Duties and Liabilities of Executors / Trustees

Duties and Liabilities of an Executor / Trustee | Disinherited Estate Litigation

The duties and potential liabilities for executor/trustees can be onerous and personally risky if not properly carried out.

It is extremely important that the testator’s choice of his or her executor be given serious consideration. The attending notary or solicitor must remember that most clients have very little understanding as to the tasks and requirements that a personal representative must perform and the responsibilities that must be assumed. The appointment of the wrong person can be a costly and emotionally draining experience for all concerned. Accordingly it is important that the will’s draftsperson investigate the desired appointment and provide prudent legal advice as to who should be chosen to be the executor and trustee. Very often that choice cannot properly be made until the attending notary or solicitor firstly enquires as to the nature of the assets and the intentions to be carried out in the will.

It is very important that the prospective personal representative be made aware of the onerous duties associated with acting in such capacity. An executor who does not wish to act, or who has not intermeddled in the estate, can renounce the appointment.

11 considerations to make before naming your executor

There are many questions that the testator should consider prior to naming his or her executor, some of which are:

(i) will the executor be willing to act;
(ii) is the executor sufficiently sophisticated to carry out the job;
(iii) is the person trustworthy;
(iv) is the person young enough or healthy enough to carry out the job;
(v) will the executor be biased;
(vi) will the executor be able to work well with the beneficiaries;
(vii) does the executor have the time to do the job;
(viii) can the executor afford to do the job;
(ix) is there any conflict of interest or potential conflict of interest;
(x) should there be more than one executor;
(xi) the distance between where the testator and the executor reside.

The nature of the client’s affairs must be thoroughly examined to determine the type of active business interests, assets in foreign jurisdictions, loans or gifts to beneficiaries and the complexity of the various personal property and investments in the estate.

Duties of a personal representative

An executor/trustee derives his or her title from the will of the deceased while an administrator on the other hand derives his or her power by appointment from the court. Whether executor, trustee or administrator, both are referred to as the personal representative of the deceased.

A personal representative has a duty to act solely and exclusively for the benefit of the beneficiaries. This duty is construed strictly and forbids a personal representative from making a profit that is not authorized or occupying a position where the personal representative’s self interests would conflict with the duty to the beneficiaries. The Courts of Equity have required personal representatives to ensure that each beneficiary receives exactly what he or she is entitled to receive under the will or the estate. The personal representative must maintain an “even hand” when dealing with all beneficiaries.
Where there is no will, section 130 of WESA sets priorities for persons applying for grants of administration. It is prudent to have each person entitled to an interest in the estate and each person with an equal or prior right to apply for letters of administration, provide written consent to the application. This eliminates the risk of competing applications and minimizes the risk of the court requiring an administrator to provide a bond or other security.

The personal representative has a duty in exercising all of his or her powers, whether discretionary or administrative, to maintain the standard of care of a reasonably prudent businessperson managing someone else’s property. Generally speaking, the personal representative cannot delegate his or her duties. The Courts in recent years however have permitted delegation of administrative duties that a reasonable and prudent businessperson would delegate in the management of his or her own business affairs. This would include the use of brokers, real estate agents, accountants, lawyers, and appraisers.

 

The personal representative’s general duties are as follows: 

Prior to the introduction of WESA on March 31, 2014 it was far easier for the personal representative to search for and locate the last will of the deceased. There are now a large number of documents and types of information that may be relevant to what is a testamentary instrument as the will itself is not necessarily a single instrument. For example, recent court cases have held that the will may consist of a will and codicils, a will with documents incorporated by reference, or several documents which, when read together, comprise one will. Other documents might be held to be testamentary instruments pursuant to section 58 of WESA so the lawyer must ensure that the client is advised to bring any and all documents that appeared to express a testamentary intention to the lawyer for consideration.
Section 58 of WESA also states that data recorded or stored electronically may be a will or a revocation, alteration or revival of a will or stated testamentary intention so that searches of the deceased’s electronic records need to be made in case there is a document that might be determined to be such a record. Even suicide notes have been held to be valid wills while various diary extracts have also beenconsidered by the court to be testamentary in nature.

(1) To dispose of the deceased’s body.

It is the executor and not the testator’s spouse or family, who has the right to determine the place and manner of burial. Section 5 of the Cremation, Internment and Funeral Services act, SBC 2004 sets the hierarchy of persons who are entitled to control the disposition of remains. At the top of the list is the personal representative named in the will of the deceased. The right of the executor takes priority over the right of a spouse or other close relatives. If the person who has the right to control disposition is unavailable or unwilling, the right passes to the next person on the priority list. Proper funeral expenses incurred are payable out of the estate. Generally, the person who instructs the funeral director will be personally liable to pay all expenses incurred, but is entitled to indemnity as a first priority against the estate for the reasonable expenses of a suitable funeral. There are some cases where the executor has been denied reimbursement of the full funeral costs where the costs have been found to be excessive under the circumstances.

(2) Searching For and Taking Possession or Control of the Deceased’s Assets.

The personal representative must take steps to search for any cash, jewelry, and valuables and arrange for their safekeeping. Any personal property must be locked up and properly insured. Other assets that may require insurance coverage must also be checked into. Financial institutions and government agencies must be notified of the death. Mail must be re-directed and the bills, including mortgages, must be paid. Rents must be either collected or paid and businesses must be managed for the interim until distribution of the estate or until the sale of the business. A personal representative must enquire as to whether they have sufficient legal authority to carry on the business, and must also be cognizant of the potential for personal liability for carrying on the business.
Property that does not pass to the personal representative includes joint tenancy with a right of survivorship, property that will pass to a named beneficiary, such as in a pension plan, or RRSP and property held by the deceased as trustee.

(3) Complete a Schedule of all of the Deceased’s Assets and Ascertain Their Value.

After the executor has taken charge of the assets of the estate and has made a full inventory of the assets and a valuation of same, the personal representative should then arrange to have an application made to the court for the issue of a grant of probate. In the case where the deceased dies intestate or without a named beneficiary, there is often a delay experienced in finding some appropriate person to step forward and apply for letters of administration. The Rules of Court assume that in practice, in the absence of special circumstances, the court will usually give priority to appointing as administrator of the estate, the person or persons who have the greatest interest in the estate. In practice, consents will be required from any person entitled to share in the estate who has a greater or equal right to apply. Thus, if two or more persons are equally entitled to apply, they must either apply jointly, consent to the appointment of one of them or have the appointment confirmed by the Court. There is no limitation on the number of administrators who may be appointed.

