Why does a beneficiary not receive money until ALL have signed Releases?

When an executor is ready to distribute an estate, she will send out an accounting to the beneficiaries that tells them what has happened with the estate so far, and let them know exactly what each of them will receive. If the beneficiaries agree with the accounting, they will sign their Releases. Once all of the Releases have been signed, the cheques are sent out.

One part of this process causes problems for both executors and beneficiaries. That's the part about waiting for ALL Releases to be signed before anyone gets their inheritance. This reader wrote to me to ask why she has to wait for other beneficiaries to sign their Releases. I thought the question and the answer would be useful to many of you, so here it is:

"The executor we are dealing with says that we have to wait for the 3rd person ( The estate was divided between 3 people) to sign off before she can give us our part of the money. The tax clearance certificate has been dealt with. But for some reason the executor keeps saying that we need to wait for that 3rd person to sign off on the papers. And the problem with this is that the 3rd person is apparently in Europe and they cannot get ahold of her which is completely delaying the process of me receiving the money. I was wondering if she was allowed to do this ? I dont understand why I need to wait for another person to sign off on their money for me to get mine."

In this case, the executor is following the right procedure.

All beneficiaries must agree to a certain distribution before the distribution can be made. The beneficiaries aren't just signing off on their own money; they are approving of all that the executor has done so far, and agreeing to the payout the executor is proposing for everyone.

Let's look at it this way. Say the estate was $30,000. The executor  divides the estate three ways so that each beneficiary is going to get $10,000. Two of the beneficiaries agree, so she sends them $10,000 each. There is $10,000 left.

The third person, however, doesn't agree. The third person challenges the executor's accounting and refuses to sign the Release, so the executor has no choice but to apply to the court to pass her accounts. The court and legal fees add up to $5,000. The executor now has to divide an estate of $25,000 rather than $30,000 among the three people. That means each would get $8,300. She has overpaid the first two beneficiaries and now only has $5,000 to pay the third one. The balance of $3,300 would have to come out of the executor's personal pocket.

Until the third beneficiary signs the Release, the executor doesn't know whether there is going to be a costly dispute, so she is right to wait to send out the money. It's too bad that the person is unreachable at present, but every estate has at least one wrinkle to deal with.

The Clearance Certificate that you mentioned is issued by Canada Revenue Agency to certify that the estate does not owe any more tax. It should be reassuring to the beneficiaries that this has issued, as it will give them information that they need when considering signing the Release.

It sounds to me as if this executor is taking her time and completing one step at a time. It sounds as if the right steps are being followed. This can be frustrating for a beneficiary as sometimes it seems as if you are waiting an awfully long time, but that can easily happen when you don't see what's going on behind the scenes. I don't see anything wrong in the executor's actions based on what you've told me.

I disagree with the executor's accounting - now what?

I hear a lot of questions from both executors and beneficiaries about the process of reviewing an executor's accounts and signing a Release. I recently received the following letter from a reader, which echoes what many others of you have asked:
"Can you tell me what happens if all heirs do not agree with the statement of accounts? Who looks at that and would the person(s) be contacted regarding why they do not agree with a statment of accounts? I disagreed with the stmt of accounts over a year ago and nothing has happened with the will since. The executor is not co-operative."

The beneficiaries of an estate are given the statement of accounts along with a Release. If all looks fine with the accounts, the beneficiaries sign the Releases and return them to the executor. Once all Releases have been received, the executor pays out the distribution that was outlined in the statement of accounts. The purpose of all of this is to get the beneficiaries to state that they approve of what the executor has done with the estate so far. This indemnifies the executor.

You asked who looks at the fact that a beneficiary doesn't agree with the accounting. This would be the executor. If the executor is using a lawyer to help with the estate, no doubt the executor would consult with the lawyer as to what to do next.

If the executor is trying to do the estate without the help of a lawyer and prepared the accounts without help from a lawyer or accountant, he or she may have no idea what to do now that a beneficiary has disagreed with the accounting. The next logical step from a legal point of view is for the executor to apply to the court to have the accounts passed by the court, but I would hope that before spending the time and money to do that, the executor would try to find out what the problem is, and rectify it.

Beneficiaries have the right to ask for more information on an accounting if something is unclear, or to ask about items that appear to have been omitted. And if the whole thing just seems out of whack, the beneficiary has the right to refuse to sign the Release.

Unfortunately, our system is based on the premise that an executor will want to take care of the estate properly and will make every effort to move the estate along as best he can. As it happens, plenty of executors don't really care if the estate drags on for years, as they aren't the ones waiting for an inheritance. Therefore, even if the executor is aware of the next steps, he or she may not wish to proceed without prodding.

