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Saturday, April 29, 2017

Does an executor have to account for an insolvent estate, and do the beneficiaries have to pay for that?

A reader recently sent me a question which made me think about real life situations in which legal theory meets reality. Though we have all kinds of rules and guidelines in place for how estate administration is supposed to go, the fact is that sometimes situations don't fit neatly into them. An insolvent estate is challenging because it can be tough to follow all the rules. Read on to see the reader's (excellent) question, and my comments:

"If an executor claims an estate is insolvent, contains no real estate, and claims there is no need to probate, does she still need to provide an accounting to the residual beneficiaries? Or at the very least, can she provide a handwritten or typed list of assets and liabilities? Are residual beneficiaries supposed to just take her word for it? Can she charge the beneficiaries money in order to provide the estate information to them?"

An executor is entitled to make the decision about proceeding to probate, based on the assets of the estate , the requirements of third parties such as banks and land registries, and legal advice. She does not have to defend that decision to the beneficiaries.

An executor must always account to the residuary beneficiaries. No, I do not think that beneficiaries should simply take an executor's word for it that there is nothing in the estate. The residuary beneficiaries are entitled to the full story and to have it presented in a logical way that tells the whole story of the estate finances. In my view, an accounting should always be in writing because then there is no denial or embellishment or confusion. It says what it says and everyone has the same information. If necessary, it can be made an exhibit to a sworn affidavit.

As for how fancy or extensive the accounting should be, let's stay realistic here. I don't see the problem with a hand-written or typed list of assets and debts, as long as it's legible, accurate, and complete. I don't think it makes sense to try to force the executor of an insolvent estate to hire a lawyer or book-keeper to prepare a fancy accounting if that costs money the estate simply doesn't have.

It's also fair for the beneficiaries to ask questions of the executor based on what they thought the deceased owned. For example, if they thought the deceased owned a vehicle that doesn't show up anywhere on the accounting, it's a legitimate question to ask about it. Many executors find endless questions from the beneficiaries to be exasperating, but that's part of the job.

Your question about charging money for the accounting is an interesting one. Normally my answer would be a very quick "no". A beneficiary should receive the accounting without paying anything out of pocket, though to be realistic, if the executor has paid for photocopies or printing, those expenses will be recovered from the estate before the beneficiaries get their shares. In other words, the beneficiaries indirectly pay for the paperwork.

However, here we are balancing the rights of the beneficiaries with the rights of the executor. The general rule is that an executor is indemnified for his or her legitimate estate expenses. It is not fair to request the executor of an insolvent estate to pay out of her own pocket to prepare paperwork. So what is the solution? Perhaps the accounting can be done electronically and emailed to everyone. That would cost the executor nothing in terms of out-of-pocket expenses (though the time would still be spent, of course). If done that way, the beneficiaries could choose individually if they wanted to print the accounting.

Keep in mind that an executor's accounting is usually a detailed summary. It does not normally include copies of each and every receipt, cheque, and bank statement. In my view, in this particular case, a beneficiary who insists on having all of that should pay for it himself because the estate cannot pay for it.


27 comments:

  1. Excellent response re an Executor's obligation. If an Executor has nothing to hide then there is no reason to raise suspicion. I believe some Executor's really enjoy their 15 minutes of power and they make it difficult for others. For me it's been 11 years of Estate Hell and an enormous legal bill. I do hope to recover that. My case has yet to be resolved and finalized. Hopefully, it happens before I die, otherwise, my adult children will have to take over.

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    1. You raise a good point about the 15 minutes of fame. I've seen many executors that seem to absolutely revel in the ability to make other people wait, or do what they want, or jump through hoops. I don't really understand it, but it happens a lot.

      Lynne

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  2. I am the original poster of the question.
    In our experience, the executor had originally told my sister and I via text message that we were not in the will at all. (We didn't ask, she volunteered the info) We doubted that we weren't included, and so found the attorney hired by the executor and requested a copy of our fathers will as "logical beneficiaries".
    He sent them and there it was in black and white...we are residual beneficiaries. However, the lawyer stated in the email along with the will "executor advises that debts exceed assets" to which I responded, "I request a copy of the executors accounting to date" to which the lawyer responded "I am unable to provide unless you are willing to pay the cost. Executor advises this will cost $1000"
    This is when we retained our own lawyer and have been battling for 6 months for nothing but snippets of estate info. (Often untrue info, like all assets were held jointly and then when called out on it, because we know for sure not ALL assets were joint, she backpedals) We are now at the point where a letter has been sent stating we require full disclosure by (date) or we will be filing an application to the court for all necessary relief. (I'm not clear on what "all necessary relief" entails but I'm guessing it has something to do with a judge setting a deadline for estate info)
    Executor has since admitted the estate isn't insolvent but there "isn't much". At this point with a paper trail of lie after lie, we have no reason to believe anything she says.
    What Webeye said about the "15 minutes"....I believe we are dealing with either just that..a total power trip, or fraud.
    Those who have nothing to hide, hide nothing.
    Thank you again, Lynne.