(4) Advertise for Creditors.

Before any debts of the estate are paid, the executor or administrator should see to the publication of the proper advertisement for creditors, claims and other claims against the estate. From my experience, common sense should prevail in deciding whether or not to advertise for creditors as the costs can be considerable. In the case of a deceased with simple assets and a history of paying his or her bills on time, it may not be necessary to publish such an advertisement. However, if the personal representative is to protect him or herself from liability, then serious consideration should be given to the placement of such an advertisement, as provincial legislation states that the personal representative shall not be personally liable to creditors where notice has been properly given and the assets of the estate have already been distributed.

(5) To Notify Beneficiaries, Possible Beneficiaries Such as a Possible Common Law Spouse and Persons Who Would Inherit On an Intestacy With Respect to an Application For Probate or Grant of Administration;

(6) Enquiries must be made with respect to the Canada Pension plan, obtaining full particulars of any insurance on the deceased’s life, reviewing beneficiary designations, which may be revocable or a revocable, and reviewing RRSPs and RRIF’s

(7) To Ensure That Investments Are Authorized.

There is a duty to examine the assets and investments of the estate and, in general, to convert in a reasonable and timely manner, the assets that do not qualify as authorized investments for the estate. The executor must be concerned with assets that may waste (ie, an unheated greenhouse) or that are too speculative (penny stocks) or reversionary assets;

(8) To complete and file income tax returns and where necessary obtain a Clearance Certificate from Revenue Canada. Previous tax return should be reviewed in order to discover assets of the deceased and an estate tax return must be filed for the year preceding the death of the deceased.

(9) To pay the debts, including funeral, legal, testamentary expenses, succession duties and probate fees.

(10) To claim all debts due to the deceased and generally collect all of the assets that form part of the estate.

(11) To keep accounts:

One of the most important duties of the personal representative is to keep records and to be prepared to account to creditors and to persons who have a beneficial interest in the estate. The personal representative must give to anyone to whom he or she owes a duty such information as that person reasonably requires. The type and amount of information varies but the duty to account is owed to beneficiaries, unpaid legatees, unpaid creditors, successors, trustees, others who may have an interest in the deceased’s assets and others provided for by statutes such as the Public Guardian or Revenue Canada.

(12) To Investigate, Continue or Bring and Maintain Court Actions on Behalf of the Estate:

A personal representative of a deceased claimant may continue or bring and maintain an action for a loss or damage to the person or property of the deceased in the same manner and with the same rights and remedies as the deceased, except for certain actions such as libel and slander, pain and suffering and loss of expectancy of earnings.

The personal representative should remain neutral in any litigation concerning the distribution of estate assets, such as a wills variation action under section 60 WESA, and to assist the parties in determining the net amount of the estate that might be available for distribution. A personal representative, however, cannot maintain his or her own court action where he or she and the estate are on opposite sides. If that situation arises, then the personal representative must resign. The exception is that section 151 WESA now allows a beneficiary to seek leave of the court to prosecute an action without the need to replace the personal representative first.

(13) To distribute the assets in accordance with the will or the laws of intestacy.

Potential liabilities of the personal representative:

In Ketcham v Walton 2012 BCSC 175 at paragraph 10 , the court stated that the basic principle of an executor’s duty to specified potential beneficiaries of the will is neutrality. The court quoted Quirico v Pepper estate (1999) 22 BCTC 82 BCSC : “The primary duty of an executor is to preserve the assets of the estate, pay the debts and distribute the balance to the beneficiaries entitled under the will, or in accordance with any other order made under the wills variation act. An executor should not pick sides between the beneficiaries and use estate funds to finance litigation on their behalf under the former Wills Variation act ( now Section 60 WESA). It is a matter of indifference to the executor as to how the estate should be divided.. He or she need only comply with the terms of the will or any variation of it made by the court.”

14. Debts and Liabilities

A personal representative may be personally liable for the debts of the deceased to the extent of assets coming into the hands of the personal representative. It is therefore extremely important that the debts are properly listed and valued in the inventory of assets and liabilities. Particular care must be given to not distribute the assets to beneficiaries until either a clearance certificate has been issued by the federal tax authorities or more than sufficient assets have been held back from any interim distribution, so that the taxes can be paid. Failure to pay federal and provincial taxes can result in personal liability for the personal representative. Personal representatives are strongly encouraged to use the expertise of a tax accountant, so as to determine capital gains and losses for income tax purposes, to calculate foreign taxes, and to determine what property tax if any, is payable. This list is not exhaustive.
Valuations may often be difficult and complex and again, the personal representative should use a professional appraiser, qualified accountant or other expert for determining such valuations.

15. Failure To Keep Accounts

A trustee has an obligation to keep proper accounts, including a complete record of his or her activities and be in a position at all times to prove that he or she administered the trust prudently and honestly. He or she must have the accounts ready to give full information whenever required- Sandford v Porter (1889) OJ No.43, 16 OAR 565 (CA)

A trustee who fails to retain receipts supporting substantial cash withdrawals of expenses charged against an estate has not adequately carried out his or her duties and may be held personally liable for the unsubstantiated withdrawals.

If a trustee has mixed his or her own funds with the funds being held for another, all of the property must be taken to be the other’s property until the trustee is able to prove what part of it is his or her own Norman estate (1951) OJ 501 CA.

The trustee, not the beneficiaries bears the onus of establishing that the management and disbursement of funds is consistent with the terms of the trust.

16. Using Trust Assets For Personal Gain

It is a basic principle of trust law that a trustee is not entitled to use the trust property for his or her own personal benefit. If the trustee cannot account for or explain disbursements or expenses charged against a trust, he or she is personally liable to the trust for those disbursements and expenses.
A trustee who improperly enjoys the benefit of trust assets without authority and allows non-beneficiaries, such as his family, to also benefit is liable to the trust for the amounts of the value of the benefits received -Langston v Landen 2008 ONCA 321

17. Improper Delegation to Third Parties and improper Charging of Fees

There is authority for the proposition that the fees paid by a trustee in respect of the preparation of accounts must be borne by the trustee and deducted from the amount of compensation payable Eisenstat Estate v O’Hara (1995) OJ 548.

