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Wednesday, March 17, 2010

Executor liability


Most people who act as an executor on an estate do so only once in a lifetime. This means that there are an awful lot of rookie executors out there doing their best to figure out what they are supposed to be doing. It's not easy.

An executor is personally liable for any losses he or she causes the estate. That means that if the executor is negligent or very slow-moving or reckless with any of the assets of the estate and that causes a loss in monetary value, the executor is personally on the hook for repaying the loss. The loss could be penalties and interest on a tax return that the executor filed extremely late for no good reason. It could be the purchase of a house where the executor sold the estate's house for much less than market value because he or she didn't bother getting estimates. It could be covering expenses such as meals or travel that should not be covered as they are not legitimate estate expenses.

This rule can be tough to translate into actual practice, because most people understand that an executor's expenses and legal fees are covered by the estate. This is often taken by inexperienced executors to mean they can charge every meal, every kilometre they drive, every item they purchase, to the estate, and that no matter what they do, they are backed by estate money. However, the estate will pay the reasonable costs and expenses of a proper administration. The estate will not pay for the executor's mistakes that could have been avoided with a little bit of attention. The estate won't pay for the executor's trip to Hawaii.

There is a line that can be crossed by an executor. There comes a point where the executor's behaviour is so unreasonable that it amounts to fraud or neglect. The courts deal with estates like this on a case-by-case basis.

If the executor has simply neglected to take care of things and monetary value has been lost, the executor could repay the loss by reducing or completely eliminating the pay he would otherwise have received for being the executor. If it goes beyond that, and the executor has behaved in an egregious way, foregoing the fee might not be enough. The executor could be held liable in court for losses that must be paid out of his own money.

If you are a beneficiary and you really believe that the executor on an estate you're involved in is causing losses to the estate, make an appointment to see an experienced estate planning lawyer. Take all the paperwork relating to the estate with you. Get an opinion on what, if anything, should be done about the executor.

If you are an executor and you are worried about your own liability, remember that if you are honest, let everyone know what you're doing, and move things along as quickly as is reasonably possible, you are not likely to run into trouble. You can also avoid losses and mistakes by relying on experienced professional help, such as accountants, lawyers, realtors and appraisers. That way you can back up your actions with documented proof of why you took the steps you took.

Most estates are wrapped up within a year (not including receipt of the final tax clearance certificate from Canada Revenue Agency), so this should be your goal. It might take longer if the estate involves selling a business, dealing with real estate in other countries, asking the court for clarification of things in the Will, etc.

23 comments:

  1. Suspicious and not liking itOctober 23, 2011 at 3:52 PM

    I posted but can't find it, so I'll do it again. I'm a beneficiary who was told by the Executrix that her lawyer(same lawyer as the Testator)was applying for a Grant of Probate. Alberta law states the beneficiaries MUST be notified BEFORE application is filed with Surrogate Court. Questioning this upset her and she indicated she'd been waiting for all the documents to come in before notifying the beneficiaries. She will not divulge the name of their lawyer. I feel under-informed and distrustful now. I am, according to the Testator, not 'getting very much', so my concern isn't with the what or really the when. I can wait. My concern is the secrecy. Should I be arming myself? I hate being suspicious. Or should I merely wait until that lawyer contacts me and take it that she is one of those Executrix' who feels it's no one's business but hers?

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    1. How long has it been since the death of the testator? It can take several months for the estate to be valued and that is necessary before an application for probate is made. It is concerning that your executrix is not even saying who the lawyer is - that is an unnecessary obstructionist stance. How do you know you're in the will at all? Have you seen the will? If it takes more than 3 months for any information to come to you I'd get myself down to the court office to see if an application has been filed - it is public record - so if one has been made the name of the lawyer and all relevant information on the estate will be avialable. Good Luck

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  3. Prior to beneficiaries signing a "Release" should they recieve/see all original receipts for disbursements, bank accounts, life insurance policies. Is the "Executor" supposed to provide these as well? Or is a spreadsheet of such information sufficient?

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    Replies
    1. The spreadsheet is the starting point. If there appear to be entries that are out of line with reality then you can request copies of vouchers to back up the expenses displayed on the spreadsheet.