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    1. This appears not so much as a power trip, but more as an attempt to cheat the rightful beneficiaries from receiving whatever inheritance they are due.

      Perhaps this executor expects that if she leads beneficiaries to accept they are not due anything, she can then keep their inheritance for herself.

      While none of us want more government interference in our lives, in some respects, it is unfortunate that each executor's actions are not professionally reviewed as a matter of routine procedure.
      MR

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    2. There isn't any government agency or group who oversees estates and executors. I would dearly love to see one exist, though. In fact, I'd be willing to organize and run the thing. It would save thousands of lawsuits and millions of dollars.

      Lynne

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  3. On the other hand, there are beneficiaries with an axe to grind and even when provided all the data from an estate, hold up the process. I finally had to ask them to seek their own legal advice as I would no longer deal with them personally, they had become so petty. AnneF

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    1. Yes, the beneficiaries can be the problem. No doubt about that. It always amazes me that beneficiaries are willing to waste thousands or even tens of thousands of dollars that they would otherwise inherit, just to push a pointless argument.

      Lynne

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  4. In the case of an insolvent estate, if the person named as executor actually accepts that role, would they be paid? If the person named renounces and there is no family member willing to be appointed, how is that then handled? Although the court can appoint a trust company as administrator when there is no family willing to act, a trust company does expect payment. Is responsibility then assigned to the Public Guardian since someone must represent and close-off the estate, regardless of the estate's value?

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    1. If there is no money at all to pay anyone, then the executor cannot be paid. If there is enough in the estate to pay debts in part, then the executor's pay can be one of the debts of the estate.

      No, a trust company would not take on a matter like that, mostly because they aren't named in the will. They cannot step in without authority to do so.

      It's quite possible that the Public Trustee's office (not the Public Guardian) might become involved if none of the family members can be bothered. I can't imagine having a family like that, but I know they exist and that the files do sometimes end up with the Public Trustee.

      Lynne

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    2. Yes, I had meant PT. As it is the office of the 'Public Guardian & Trustee' in Ont., I had shortened the reference without further consideration to the two distinct areas of responsibility.

      I realize a trust company cannot take-on an estate without being appointed. My question was in regard to whether the court would ever appoint a TC if there is no family member willing to act for an insolvent estate. Would the court then proceed directly to appoint the PT? You have answered, as a possibility, not a certainty.

      As with so many others, Thank You for providing this blog and for your continued efforts and commitment in helping people who are not a direct client.

      MR

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  5. Greetings Lynne,
    Thank you ever so much for this forum.
    I have been an administrator and an executor of the estates of two family members, so I have some working knowledge of the process.
    I am currently about to probate my mom’s estate. Her estate is simple and involves only a principle residence and a raw piece of land. My question pertains to the disposition of the raw land. Ordinarily I understand that the land goes through probate and then it can be sold. My question is: Can either/both executor and recipient (my sister) submit a notarized agreement/permission that would allow for the probate requirement to be waived, and the property sold in the name of the estate by the executor? My sister is in total agreement to sell the property as soon as possible as prices are at an all-time high in our area.
    Thank you.

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    1. I keep seeing executors on this forum referring to the estates they are responsible to administer as 'simple'.
      Sometimes what appears to lay persons as simple, can actually be very complex.

      My aunt who died in 2011, left a holograph will naming 2 beneficiaries, one surviving her and one pre-deceased. As it was only a 2 page handwritten document, the will seemed to be clear on her wishes. Financial and legal professionals reviewing it, all recognized that will to be one of the most complex they had seen, not in what it said but in what it didn't say and also in the wording used.

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    2. Mark, you make an excellent point. The better the will, the more support an executor has, and the less chance the executor will need to rely on the courts for clarification or other assistance. It's a matter of people just not realizing that they don't know what to put in a will. I've been writing wills for 30 years and I'm still learning new things, so how people figure they can do my job in five minutes on a sheet of looseleaf is beyond me. The sad part is that most people will go around for years with a false sense of security, having no idea the minefield they are leaving behind for their families. And all because they are convinced that "it's simple".