There is also authority for the proposition that where the trustee delegates the care and management of a trust to a professional, the professional fees incurred by the trust are deducted from the compensation paid to the trustee . Holt Estate (1994) 2ETR (2d) 163

18. Reckless and Unreasonable Behavior

An executor/trustee may be personally liable for costs for reckless and unreasonable behavior that amounts to reprehensible conduct for the opposing plaintiff’s action for no other reason than to frustrate the plaintiff’s claim. From my experience this typically arises between competing siblings Craven v Osdacz 2017 ONSC 4396.

19. Losses Due to Actions or Inactions

If an estate suffers any losses as a result of an executor/trustee’s actions or inactions such as failure to rent real property, the executor is obliged to repay the estate for such losses with interest. Re Sangha 2018 BCSC 54. An executor/trustee may be personally liable for interest lost to the estate for failing to invest estate assets. Re Proniuk 1984 CarswellAlta 285.

20. Conflicts of Interest

Moffat v Weststein (1996) 29 O.R. (3d) 371 canvassed the duty of an executor/trustee to avoid conflicts of interest, and at page 390 stated ” subsumed in the fiduciary’s duties of good faith and loyalty is the duty to avoid a conflict of interest. The fiduciary must not only avoided direct conflict of interest, but also must avoid the appearance of a potential or possible conflict. The fiduciary is barred from dividing loyalties between competing interests, including self-interest.

21. Improper Investments

Executors/trustees are only authorized to make investments of estate assets as provided for under the Trustee Act and must not invest any estate assets in speculative or risky types of investments. They must undertake their responsibilities with the ordinary care and prudence of a reasonable investor Stranger v Royal trust Co (1947) 1 WWR 538 and may be found personally liable for losses incurred by the estate for improper investments.

22. Failure to Pay Income Taxes

Under the Income Tax act an executor trustee will be personally liable for any unpaid taxes, interest and penalties that may be payable by an estate if the assets are distributed before obtaining a clearance certificate from the Canada Revenue Agency certifying that all taxes, interest and penalties have been assessed and paid. As such, it is crucial for the personal representative to obtain tax advice from a properly qualified accountant and to withhold substantial monies to ensure sufficient funds to pay taxes, in the event that an interim distribution is made to the beneficiaries.

Conclusion

The duties and liabilities of a personal representative set out in this article are not exhaustive but do give an indication as to the number of factors to not only decide whether a person should be appointed to act as the personal representative, or alternatively agreed to act as the personal representative due to the onerous tasks and potential liabilities that can be imposed on an executor/ trustee.
A personal representative should always retain an estate lawyer and accountant for the purpose of handling the rigours of carrying out the duties imposed by the office of being a personal representative and avoiding the serious liabilities that can be personally imposed on him or her for improperly carrying out the duties associated with such a fiduciary duty.

What to Expect as an Executor of Estate in BC

What to Expect as an Executor of Estate in BC - Disinherited

Everything to Know About Being an Executor

It is perhaps trite to state that the role of the drafting notary or solicitor is simply not to fill in the blanks and record the testator’s instructions, including his or her choice of executor, but instead to actively advise and draw to the testator’s attention all of the considerations relevant to his or her decision. Frequently the amount of discussion pertaining to the choice of the executor or administrator, is simply a discussion as to “who do you want your executor to be”? Prudent practice would dictate that any discussions pertaining as to who the appropriate executor or administrator might be, should perhaps be left to the end of the consultation, so that the drafting solicitor or notary is aware of all of the necessary personal and financial information relating to the testator’s intentions, or alternatively, to the estate. There is a huge responsibility to be undertaken on the part of the personal representative. Where so far as possible, the potential complexity and responsibility of the executor or administrator’s role should be impressed upon all concerned.

1. In General – The Office of Executor/Administrator

An executor derives the title from the will of the deceased, and does not have to wait for a grant of probate from the court before acting on behalf of the estate. An administrator on the other hand, derives his or her power by appointment from the court. The administrator may be appointed in the situation where the deceased dies intestate (without a will) or alternatively, dies with a will but there is no living named executor. In such instance, it is incumbent on someone to come forth and apply to the court to be appointed administrator.

The executor/administrator is the legal representative of the deceased and is often referred to as the personal representative. The office of the personal representative continues for life, so that if after completing the administration with regard to the assets discovered on the death of the testator, other assets fall into the estate, then the personal representative must reopen the administration and proceed with the distribution of the new assets in accordance with the terms of the will or intestacy.

An executor may be appointed expressly in a will or by implication. Sometimes the deceased fails to expressly name an executor, and upon a reasonable construction of the will being conducted, the court may conclude that the deceased did in fact grant to a named person, the essential duties of an executor. In such a case that person is said to be appointed “according to the tenor of the will”.

2. Should the Executor Agree to Act?

No one can be forced to e an executor, and an executor always has the option of renouncing, but this must be done before the executor “inter-meddles with assets of the estate”. Any prospective personal representative should give serious consideration as to whether or not he or she  is  prepared to act as the personal representative. Under no circumstances should the prospective personal representative deal with the assets or otherwise intermeddle in the estate, until he or she has in fact decided to act as the personal representative.

Some of the preliminary considerations for the prospective personal representative to consider are:

(a) the potential for personal liability which may arise under many circumstances;

(b) the possibility for conflict of interest, such as where the executor is also a business partner of the deceased;

(c) the nature of the deceased’s assets, including the complexity of the estate;

(d) the personal relationship of the prospective personal representative with the beneficiaries or intestate successors;

(e) the time, stress and hassle of being an executor and dealing with lawyers, beneficiaries and the like;

(f) the time involved versus the potential remuneration available;

(g) the actual terms of the will and such factors as whether there will be ongoing lengthy trusts.

Once a personal representative accepts an appointment, he or she becomes a trustee for the estate, and he or she must exercise the powers bestowed upon the office, with diligence and care. A personal representative may become personally liable if their office is carried out in a negligent or improvident manner.