You need to write a letter. If the accounting was sent to you by a lawyer, write to the lawyer, otherwise write directly to the executor. State your objections to the accounting, giving facts or figures if at all possible. Saying something like "I just don't like what you did"  or "I think you're hiding something" isn't useful and won't bring anything to a conclusion. You should be able to specifically refer to an item or a figure, and state, for example, "Mom's house was listed for $450,000 but the accounting only shows $325,000 going into the bank. What happened to the rest?"

Your responsibility to the procedure is to police the executor's actions, but keep in mind that the executor is human and can make mistakes. Give him or her the chance to explain the numbers in the accounting. Realize that most of us have never provided an accounting for anything in our lives and perhaps aren't that good at it, so your detailed questions should allow the executor to understand what is required. Don't nit-pick for the sake of nit-picking, and try to stick to real issues.

Refer to the fact that the accounting was provided a year ago, and that you want the matter cleared up.

If you receive satisfactory answers to your questions, you should sign the Release and return it to the executor. As you've said that the executor isn't co-operative, I don't expect this to happen, but perhaps after a year he or she is more motivated to wrap it up. Don't sit and wait any longer; there is a common law concept of the executor's year that says an estate without legal complications should be wrapped up in a year, and obviously the executor has exceeded that.

If the executor simply won't move on it, you will likely have to hire a lawyer to help you resolve it or push it through court. Perhaps the other beneficiaries would pool their resources with you since everyone would stand to benefit.

What if a beneficiary won't sign the Release?

An executor emailed me recently, asking what to do if a beneficiary won't sign the Release. I don't know the facts of the case, but this appears to refer to the Release document that is given to the beneficiary for signing at the end of an estate, accompanied by financial documents that explain what the executor has done with estate assets and liabilities and how he intends to distribute the estate. If the beneficiary signs the Release, it means that he or she approves of the financial accounting provided and will not be able to come back against the executor in the future about anything covered by the accounting.

When one beneficiary doesn't sign his or her Release, it means that  none of the beneficiaries can receive their inheritance.

If a beneficiary were to refuse to sign the Release, I would want to know why. Is there an objection to the contents of the financial documents? Is something missing? Does the beneficiary understand that he or she won't get any money until the accounting is approved (either by the beneficiaries or by the court)? Does the beneficiary object to the compensation the executor is requesting?

If you can find out where the objection lies, you can most likely address it. In many cases, a refusal like this is actually a request for more information. For example, say a beneficiary wants to know why the house sold for $450,000, but only $420,000 shows in the bank account. The executor could show the calculation that showed how much of the $450,000 was spent on realtor's commission, legal fees and payment of taxes. The executor could show the cancelled cheques for those expenditures. Perhaps the executor didn't do a very good job of setting out the numbers, or backing them up with receipts or statements.

Many executors who are acting without lawyers or accountants tend to give an "accounting" that is little more than the current bank balance, without explanation of what happened to investments, RRSPs, the deceased's car, etc. If that's what the executor is presenting, he or she shouldn't be surprised at the beneficiary not signing the Release. I wouldn't sign it either.

If the beneficiary is objecting to the amount of compensation that the executor is requesting, the executor might provide a breakdown of how he or she arrived at that number. The breakdown might include the number of hours the executor put in, the number of kilometres driven, or a list of all of the tasks that the executor had to take care of (this is one reason why executors are always advised to keep a diary or journal of all of their actions on behalf of an estate).

If the issue is compensation and a more detailed accounting isn't persuasive, the executor and the beneficiary may negotiate a different amount that satisfies both of them. If that doesn't work, the executor will have to ask the courts to set the compensation by court order. This takes longer and the beneficiaries get even less because the executor's lawyer is paid from the estate, but at least the issue can be resolved.

It's unusual for a beneficiary to simply dig in his or her heels and refuse to sign the Release without giving a reason or stating an objection, but it can happen. In the end, the executor will give up on asking for information that isn't forthcoming, and will ask a judge to approve the accounting.

Why do residuary beneficiaries sign a release?

When the executor of an estate has finished cashing in assets and paying bills, has filed the tax returns and is ready to pay the beneficiaries, he or she will send the residuary beneficiaries a set of financial statements. Along with the statements will be a Release. If the executor is doing things properly, no residuary beneficiaries get their money until all of them have signed and returned the Release to the executor.

So what is the legal effect of that Release? What is the beneficiary really doing by signing it?

The financial statements that come with the Release are intended to give a full, accurate picture of all of the financial transactions the executor has done on behalf of the estate. The beneficiary should be able to tell from the statements what happened with every asset of the estate (e.g. the deceased's home was sold for $x and the money was put into the executor's account). The statements should show what was spent on the funeral, legal fees, accounting fees and other expenses. The beneficiary is entitled to ask for more detail if he or she believes that to be necessary.

