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.