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    2. I agree with the person who replied above. It's not possible for an executor to provide original receipts to everyone, as there is only one original. Copying everything for all beneficiaries is usually unnecessary and just adds to expenses. The person who answered above stated it perfectly - if there is something that doesn't seem right, you are entitled to ask for a copy of the voucher or receipt.

      Lynne

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  4. I am an executor of my brother's will. He signed over his inexpensive car to his son and gave his children money before he died. He died broke and no assets. We have contacted his creditors and they claim I am personally liable as the executor for his debt and are threatening to sue me. Can they do this? Am I liable for any debt my brother incurred?

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    Replies
    1. No, you are not liable for your brother's debts. His estate, to the extent that it will go, is to be used to pay the debts. After that, the creditors are out of luck. I've seen a lot of creditors, particularly credit cards, tell widows and executors they must pay the debts, but you don't have to.

      Lynne

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  5. Lynne, I forgot to tell you why the beneficiary had to file with the court to get the will because the lawyer informed the beneficiary that his mother had passed away and he was originally the executor and beneficiary of the estate before she was deem incapacitated. The lawyer was the one that wrote up the new will for his mother and this lawyer told him who the new executor was. This is when he made contact with the new executor and the executor refused to give the beneficiary a copy of the will, because he claim he did not have to due to he is the power of attorney and that did not end when she died. So off to court the beneficiary went. This is part of my previous questions I sent you to clarify this area for you.

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  6. is it necessary for the executor of a will to disclose all the assets of an estate to the beneficiaries prior to administering the will?

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    1. No, there is no rule that says you have to disclose prior to taking steps. In most provinces, the executor is required to give notice of the application for probate at the time the probate is filed (which is, obviously, before you administer the will). The purpose of that notice is to let a beneficiary know what he or she is going to inherit, so this must include a list of assets for residuary beneficiaries. Having said all that, I wonder why you wouldn't tell beneficiaries what the assets are, either before or after you get started on the administration. If there is no good reason to hide the information, why hide it?

      Lynne

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  7. My mother died within a month of being diagnosed of cancer and while she was in the hospital her lawyer friend prepared a Will and appointed my sister as executer althought my mother had no assets or money but later was found out that she owned the thousands for dollars of income tax. My mother had life insurance that my sister was the beneficary for. My sister finally did my mother's taxes and found the exact amount that is owing to the government and the government is telling my sister she is personally responsible for paying this back. My question is can the CRA do after my sister for the money even though my mother didn't have anything? Will they see that she recieved life insurance therefore she some money to pay it or does that not count as being part of the estate? What does she need to do in order to get the government to stop asking her to pay the taxes as the estate is insolvent. Thanks.

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    Replies
    1. Under Canadian Life Insurance Laws, your sister receives the life insurance benefit tax-free and is not liable to cover expenses with the money. It is hers to keep. The Government can make a claim to your mother's estate but will back away when they find that it is insolvent.

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    2. The above comment is correct; the life insurance is not part of the estate. Since the question is how to make the government stop asking for payment, the executor needs to send them some paperwork. Since your mother had no assets, the will would not have gone through probate, so there is no court-filed inventory to give them. She could, however, create a list of assets and debts, signed in her capacity as executor, to explain the situation.

      Lynne

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  8. My father in law just passed away last week. My wife has been named as executor in his will but I'm not sure she is able to deal with her father's estate. He was in debt way over his head and his estate is about negative -$48,000 from what we can calculate so far. He primary residence has 2 mortages totalling $198,000 but the house is way out in the country and may sell for about $175-$200K in a poor rural market. He owed about $35,000 (unsecured) to over eight credit card and credit lines while just making minimum payments. He died suddenly without being able to clean up his financial lifestyle. He had about $300 in his bank account when he died. No life insurance.

    Should my wife decline to be executor and walk away. If she does take on the job and can't handle it, can she back away without personal liability or costs? I think that this will costs us lots of time and our own money to cover expenses.

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    1. Your wife should not take on the job unless she realizes that she cannot legally back away. Once she begins acting as executor, she cannot quit until either the entire estate is wound up, or the court gives her permission to quit.

      Taking on the role of executor doesn't expose her to costs. She is not exposed to personal liability unless she makes mistakes or does something fraudulent. She is not liable personally for unpaid estate debts.