      Lynne

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    3. Re: submitting a notarized agreement. I have never heard of a land titles or registry office accepting an agreement in place of a grant of probate. I see that you are looking for a loophole in what you plainly see as unnecessary paperwork. However, a grant of probate is a court order that requires the land registry to allow someone (the executor) to sell land that does not belong to them. I can't see how any agreement between any people could replace that, since the owner of the property is not there to sign it.

      Lynne

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  6. @ Mark Reeves
    I keep seeing executors on this forum referring to the estates they are responsible to administer as 'simple'.
    Sometimes what appears to lay persons as simple, can actually be very complex.[...]
    Mark you are so right. I am a living example. In my case there is a well written legal Will but I am going through Estate Hell because of a disgruntled sibling and misbehaving lawyers. In your case it's a holographic Will, which it appears, is rather complex. This is another good reason why a Will should be drawn up by a 'good, honest' lawyer.

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  7. If I, as a residual beneficiary, have to take the executor to court to force her to show us an estate inventory or an accounting (after many letters requesting information going unanswered), is it at all possible that the judge will order the executor to pay my court costs and lawyers fees? It seems to me if it's something she should be providing on request anyway, she should have to pay for wasting the courts time and my money... But maybe I'm wrong.

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  8. @ Anonymous 10:36 PM
    If I, as a residual beneficiary, have to take the executor to court to force ....[...]
    Substitute executor for beneficiary and this could be my post. IMO you are right on the money but as I have found out it it can be a long expensive road getting there. If you do, you still have no assurance of the outcome. As I have previously responded there is a real problem with the system. Lynne Butler recently posted a case Brown v Rigsby where a female Judge went after an executor for his 'negative' actions. Bravo to her for having the (female gonads?) to try and stop the madness. Generally it's the status quo. If you can afford to pursue your case then you take it to trial. If not then you are screwed. The playing field is not level. A 'good' executor believe's he/she is in control but that is not true. A problematic executor can play the game for a long time till the beneficiaries are worn, stressed out and legal fees take most or all of the estate assets. Lawyer's can play games and keep the game going. Who do you complain to? Your Lawyer? The court? A Judge? The Law society? A word to the wise "never make a formal complaint about a lawyer to the Law Society till your case is completed".

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  9. If the deceased left rrsps to his spouse, I understand they can simply be rolled over and therefore the estate isn't taxed. But let's say the spouse chooses to not to roll the rrsps over and instead cashes them out...is the estate taxed? Or is the spouse taxed?
    If the spouse is also the executor, and is not a residual beneficiary because she was a beneficiary of insurance
    Policies and rrsps and pensions (and therefore was left nothing from the estate) and she chooses to cash those designated rrsps rather than roll them over, depleting estates assets with the taxes, do the residual beneficiaries have any recourse? is this a conflict of interest?

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    1. When there is tax owing on an RRSP, it is jointly owed by the estate and the beneficiary receiving the funds. It is CRA's policy to pursue the estate for the tax first and only pursue the beneficiary if the estate cannot pay the tax.

      In my view, this is a conflict of interest because as the executor, she is supposed to do what is in the best interest of the estate and to maximize the estate. You haven't said why she elected not to roll over the funds, but presumably it was because of something that favours her, not the estate.

      Lynne

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  10. So if the estate is claimed by the executor to be insolvent and there's no need to probate, the executor FINALLY gives a handwritten accounting and it's incomplete (known assets are missing) lacks detail (vehicles are simply listed "car" or "motorhome" and the price they sold for with no make, model or year) bank accounts don't show institution but just simply state "savings account". The "motorhome" is suspected to have been lowballed by at least $10,000 (emphasis on "at least"....I'm being very kind). At this point, can the beneficiaries demand backup documentation without being expected to pay out of pocket? The letters back and forth between her lawyer and mine are costing a heck of a lot more than a couple of photocopys would cost but my lawyer dosent think it would be wise to go in front of a judge yet. (After 6 months of asking for info and receiving peanuts in response until we threatened court action and then finally received this poor excuse for an accounting).
    So frustrated and tired of this. Why the heck isn't there an easier way to get a rogue executor in check? This is ridiculous.

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    1. I often ask myself the same question - why don't we have a better system for controlling executors? I think it's because our laws were set up this way a couple hundred years ago when people actually worked according to an honour system. It hasn't translated well into the modern world. Legislative change is badly needed. As I've said on this blog before, I'd love the chance to set up a government department whose job it is to oversee estates.

      Anyway. The accounting you are discussing does not sound adequate to me, but it does sound an awful lot like what most executors deliver. Beneficiaries ARE entitled to see backup documentation at no cost. However, in the question where I talked about the beneficiaries paying for it, I was specifically referring to a case where the executor is saying there is nothing in the estate. If that's the case, and the beneficiaries refuse to pay, everyone is at a stalemate.