There is a technical difference between the personal representative and the trustee, and that is why in most wills, the personal representative is appointed as the executor and trustee. One important difference is that a trustee can appoint other trustees and can also retire from the trust. An executor however cannot appoint someone to act as co-executor, and nor can he or she retire from the office once the will has been proved.

 

3. Intermeddling

An executor may also be appointed other than by a will, where the executor intermeddles in the assets of the estate, to the extent that the intermeddling makes that person an executor de son tort. This arises where the intermeddler has assumed the authority and office of the personal representative, and has dealt with the assets of the estate. It has arisen in such instances where the executor de son tort has arranged the burial of the deceased, gathered in assets and paid the debts. Once an executor has in fact intermeddled, he or she loses the right to renounce executorship, and may incur personal liability for any loss or damage that has resulted from any improper administration of the estate. However slight acts of intermeddling are not enough to make a person an executor de son tort.

 

4. Who May be Appointed?

Almost anyone can act as an executor, and generally speaking a testator may appoint whoever he or she likes to be his or her executor. Generally speaking the courts are very hesitant to interfere with the appointment of the executor as chosen by the testator.
However, persons of unsound mind are incapable of acting as personal representatives, and when the personal representative is or becomes insane, the court will grant administration to someone else. An infant may be appointed to be a personal representative, but the infant cannot act as personal representative during his or her minority. Accordingly if an infant is named sole executor, administration is granted with the will annexed to the guardian of the infant or to such other person as the court shall think fit, until the infant attains the age of majority.

In many instances, the court will refuse a grant of probate and will pass over an executor, where the court considers it inappropriate that such an appointment be made. These situations are typically where the proposed personal representative has been convicted of a fraudulent offence or has become bankrupt after the date of the will, or in situations where it has been established that a marked hostility existed between the proposed personal representative and the sole beneficiary. However, as previously stated, the court will not likely interfere with the discretion exercised by a testator in naming his or her personal representative. Before any application can be made for the removal of an executor and the appointment of someone else as administrator, probate must first have been granted to the executor whose removal is sought.

 

5. Qualified Appointment

The appointment of a personal representative may be either absolute or qualified. Where the appointment is qualified, it may be either as to time, place or as to purpose or subject matter. When the personal representative is appointed for a fixed period or until a specified event occurs, the authority ceases automatically when the period expires or when the event takes place. When the appointment is subject to a condition precedent, then that condition must be performed and the court has no power to relieve against an inadvertent failure to comply with it. A will may for example appoint one person as the personal representative for certain purposes or property, and another personal representative for general purposes. In that situation, probate will be granted to each personal representative, but will distinguish between their powers.

 

6. Choosing the Executor

It is extremely important that the testator’s choice of his or her executor be given serious consideration. The attending notary or solicitor must remember that most clients have very little understanding as to the tasks and requirements that a personal representative must perform and the responsibilities that must be assumed. The appointment of the wrong person can be a costly and emotionally draining experience for all concerned. Accordingly it is important that the will’s draftsperson investigate the desired appointment and provide prudent legal advice as to who should be chosen to be the executor and trustee. Very often that choice cannot properly be made, until the attending notary or solicitor firstly enquires as to the nature of the assets, and the intentions to be carried out in the will.

There are many questions that the testator should consider prior to naming his or her executor, some of which are:

(i) will the executor be willing to act;

(ii) is the executor sufficiently sophisticated to carry out the job;

(iii) is the person trustworthy;

(iv) is the person young enough or healthy enough to carry out the job;

(v) will the executor be biased;

(vi) will the executor be able to work well with the beneficiaries;

(vii) does the executor have the time to do the job;

(viii) can the executor afford to do the job;

(ix) is there any conflict of interest or potential conflict of interest;

(x) should there be more than one executor;

(xi) the distance between where the testator and the executor reside.

The nature of the client’s affairs must be thoroughly examined to determine the like of active business interests, assets in foreign jurisdictions, loans or gifts to beneficiaries and the complexity of the various personal property and investments in the estate.

Generally speaking the choice for the testator usually comes down to choosing between:

(i) family members;

(ii) friends or acquaintances;

(iii) a corporate trustee.

Testators are often reluctant to talk frankly about the respective capabilities of their family members in choosing an executor. Often it is the notary or the solicitor’s job to tactfully ask the appropriate questions as to each of the respective family member’s strengths and weaknesses. It should be stressed that it should be the most appropriate person in terms of temperament, sophistication and personality that should be selected, rather than for example the oldest child. Certainly the testator should be prodded to speculate as to how the dynamics between his or her children will be after they are no longer alive.
Testators often wish to co-appoint one or more family members and I personally am of the view that this should be discouraged. If the client is adamant that there be a multiple number of family members as executors, then a majority rule clause should be inserted in the Will. If there is a handicapped child or children and discretionary trusts are being established, then careful consideration must be given as to who will be the executor and trustee, particularly as it relates to the possibility of a conflict of interest with respect to any residual funds after the death of the handicapped child.

If there are no appropriate family members, then consideration will then most likely turn to friends or acquaintances Friends or acquaintances are often of the same generation as the testator, and if so may be a bit too old.

The corporate trustee is certainly an appropriate alternative in many instances, particularly where there is a dysfunctional family and/or a complex estate with sizeable assets. The corporate fiduciary is impartial and will have the necessary sophistication and means to handle a sophisticated estate and/or difficult beneficiaries. The corporate trustee will also have a good understanding of the concept of even handedness and the potential for conflict of interest. Certainly the corporate trustee has a wealth of special knowledge and expertise, and this must be weighed against the negative considerations of choosing a corporate trustee, which are typically the expense, and its relative inflexibility and relative lack of personal touch.

 

7. Duties of an Executor

An executor has a duty to act solely and exclusively for the benefit of the beneficiaries. This duty is construed strictly, and forbids a personal representative from making a profit that is not authorized, or occupying a position where the personal representative’s self interests would conflict with the executor fiduciary duty to the beneficiaries. The Courts of Equity have required personal representatives to ensure that each beneficiary receives exactly what he or she is entitled to receive under the will or the estate. The personal representative must maintain an “even hand” when dealing with all beneficiaries the executor  has a duty in exercising all of his or her powers, whether discretionary or administrative, to maintain the standard of care of a reasonably prudent businessperson managing someone else’s property. Generally speaking, the personal representative cannot delegate his or her duties. The Courts in recent years however have permitted delegation of administrative duties that a reasonable and prudent businessperson would delegate in the management of his or her own business affairs. This would include the use of brokers, real estate agents, accountants, lawyers, appraisers and so forth.