By signing the Release, the beneficiary is approving of the financial statements and all that they contain. Releases will often refer to a time period, usually beginning on the date of death and continuing up until the day the Release was sent to the beneficiary. In those cases, the beneficiary is approving of everything the executor did during that time period. Sometimes in more complicated estates there will be more than one set of financials, perhaps with the second set a year or so after the first, but in most estates there is only one.

By signing the Release, the beneficiary is saying that he or she is satisfied with everything the executor has done. He or she is agreeing in writing that everything is fine. The beneficiary can not later come back and find fault with the accounting, for example by saying that money is missing or that the house was sold for too little. The beneficiary is signing off on it and can't later change his or her mind.

This protects the executor from anyone coming back later and beginning a legal battle over something in the estate. Beneficiaries also benefit from it because the executor, who wants the Release to be signed, will usually provide a thorough accounting that answers all of the beneficiaries' questions.

A beneficiary does have the right to have the accounting looked at by an accountant or a lawyer before signing the Release, though most do not. Every case is different and the beneficiary should take his or her time to read the accounting thoroughly before signing the Release and returning it to the executor.

What goes into an executor's accounting?

Many times in this blog I've mentioned that the executor accounts to the residuary beneficiaries of an estate. No doubt you have heard this mentioned elsewhere as well. If you're an executor, do you know how to prepare an accounting? If you're a beneficiary, do you know what to look for in the executor's accounts?

In this post, I'm going to talk about the basics of preparing an executor's accounting. You are most likely to see an accounting at the time that the executor is ready to distribute the estate to the beneficiaries. That means that the funeral, the bills and the taxes have all been paid, and the money left over is going to be split among the beneficiaries in accordance with the Will. The executor prepares his/her accounting, gives it to the beneficiaries, and the beneficiaries are asked to approve the accounts.

Getting the approval of the beneficiaries means that the executor is released from all personal liability for everything he/she has done. Obviously the beneficiaries are going to check everything over pretty carefully before agreeing. This post should be useful both to an executor trying to prepare accounts, and the beneficiary trying to decipher accounts.

The basic idea behind the executor's accounting is to describe what has happened with each of the assets in the estate and subtract all of the bills and liabilities that were paid out, to arrive at the present value of the estate. Here are the elements of the accounting:

1. The inventory of the estate that was included in the application for probate. This is the starting point, as the executor is not responsible for anything that happened while the deceased was alive.

2. A Statement of receipts and disbursements. This can be either a handwritten ledger or a computer-generated statement. It shows all money that came into the estate and everything that was paid out, listed item by item, by date. Many clients find it useful to think of this statement as similar to a bank statement for the executor's bank account. Every asset that was sold - house, car, antiques, cottage - shows as money coming in. Every account or investment that is cashed in also shows as money coming in. Every bill or expense that was paid out show as outgoing money.

3. Reconciliation. Start with the value of the estate as shown on the inventory, add all incoming money, and subtract all outgoing money (using the figures on the statement of receipts and disbursements). If everything has been properly included, the number you get should be the same as the current balance in the executor's account. This, the current balance of the account, is what is now available in the estate to be divided up.

4. Statement of how much the executor wants to be paid. The amount will depend on what was said about compensation in the Will, or if nothing was said, it will depend on the guidelines for your geographical area. The amount of work and responsibility handled by the executor are also factors. The executor should state the dollar amount and how that amount was arrived at (e.g. an hourly rate, a percentage, etc). The executor should also state how much he or she wants to be repaid for out-of-pocket expenses.

5. Statement of any money being held back for future expenses or taxes. Executors have the right to wait for a final Tax Clearance Certificate from Canada Revenue Agency before distributing money to the beneficiaries. However, sometimes the executor agrees to distribute before the tax certificate is received. If the executor does this, he or she should figure out what the taxes might be, and what will be spent on the accountant to do the return, and keep that amount of money in the executor's account.

6. Statement of proposed distribution. The executor should state the names of the beneficiaries, the portion of the estate each will receive, and the dollar amount.

7. Release. The beneficiaries are each asked to review the accounting, and if all looks fine, to sign a release that states they are satisfied with the accounting. A wise executor won't give any beneficiaries their shares until all beneficiaries have signed releases. When all the releases are received by the executor, he or she will give the beneficiaries their cheques.

There is of course a lot more detail I could include here. (I have a chapter about this in my upcoming Alberta Probate Kit, to be released in 2011). This post is intended to give you an idea of what is involved. Executors always have the option of hiring accountants or lawyers to help them with the accounting, which is a good idea if the estate is complicated.

What happens if the beneficiary of an estate has dementia?