      The credit card companies are going to get nothing from this estate and they aren't going to be happy about it. In my experience, they will tell the executor that she must pay the account from her own money. This is not true; she does not have to pay anything out of her own pocket. They keep doing this because people keep believing them and paying them.

      Someone has to deal with this estate, and since your wife has been named, she should think about who would take care of it if she does not. Yes, it will be time-consuming, but it's something that people do for others in their families.

      Lynne

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  9. As co-executor who has a copy of the will and nothing else, can I be held legally and financially responsible for costs if a co-executor (who has power of attorney and all other financial and legal documents) runs up debt and runs off with the money from the estate? I don't trust either the co-executor or the author of the will.

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    1. The personal liability of an executor is so complex that I just wrote a book about it. I included a chapter devoted just to co-executor liability. Perhaps you should pick up a copy of it (you can buy it on this blog by clicking on the image on the left hand side).

      In case you don't want to read it, I can give a bit of information here that might help. As I see it, you have two options. One is to get out of it entirely, and the other is to learn to get along with the other person.

      Option 1: Given that you have so little faith in the co-executor and the testator, perhaps you should consider renouncing your role as executor completely and letting the other person deal with it. This is available only at the beginning of the estate, before you do any executor's work.

      Option 2: As a general rule, one co-executor is not responsible for the actions of the other co-executor. so if he wastes or steals estate assets, you are not responsible for that. HOWEVER... and this is a big however... if you are a co-executor and just sit back and let the other executor do whatever he wants and you make no effort to intervene, you may well be liable because of your passivity. So you have to be all in, or all out.

      Lynne

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  10. Hi my father removed his "roommate" from his will over 7 years ago. Has been filing his taxes as single and so had she. Now "she" is trying to claim common law. They lived in separate bedrooms, all bills including the house are in his name. There was no love lost nor ever mentioned in their "special relationship", in fact she was neglectful and did not call an ambulance when he needed one and then did not contact me, his next of kin for over 36 hours about his death, it was her niece who finally reached out and called me at work. . Any advice on disputing her claim?

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  11. Hi Lynne,
    A disgruntled beneficiary here, in BC.
    How do I initiate a court action to bring an executor to court to show a written statement of house sale, and her reasons for dividing up residual cash from estate from house sale?
    I am one of four beneficiaries in BC, will was probated etc, executor has told me to accept what she thinks is fair to beneficiaries. she figures 10 grand to me and 30 grand each to 3 beneficiaires.
    will states that house to be divided by four beneficiaries. In my view, the house, when it sold, the residual should be divided equally, at moment executor thinks I should recieve 10'000 of 100'000 of house sale cash.
    I not signing a release an want to have a judge decide on how distribution should be divided among four beneficiaires.
    I cant afford a legal lawyer, legal aid only involves itself for crimnal matters?,
    I am stumbling thru legal system, and just want a judge to ask, executor her reasons for not disclosing statement of accounts to me, and how she came up with dividing house/estate sale cash between beneficiaries.

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  12. A relative is an executor of a very small estate. Another relative in the will is causing more lawyer's fees. If there is no money left in the estate after all this, is the executor personally responsible for any further fees and disbursements? Should the lawyer stop working on it once the estate is depleted?

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  13. My father was the only child and executor of his mother's will when she passed away. Her husband passed several years before that. Before my Grandfather died, he mentioned that the grandkids would get a bit of money but that when my Grandma died, we would get the larger portion of our inheiritance, and he made it sound like quite a tidy sum. Grandma lived quite a few years longer than him and by the time she passed away, I had forgotten that he had told me this. My father was very secretive about the will and never mentioned that we were left anything at all which seemed very odd but we were raised to be polite and not to ask questions. Well more than a decade has passed and my siblings and I have come to the conclusion that our father ignored the wishes of my grandparents and decided not disperse the money we were to receive on my Grandmother's death. Knowing my Grandparents, there was no way they would not leave something substantial to their grandkids. We were just too young to question it at the time. We have never seen the will. It would not be an option to ask our father to see it;he's a very secretive man. More than anything we are all curious as to what he's keeping from us. Is there a way to see the will without starting a fuss. If there are monies that were held back, is it too late to do anything about? Where to even start.

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