      Lynne

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  11. @Anonymous-6:48 PM (14 hours ago)
    (After 6 months of asking for info and receiving peanuts in response until we threatened court action and then finally received this poor excuse for an accounting).[..]

    6 months? My example 11 years. I am the 'not rogue executor'. I am dealing with a disgruntled sister and 'rogue lawyers'. They are doing all they can to avoid a Trial. Most people would not believe what has been going on. I have documentation but what can I do with it? The Law Society? Been there done that and it came back to bite me big time with the first lawyer. Can I write to the Pre-Trial Judge? Who? I am at the bottom of 'this totem pole'. Judges are apt to listen to Lawyer's first. Why? Because that is the way is has to work. The lawyer's know they are in control. They can act with impunity. They are not afraid of the the Law Society because the Law Society will do everything to protect them. I have written my lawyer my instructions, my directives and he has not responded. Yes, there is a conspiracy and I can prove it given the opportunity. The lawyer for the other side wrote to a previous lawyer "if I take this to trial then I will pay his legal fee's". That to me is a threat, a personal attack on the executor/beneficiary who is tying to resolve and settle this estate matter. My then lawyer did not come to my defense. He later worked it to 'get off the record'

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  12. I'd love the chance to set up a government department whose job it is to oversee estates.[LB]

    Not many lawyer's would want that. Most would probably counter with "things are just fine as they are". Currently it's a license to print money. The Judge's know better as they (most of them?) were lawyer's prior to becoming Judges.

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    1. I disagree that not many lawyers would want that. Absolutely disagree. Your experience with lawyers has obviously not been a good one. But I know dozens and dozens of wills and estate lawyers and the vast majority would love to have something in place that helps clients get through tough estates. The "license to print money" idea is like assuming that doctors want everyone to be dying of cancer so they can treat it. It's just not true.

      Please stop painting all of us with the same brush. You might be surprised to hear that there are thousands of lawyers in this country who NEVER go to court and are perfectly happy that way. We don't need a "licence to print money" because we have plenty of clients without egging anyone on to duke things out. You make it sound like our world is one big Mad Max cage.

      It's getting a bit old, all of this cynicism about lawyers that is nothing but a bandwagon.

      Lynne

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  13. Your experience with lawyers has obviously not been a good one.[LB]
    Yes that is Very true but through no fault of mine. That I can assure you of. Let me correct that. I made a huge mistake. I complained to the LSUC (Law Society Upper Canada) and the old boys network made sure to let me know that they were in control.

    Please stop painting all of us with the same brush. [LB]

    I am not doing that. I am specifically referring to my case. No one should have to go through what I am going through. My lawyer will not call me or respond to my emails. He has no problem in billing me however. I believe he is trying to shock me so that I just give up.
    There are problems out there at every level and there isn't much of an attempt to fix them. Would you disagree with that?
    I recently checked online for help from other sources and basically there is little that we can do. Can I talk with the Judge? Can I get an unbiased response from LSUC. They respond to few cases. Can I get an honest response from a Judge at a Case Management Conference? I am the Executor but what control do I have. Why does anyone have to wait for years to get a case to Trial? It does not add up, at least not for me.
    It is not a level playing field when something goes wrong. You don't call Ghostbusters or the like.

    Lynne, you once mentioned that you no longer litigate. Was that due partly to frustration with the system?

    As you once replied, my case is a 'holy mess'. If you were in my area I would certainly have contacted you. I have the highest regard for you and what you do. I thank you for what you do and your support. That will not change. I will like you, continue to fight the good fight.
    In my opinion.

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    1. My daughter read the responses I wrote yesterday, including the one you are responding to, and asked me "was it rant day?". So, I think I was probably too harsh in my reply to you.

      I didn't litigate for years. It was mostly because it's an ugly experience. Part of the frustration is the emphasis on being adversarial. My personality is not naturally adversarial and neither is the way I like to practice law so I just found it intolerable on the nerves. Too few people are steered to mediation.

      I am doing some litigation now. This is simply because people have come to me telling me that other lawyers are charging outrageous amounts of money (in one case, my quote was exactly 10% of the other lawyer's quote, and I have THIRTY years of experience!) and not much was getting done. I live in a small place where there are only a few lawyers who really know their wills and estates law, and I felt that good people were just not being helped.

      I have a few litigation cases, and I will keep the number of cases small because they take so much time and so many resources, and I have a small office/team.

      Lynne

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  14. Carrick, Rob
    11:57 AM (1 minute ago)

    to me
    Hi Robert
    Thanks for the heads up on Lynne Butler’s blog. Looks useful.
    Best,
    RC

    ReplyDelete

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