 

Executor Duties Checklist:

1. To dispose of the deceased’s body.

It is the executor and not the testator’s spouse or family, who has the right to determine the place and manner of burial. The Cemetery and Funeral Services Act sets up a priority structure as to who has the right to control the disposition of human remains. First priority is given to the executor, then to the spouse, and then to various categories of relatives. If the person who has the right to control disposition is unavailable or unwilling, the right passes to the next person of the priority list. Proper funeral expenses incurred are payable out of the estate. Generally, the person who instructs the funeral director will be personally liable to pay all expenses incurred, but is entitled to indemnity as a first priority against the estate for the reasonable expenses of a suitable funeral. There are some cases where the executor has been denied reimbursement of the full funeral costs, where the costs have been found to be excessive under the circumstances.

2. Take possession or control of the deceased’s assets.

The personal representative must take steps to search for any cash, jewelry, valuables and the like, and arrange for their safekeeping. Any personal property must be locked up and properly insured. Other assets that may require insurance coverage must also be checked into. Financial institutions and government agencies must be notified of the death. Mail must be re-directed and the bills, including mortgages, must be paid. Rents must be either collected or paid and businesses must be managed for the interim until distribution of the estate or until the sale of the business. A personal representative must enquire as to whether they have sufficient legal authority to carry on the business, and must also be cognizant of the potential for personal liability for carrying on the business.

3. Complete a schedule of all of the deceased’s assets and ascertain their value.

After the executor has taken charge of the assets of the estate, and has made a full inventory of the assets and a valuation of same, the personal representative should then arrange to have an application made to the court for the issue of a grant of probate. In the case where the deceased dies intestate or without a named beneficiary, there is often a delay experienced in finding some appropriate person to step forward and apply for letters of administration. Rule 61(20) of the Rules of Court, seems to assume that in practice, in the absence of special circumstances, the court will usually give priority to appointing as administrator of the estate, the person or persons who have the greatest interest in the estate. In practice consents will be required from any person entitled to share in the estate who has a greater or equal right to apply. Thus, if two or more persons are equally entitled to apply, they must either apply jointly, consent to the appointment of one of them, or be served with notice under Rule 61(20). There is no limitation on the number of administrators who may be appointment.

4. Advertise for creditors.

Before any debts of the estate are paid, the executor or administrator should see to the publication of the proper advertisement for creditors, claims and other claims against the estate. From my experience, common sense should prevail in deciding whether or not to advertise for creditors, as the costs can be considerable. In the case of a little old lady with simple assets and a history of paying her bills on time, it may not be necessary to publish such an advertisement. However if the personal representative is to protect him or herself from liability, then serious consideration should be given to the placement of such an advertisement, as Provincial Legislation states that the personal representative shall not be personally liable to creditors, where notice has been properly given and the assets of the estate have already been distributed.

5. To notify beneficiaries, and persons who would take on an intestacy with respect to an application for probate or letters of administration;

6.  To act personally, although as aforesaid, delegation may be allowed in certain administrative circumstances;

7. To ensure that investments are authorized.

There is a duty to examine the assets and investments of the estate, and in general, to convert in a reasonable and timely manner, the assets that do not qualify as authorized investments for the estate. The executor must be concerned with assets that may waste (ie, an unheated greenhouse) or that are to speculative (penny stocks), or reversionary assets;

8. To complete and file income tax returns and where necessary obtain a Clearance Certificate from Revenue Canada;

9. To pay the debts, including funeral, legal, testamentary expenses, succession duties and probate fees;

10. To claim all debts due to the deceased and generally collect all of the assets;

11. To keep accounts:

The executor has a duty to be prepared to account to creditors and to persons who have a beneficial interest in the estate. The personal representative must give to anyone to whom he or she owes a duty such information as that person reasonably requires. The type and amount of information varies, but the duty to account is owed to beneficiaries, unpaid legatees, unpaid creditors, successors, trustees, others who may have an interest in the deceased’s assets, and others provided for by statutes such as the Public Guardian or Revenue Canada.

12. To continue or bring and maintain court actions on behalf of the estate:

Under Section 59 of the Estate Administration Act, a personal representative of a deceased claimant may continue or bring and maintain an action for a loss or damage to the person or property of the deceased in the same manner and with the same rights and remedies as the deceased, except for certain actions such liable and slander, pain and suffering, and loss of expectancy of earnings. A personal representative may continue or bring and maintain an action under the Wills Variation Act, or an action for constructing or resulting trust on behalf of the deceased.

13. To distribute the assets in accordance with the will or the laws of intestacy.

8. The Executor’s Year

Generally speaking the personal representative must not unreasonably delay in calling in the assets and settling the affairs of the estate, and distributing the assets in accordance with the will or the rules of Intestate Succession. There is no hard and fast rule as to what constitutes undue or unreasonable delay, but as a general rule of thumb, there is an executor’s or administrator’s one year to do so. The general rule is that the executor has one year from the testator’s date of death, and in the case of an administration, the administrator has one year from the date of the grant, to settle the affairs of the estate.

There is case law to the effect that in the case of a legacy, the executor is entitled to withhold payment during the one year, even though the will indicates that the testator wishes payment to be made as soon as possible.

I will not deal with the topic of removal of an executor in the paper, but will do so at a later date.

 

9. Renunciation

Where the proposed personal representative has not intermeddled in a substantial way, then he or she can renounce the appointment as executor. Any renunciation must be unconditional and be in writing and properly witnessed. The renunciation takes effect as of the date of execution, but it may be withdrawn prior to filing it with the court. The renunciation is usually filed at the same time that the application for the grant of probate is made.

There are many reasons why an executor may wish to renounce, and this should be canvassed with the proposed personal representative at the initial meeting, and as soon as possible after the death of the deceased. For example I recently had a Provincial Court Judge renounce as executor, when it was likely that he would be named as a defendant as personal representative, in an action brought for an alleged sexual assault. This would be embarrassing to the executor given his job as a Judge.

