heard nothing. Really, years? By the time the beneficiaries speak up, the estate is drained and the executor has spent the money, and no amount of litigation is going to bring it back. Beneficiaries are too willing to accept anecdotal information from friends or co-workers, or to accept everything the executor says because they think he knows more than they do.
This area is the one in which I think individuals can do the most to protect their interest in an estate. Ask for a copy of the will immediately. Insist on progress reports. Ask specific questions about specific assets, such as the selling price of the house. Know your rights. Talk to other beneficiaries, read blogs, see what local legal resource centres or seniors' centres have to say that can inform you.
As soon as there is a problem, such as the executor refusing to divulge information to which you are entitled, take action. You have a right to expect the estate to move along efficiently and you should let the executor know you expect that. Acting sooner can make the difference between a one-day court application to have a slow-moving or secretive executor removed, and a ten-week full-blown trial to determine where the money went. Acting sooner is more cost-effective as well as much more likely to catch mistakes or frauds before they engulf the entire estate.
When I say to act quickly, I don't mean to say that you should always sue the executor. Other means such as demand letters, mediation, negotiation, case management, or family meetings with an independent third party may bring about the result you want.
This brings me to the fourth factor that I want to mention: In our legal system, it costs money to enforce your civil rights. Not all of us have extra cash laying around to hire lawyers, and yes, lawyers are expensive when it comes to lawsuits. Aggressive and greedy executors count on the fact that the beneficiaries may not have the cash to hire a lawyer. Many executors have actually been known to threaten the beneficiaries that if a lawsuit is started, the executor will use the whole estate to fight it.
There are other options. The reader's comment that the police will say it's a civil matter is not universally true. I can say this from my own experience with clients who consulted me because the police were investigating them for executor fraud. It is true that the vast majority of estate-related issues are settled through the civil courts using remedies such as removing the executor, requiring passing of accounts, or ordering an executor to forego his executor's compensation. If you want the police to respond to an allegation of theft, you are going to need some evidence to go on.
Even within the civil system, some things cost more than others. The most expensive thing you can hire a lawyer to do is sue someone, especially in a complicated case involving a will and the grey areas of executor's responsibility and beneficiaries' rights. This is why you need to see a lawyer with plenty of experience in estate work who will think of other options to try before committing to a draining lawsuit.
In conclusion, I certainly feel for the reader who left this comment. Thousands of executors steal from their siblings and it's heart-breaking for each and every one of them. I honestly hope that the blog posts and books I write help parents, executors, and beneficiaries alike make some more informed choices. Would any of you like to add your two bits to the reader's original comment? I'd love to hear your thoughts.