I find it interesting to talk to executors of estates when money or valuables are left to an elderly person who has Alzheimer's disease or other dementia. The executors' attitude is sometimes along the lines that the elderly beneficiary won't know or realize that he or she has inherited something, and certainly won't spend it, so why bother giving it to them. The executor then wonders if the elderly beneficiary's gift should be given to someone else who will appreciate it.

This goes completely against logic for me. The elderly person with dementia that prevents him or her from looking after finances is exactly the person I'd think an executor would want to protect.

I've talked in a few posts about the executor's role and the fact that the executor can't simply decide not to pay an inheritance to a beneficiary for his or her own reasons, so I won't discuss that again right now. I would like to talk about the logistics of paying an inheritance to a person with dementia.

Assuming that the beneficiary is elder and that the existence of dementia is not a question, then there is quite likely someone legally appointed to help with their finances. The first thing to look for is whether anyone under is acting under an Enduring Power of Attorney. If so, the executor can send the beneficiary's inheritance to the person acting under the Power of Attorney, to be looked after on behalf of the beneficiary.

If the elderly person with dementia did not appoint anyone under an Enduring Power of Attorney, and is disabled to the point where he or she cannot deal with an inheritance, then it is highly unlikely that he or she can still sign an Enduring Power of Attorney. In this case, the next option is to have someone appointed by the court to act as legal Trustee for the beneficiary.

Trustees are most often family members, but sometimes it happens that the elderly beneficiary will have no relatives available to do this job. Perhaps the person who left the beneficiary the inheritance in question was the last living relative. In that case, a trust company or the Public Trustee could be appointed by the courts as a trustee. The executor is perfectly within his or her rights to make a telephone call to a trust company or the Public Trustee to ask for help in determining whether he or she should pay the inheritance not to the beneficiary but to a representative for the beneficiary.

Many executors in this situation will take the attitude that going through court-appointed trustees is just too much trouble, and will simply write a cheque and deposit it into the elderly beneficiary's bank account. This solves the issue of moving the money out of the estate and into the hands of the beneficiary. However, it doesn't do anything to protect the elderly person who just inherited the money, either from strangers or from other beneficiaries who are aware that the elderly person now has money but can't manage it due to dementia.

If the executor deposits the money and doesn't have a signed Release from a person acting under an Enduring Power of Attorney or court Order, there is a risk. A beneficiary or family member of the elderly beneficiary may later realize that there was an inheritance, and if the money is no longer in the elderly beneficiary's account (either because it was dissipated or because someone scammed it from the elderly person) then the executor is going to be in a tough position. The executor can be held personally liable for a beneficiary's inheritance if he or she can't prove that it was paid to the proper person.

As an executor, take a cautious approach and ask questions as you go. You should have a legal advisor if you are faced with unusual difficulties such as an incapacitated beneficiary, both to protect the beneficiary and to protect yourself.

Why won't the executor give me an advance on my inheritance?

When I've acted on behalf of estates, I've occasionally been asked by beneficiaries for an advance on their shares of the estate. It's the executor's decision, not the lawyer's, but generally the executor will talk it over with the lawyer to find out his or her obligations to the beneficiaries.

When a beneficiary is refused an advance for any reason, the response is usually along the lines of "but that's MY money - I'm entitled to it!" A beneficiary is, of course, entitled to receive the share of the estate left to him or her in the Will, but not necessarily on demand. There are plenty of other things going on in an estate at any given time.

On one estate, the executor was asked to advance money to a beneficiary a day or two after the deceased's house was listed for sale. The beneficiary called numerous times, insisting that we give her her share of the proceeds. But the house hadn't sold yet. There were no proceeds to give her. This is very common. The beneficiaries don't always realize that the estate doesn't have any money until assets are sold or cashed in, and transferred to the executor's estate account.

The other thing to take into account is that on every estate, the debts must always be paid in full before the beneficiaries get their shares. It takes time to contact everyone (banks, insurers, suppliers) to find out what was owing, calculate interest, collect in or sell an asset, and pay the bill. Sometimes determining a debt means a long wait, particularly if it's for something like income tax where the amount is not always immediately known.

The executor is under no obligation to give any money to beneficiaries until debts have been ascertained and paid, and assets have been cashed in. That might take a year. It might take much longer if the estate is complicated, such as having a business to wind down or sell, or real estate in another country to sell.

If an executor is willing to advance funds before the estate is fully wound up, there is a procedure for that. The executor can hold back enough money for taxes and expenses and advance the rest to beneficiaries. Even if only one beneficiary is asking for an advance, the executor would likely give every beneficiary the same amount to keep the books simple and the beneficiaries happy. Beneficiaries should be prepared to sign a Release (not the same as a receipt) giving approval of the executor's work to the date of the advance.