If the proposed personal representative is one of two or more executors appointed under a will, then he or she may choose not to participate in the administration of the estate initially, and leave it up to the remaining executors to do so. In these circumstances, the remaining executors would apply for probate, and would reserve the right of the prospective personal representative to apply at a later date if he or she should choose to do so. Reserving the right to apply for probate may be appropriate where the prospective personal representative prefers not to act for reasons such as distance, lack of time, age, illness, or other such reasons.

The fact that an executor has not obtained a grant of probate does not mean that person is no longer an executor. Renunciation is generally preferable to a reservation of the right to apply for probate, unless the non-proving executor seriously wishes to reserve the right to apply for probate in the future.

 

10. The Chain Executorship

If two or more executors have proved a will, and one of them dies after the grant, and no alternative executor has been named, then the surviving executor will continue, unless the will requires a minimum number of executors greater than the number of surviving executors.

However if a grant has issued and the sole executor or the survivor of several executors have proved the will, but dies before completing the administration of the estate, and no alternate was named in the will, then the executor of the deceased’s executor will become the executor of the original testator once he or she obtains probate of the deceased executor’s will. The replacement executor will stand in the shoes of the original executor in all respects.

This rule is referred to as the chain of executorship and it applies only in the circumstances where the executor named in the will has taken probate of the will before death, and each will in the chain must have been proved or probated.

 

11. Estate Executor Fees

Unless the will provides otherwise, all executors whether lay or professional, whether experienced or not, are entitled to be paid remuneration in accordance with the provisions of Section 88 of the Trustee Act, R.S.B.C. This section allows the executor to be paid, in the discretion of the court, up to a maximum of 5% of the gross aggregate value of the estate, including capital and income, together with an annual care and management fee of up to .4% of the average market value of the estate.

In most circumstances, the beneficiaries may well approve a 5% fee to the executor. In many instances however the courts will not allow the executor be paid the maximum 5% of the gross aggregate value of the estate. The courts will enquire into a number of factors, including the complexity of the estate, the experience of the executor, the time spent by the executor, the value of the estate, the amount of time spent administering the estate, and the like. However from a perusal of the somewhat limited number of cases on point, and the growing gross amount of estates largely due to inflated real estate, it would appear that the court very often will award fees more in the range of 2 to 3 rather than the maximum.

Conclusion

It is very important that the testator’s choice of an executor or executors be given sufficient scrutiny and discussion. As previously stated, most clients have little or no understanding of the onerous responsibility that an executor or alternatively an administrator, must perform. An inappropriate or improvident appointment can often complicate the administration of the estate unduly, and in certain cases, unnecessarily result in litigation. Accordingly, it is incumbent upon the drafting notary or solicitor to thoroughly investigate the desired appointment and to provide suitable legal advice.

Power of Attorney Creates a Fiduciary

Power of Attorney Creates a Fiduciary

Attorney Using a Power of Attorney is a Fiduciary

As a fiduciary, an attorney for property is “ obliged to act only for the benefit of the donor,  putting his/her own interests aside”. An attorney is prohibited from using the power of their own benefit, unless “ it is done with the full knowledge and consent of the donor” Richardson Estate v. Mew 2009 ONCA paragraphs 49 – 50.

Duties of an Attorney as a Fiduciary

In Zimmerman V. McMichael estate 2010 Onsc 2947 the various duties of an attorney as fiduciary are discussed, and include:

  • A fiduciary is under a duty to account,
  • A fiduciary has a duty not to co-mingle trust funds with the attorneys property, and to provide an accounting if they are co-mingled
  • A fiduciary must not make a profit or to put him/ herself in a position where his/her interests and his/her duty conflict unless the trust instrument expressly so provides;
  • As a fiduciary, an attorney for property is not entitled to exercise that power for his or her own benefit unless expressly authorized to do so, and;
  • The fiduciary bears the onus of establishing that the management and disbursement of funds is consistent with the terms of the power of attorney

6 Factors of a Fiduciary Relationship

6 Factors of a Fiduciary Relationship

Six factors must exist to create an ad hoc fiduciary duty as per the Supreme Court of Canada in Elder Advocates of Alberta Society v. Alberta, [2011] 2 S.C.R. 261, at paras. 27 and 36.

6 Factors for Fiduciary Relationships:

(1) the fiduciary has scope for the exercise of some discretion or power;
(2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or substantial practical interests;
(3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power;
(4) an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries;
(5) a defined person or class of persons vulnerable to a fiduciary’s control (the beneficiary or beneficiaries); and
(6) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.

Trustee Cannot Be in Conflict With Duty

Trustee Cannot Be in Conflict With Duty

Equity will not allow a person who is in a position of trust to carry out a transaction where there is a conflict between his or her duty and his or her interest.

It is a rule of universal application that no trustee shall be allowed to enter into engagements in which he or she has, or can have, a personal interest, conflicting, or which may possibly conflict, with the interests of those whom he or she is bound by fiduciary duty to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness, or unfairness, of the transaction; it is enough that the interested parties object. It may be that the terms on which a trustee has attempted to deal with the trust estate are as good as could have been obtained from any other quarter or better, but so inflexible is the rule that no inquiry into that matter is permitted. It makes no difference whether the contract refers to real estate, personalty, or mercantile transactions, as the disability arises not from the subject matter of the contract, but from the fiduciary character of the contracting party. Broadly speaking, the reason for the rule is that the trustee should not be placed in a position in which his or her interests are liable to conflict with his or her duty to the cestui que trust. This reason applies equally to a person acting as an agent of the trustee.

For example in Butcher Estate v Hamilton 1997 CarswellBC 1917 (B.C. S.C.) a mother transferred substantial sums of money to her daughter. The transfers were not an  outright gift to the daughter, but were intended to be held in trust by her to use for care of mother and father. The mother and father lacked mental capacity at time of transfers. The daughter breached her  duty as trustee by dealing with funds as though her own.

Obligations of a Power of Attorney

Obligations of a Power of Attorney

The Manitoba Supreme Court in Krawchuk v Krawchuk 2017 MBQB 47 outlined the legal obligations  of a power of attorney.

Manitoba’s laws for powers of attorneys are essentially the same as for British Columbia.

The Court stated inter alia as follows:

18      The applicable law with respect to the obligation of an attorney in his or fiduciary relationship with the donor was not at issue. Some of the applicable principles can be summarized as follows:

(a) as a fiduciary, an attorney has an obligation to act in the best interests of the settler or donor and cannot permit his or her personal interests to conflict with that obligation (see Brown v. Lefebvre, 2007 ABQB 195, 419 A.R. 347 (Alta. Q.B.) at para. 20);

(b) the obligations of an attorney include keeping proper accounts of the trust estate, distinct from other accounts and preserving receipts for cancelled cheques (see Re Lefebvre at para. 21);

(c) the obligations of an attorney include producing accounts to the donor, court and any beneficiary and insuring the accounts clearly show all monies and assets received or accounted for;

(d) an enduring power of attorney requires the highest commitment of good faith, loyalty and trust (see B. (E.) v. B. (S.), 2010 MBQB 15, 248 Man. R. (2d) 260 (Man. Q.B.) at para. 50; Todosichuk v. Daviduik Estate, 2004 MBCA 191, 190 Man. R. (2d) 254 (Man. C.A.));

(e) breach of a fiduciary relationship gives rise to the widest array of equitable remedies (see Todosichuk at para. 21; Wewaykum Indian Band v. R., [2002] 4 S.C.R. 245, 2002 SCC 79 (S.C.C.));

(f) equitable remedies are always in the discretion of the court which is concerned not only in compensating a wronged plaintiff but also in upholding the obligations of good faith and loyalty (see Todosichuk at para. 22; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534 (S.C.C.));

(g) the fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged (see Todosichuk at para. 22; Canson Enterprises at p. 543 per McLachlin J. (as she then was)); and

(h) in considering whether to grant a remedy, and if so, the nature of the remedy, the question of deterrence is often most relevant (see Todosichuk at para. 25).

Statute Barred Debt to Estate Deducted From Beneficiary

Statute Barred Debt to Estate Deducted From Beneficiary

Re Johnston Estate 2017 BCSC 272 upheld the rule in Cherry v. Boultbee  which provides that where a legatee of a share of the residue is a debtor of the estate, he or she is not entitled to receive his or her legacy without bringing his or her debt into account, even though the debt owed by the beneficiary in that case was 43 years old and was statute barred.

The rule derives from the case of Cherry v. Boultbee (1839), 4 My. & Cr. 442. It is an equitable principle designed to ensure fairness.

The purpose of the rule was to prevent a beneficiary who owed money to an estate from receiving more than his or her fair share of the estate.

In the case of Re: Akerman, Akerman v. Akerman, [1891] 3 Ch. 212, Kekewich J. stated:

A person who owes an estate money, that is to say, who is bound to increase the general mass of the estate by contribution of his own, cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it. Nothing is in truth retained by the representative of the estate; nothing is in strict language set off; but the contributor is paid by holding in his own hand a part of the mass, which, if the mass were completed, he would receive back.

29      The rule has been held to apply even where the debt is statute-barred: see Re: Akerman.

30      The applicant submits that the rule continues to apply in Canada and relies on the decision of the Supreme Court of Canada in Canada Trust Company v. Lloyd et al, [1968] S.C.R. 300.

In that case, the Supreme Court applied the rule in Cherry v. Boultbee in finding that the contribution of three directors who had improperly withdrawn funds from the company some 43 years earlier, had to be taken into account in the distribution of the residue by the receiver. The court noted that the situation was analogous to that of a “legatee who must bring into account even a statute barred debt before he can claim a legacy left to him in the testator’s will”.

31      The applicant also relies on a more recent decision of the Ontario Court of Appeal, Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 103 D.L.R. (4th) 129, where the court confirmed that the rule in Cherry v. Boultbee has been accepted in Canadian decisions and, where appropriate, applied.

The rule in Cherry v. Boultbee does not confer on the estate any right to recoup the amount owing but rather operates to ensure fairness in the distribution of an estate, recognizing that the relationship between a testator and his or her beneficiaries is typically not at arm’s length. The fundamental purpose of the rule is to ensure that beneficiaries are treated fairly and it embodies the principal that he who seeks equity must do equity. As the court noted in Re: Akerman, nothing is being retained by the representative and nothing is being set off but rather, the contributor is paid by what he is holding in his own hand.

The court in Re: Goy & Co Ltd., [1900] 2 Ch. 149, also noted that the claimant has in his own hands that which is applicable to the payment and should pay himself out of that. The question of whether the testator or the estate can recover the debt or whether the debt is statute barred is therefore largely irrelevant to the application of the rule. In my view, the change in approach to limitation provisions by the Supreme Court of Canada in Tolofson does not affect the application of the rule in Cherry v. Boultbee.

37      The decision of the Yukon Territory Court of Appeal in Leeper Estate makes it clear that the rule in Cherry v. Boultbee continues to apply in Canada.

39      The Estate of William Leonide Johnston is, however, entitled to retain and deduct from the share of the estate otherwise payable to the respondent an amount on account of the debt owed to the Estate of William Johnston by the respondent that was outstanding and owing on his death.

Relationship Between Parent and Child Is Fiduciary

Relationship Between Parent and Child Is Fiduciary

A (LS) v A. ( WH) Estate 2014 BCSC  1910  (Antrobus v Antrobus) discusses that the relationship of parent and child is fiduciary in nature, and that parents have an obligation to care for, protect and rear their children .

This line of authority was also  established by the BC Court of Appeal in  in M (M.) v F (R.) 1997 BCJ 2914.
The traditional focus of breach of fiduciary duty is breach of trust. A child is particularly vulnerable to her at the mercy of the fiduciary holding the discretion of power. Morelli v Morelli 2014 BCSC 106.
In the A (LS) v A. (WH) Estate case a 62-year-old female plaintiff was awarded in excess of $400,000 damages against her parents who knowingly allowed their child to be sexually abused by her grandfather and his friend as a child,  who were both  deceased by the time of trial.
The plaintiff’s evidence was  accepted that her parents permitted her  grandfather to have opportunity to sexually assault and sexually abuse or even though they knew the grandfather was a child molester .
The Court  found such behavior to be a breach of the parent’s fiduciary duty owed to their, as well as negligent in their parental duties.
The court held  that the parents owed their child a duty of care to take reasonable care to protect her from the danger that they knew of and that their failure to take such reasonable care was responsible for damages caused to the plaintiff daughter.
But for the negligence of the parents, the injuries that  the plaintiff suffered would not have occurred.
The plaintiff was able to prove that the defendant’s negligence caused or materially contributed to her injuries.
The primary test for causation asks ” But for” the defendant’s negligence, would the plaintiff have suffered the injury.
The “but for” test recognizes that compensation for negligent conduct should only be made where there is a substantial connection between the injury and the defendant’s conduct. Hanke     v Resurface Corp. 2007 SCC 7
The plaintiff also sued her father for the intentional infliction of harm or mental suffering, alleging that he verbally psychologically and physically abused her and intentionally inflicted mental suffering on her by inappropriate and cruel forms of discipline.

The elements of the tort of intentional infliction of mental suffering are set out in the Ontario Court of Appeal decision Prinzo v Baycrest Centre For Geriatric Care (2002) 60 O.R. (3d) 474 at paragraph 48, as follows:

1) flagrant or outrageous conduct;
2) calculated to produce harm; and
3) resulting in a visible and provable illness.

Joint Bank Holder Not Liable For Breach of Fiduciary Duty

Joint Bank Holder Not Liable For Breach of Fiduciary Duty

No specific terms of payment were ever agreed between the parties and the defendant was paid the sum of $37,850 over approximately 5 years.

No evidence of mental incapacity was led at trial, although the deceased estate did become incompetent at some point during those years.
The court dismissed the claim as it found there was a loose family agreement that monies  charged to manage to account and that the payments were reasonable under the circumstances.

The Court Reviewed the Law of Fiduciary Duty

[29] . Fiduciary duties can arise without formal appointment as attorney, executor or trustee.[1]

[30]  Fiduciary relationships may arise depending on the nature and evolution of the relationship and the tasks undertaken in furtherance of that relationship.[2] As noted by Justice Wilson of the Supreme Court of Canada in Frame v. Smith (1987) 2 SCR 99 at 136, the following indicia has been accepted as a “rough and ready” guide to assist with the determination of whether a fiduciary relationship exists:

i.           The fiduciary has scope for the exercise of some discretion or power;

ii.         The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests;

iii.        The beneficiary is vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[29]  Fiduciaries are burdened with responsibilities including the duty to act in the best interests of the person to whom they are bound to protect. Fiduciaries are required to vigilantly avoid any conflict between their own personal interests and their duties as fiduciaries.

[30]  At common law and in equity the general rule is that fiduciaries are not entitled to benefit from their appointment. ( Waters on Trusts)

However, this rule is not an absolute prohibition on activities that present a conflict of interest and duty. In the present case Annie had the right to request that Dawn provide care and companionship to her in exchange for compensation. Annie was entitled to organize her finances and personal services as she saw fit. The application of the rule of equity arises as follows: once the court has found a conflict between personal interest and duty the question arises as to whether there was consent to the activity. In this case the question is whether Annie or her attorney provided consent to the payments for personal services.

Proper Estate Expenses

Double Costs and Offers to Settle

Re Vince Insurance Trust 2016 BCSC 1992 reviewed the law as to what constitutes proper estate expenses such that the executor would be entitled to be reimbursed for same. It is a question of fact in each case.

The application for the interim distribution was made under section 155 of the Wills, Estates Succession Act, S.B.C. 2009, c.13, ( and Rules 8 — 1, 14 — 1, and 22-1 of the Supreme Court Civil Rules for the payment of an interim distribution of $250,000 from the estate of Patricia May Burns (“Patricia”) to the defendant Brent Arthur Dale (“Brent”).

29      Trustees are entitled to be indemnified against all reasonable costs and expenses they incur as trustees: Geffen v. Goodman Estate [1991] 2 S.C.R. 353. This is reflected in s. 95 of the Trustee Act, R.S.B.C. 1996, c. 464, which provides, in material part, that a trustee “may reimburse himself or herself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his or her trusts or powers”.

30      The general test to determine whether an expense is properly incurred, and therefore recoverable, is described in Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Thomson Reuters Canada Limited, 2012) at 1209 as:

whether the expense incurred arose out of an act within the scope of the trusteeship duties and powers, whether in the circumstances it was reasonable, and whether it was something that his duty as the trustee required him to do. 

31      The application of this test, generally speaking, would disentitle a trustee to indemnification for expenses arising out of his or her own misconduct: Tebbs v. Carpenter (1816), 1 Madd. 290, and expenses that he or she voluntarily assumed: Waters’ Law of Trusts at 1210. The matter is more complicated, however, in cases where a strict application of the test would preclude indemnity but where the trust benefited from the incurred expense.

32      It has been observed that in such circumstances, it would be reasonable “to indemnify the trustees on the ground that the beneficiaries are unjustly enriched”: Albert H. Oosterhoff, “Indemnity of Estate Trustees as Applied in Recent Cases” in Megan Connolly & Anne E.P. Armstrong eds, Ontario Estate Administration Manual, (Toronto, Thomson Reuters Canada) (WL). Similarly, the authors of Lewin on Trusts, 17th ed. (London: Sweet & Maxwell, 2000) at 539, express the view that where a trustee has acted in good faith and has incurred costs in a transaction benefiting the trust estate, he or she may be entitled to indemnification even where the transaction was unauthorized:

In general, a trustee is not entitled to indemnity if he incurs costs or liabilities in a transaction which is unauthorised and without the request or implied assent of the beneficiaries. However, if the trustee acts in good faith, and the transaction benefits the trust estate, he may be entitled to indemnity to the extent that the transaction benefits the trust estate, though whether the indemnity is a matter of right rather than of discretion of the court is not clear.

[Emphasis added]

33      Ultimately, what is regarded as a properly incurred and therefore recoverable expense is “a question of fact in the circumstances of each particular case”: Waters’ Law of Trusts at 1209. The applicable principle I draw from the foregoing authorities is that there is no absolute prohibition against the indemnification of a trustee for expenses incurred as a result of acts beyond the scope of the trust (including voluntary acts) in circumstances where the denial of indemnification would result in unjust enrichment of the beneficiaries.