Executor or Estate Trustee

The Canadian Bar Association

Preferred SuppUoi

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ESTATE"ft"' S R L_ E

92% of estates in Canada have assets less

than$1M



Agenda

Executor Risk - What is it?

Traditional Protections

Social Environment Challenges

New Threats

Why Worry?


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The Executor

There's no such thing as "The Estate of John Smith".• A dead person can't sue or be sued

• The executor is called the personal representative of thedeceased person - it is the party(s) that can sue or be sued onbehalf of the deceased

• Executor essentially has all the rights, abilities and obligations ofthe deceased party in respect to managing the estate

• Need to follow the directions in the will to the best of their ability

• Once you start to act as executor (including arranging the funeral)it's difficult to be legally excused from duty

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Executor's Duties

Obtaining probate

Identifying and notifying beneficiaries

Advertising to creditors

Collecting and secure assets

Collecting accounts receivable

Paying liabilities including taxes

Accounting for assets and liabilities

Accounting for administration

Distribution of the money

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Executor Legal Liability

Executors have a fiduciary duty* to the beneficiaries andcreditors of the estate of the decedent.

• Executors are personally liable to 3rd Parties (includingcreditors)• In Contract and In Tort

• And personally liable to Beneficiaries (including charities)• Investment Losses and Breach of Trust

This liability doesn't end because the estate has beendistributed or is out of money . . . and the risk is notcovered under personal liability insurance policies.

Courts conduct rigid examination of transactions between people involved in fiduciary relationships towar

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r. Particular scrutiny

ER^SSCJkEESTATE RISK ASSURANCE

Working EnvironmentGood '01 Davs

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Nuclear families

Less sophistication in estate composition

Less money

Less transparency

More effort and expense to prove wrongdoing

Less comfort with litigation as a means of disputeresolution


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Working Environment:Todav

•

New family structures make estates more complicated

Amounts at risk and complexity in composition of assetsis growing

More comfort with using litigation to solve problems

The Internet has created new knowledge andexpectations

Expectation of inheritance sets the "expectedperformance bar" high for executors

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Where Problems Start

Things that cause us worry:

• Hyper-vigilant charities as beneficiaries

• Family law issues that complicate identification ofbeneficiaries

• Parents covertly lending or guaranteeing debt of adultchildren

• The Power of Attorney Hangover

• Joint Accounts

• Executor Apathy and/or Lack of Knowledge


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Where Problems Start

The DO IT YOURSELF environment

• Private real estate sales

• Financial Investments (day trading)

• Will Preparation

When the executor (or the testator) has employed

DIYpractices, the legal liabilities that a professional would

otherwise have borne are now shouldered personallyby the executor.

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And More Trouble . . .

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Beneficiary challenges related to estate planning financialmechanisms.

Paying foreign beneficiaries

Intestacies

Deathbed wills

Nefarious activities - attempting to settle abuse claimsafter death and in the will

Joint accounts problems

Family law troubles


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Protection?

Some potential legal protections exist. . .

• Possible indemnification through estate assets

• Statutory Limitation Periods

• Trustee Exemption Clauses

• Passing Accounts

ALL INCUR LEGAL EXPENSES AND POTENTIAL

PERSONAL LIABILITY


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Trust Company

Trust Company• Experience

• Independence

• Skill

Trust Company as co-executor or under agencyagreement with the individual executor• Can mitigate risk for the individual executor but doesn't relieve

them of their fiduciary duty or personal liability

A good start to the risk solution . . .


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Court Trends •Insurance

Changing Attitude of the Courts

• No more paying all costs out of estates and more focus on rightsand entitlement of beneficiaries and creditors

• Appropriateness of long held traditional remedies more frequentlycoming into question in current court decisions


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Insurance Has A Role In This Environment

Executor Insurance

• Covers the cost of defense and settlement when the

estate trustee or executor receives a demand for

damages for negligent performance of their duties

• Designed for the trusted family friend or relative that doesnot have the benefit of professional indemnity protection

• Available for an executor using a trust company foragency services

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Preferred Supplier



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Which Estates Should Consider Insurance?

PERHAPS EVERY ESTATE

• Relationships, emotions and money are always anunpredictable combination

• Money can be thicker than blood

• No one can predict which estates will turn sour as a resultof:

• Amount of money at risk

• Family relationships (including sibling's spouses)

• Perceived or actual poor performance allegations of executor byfamily beneficiaries or charitable institutions

• Expectations created courtesy of the Internet


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Summary

• Every executor has personal risk during and for sometime following the estate administration

• Using a trust company as an agent can mitigate some ofthe risk and make the effort more manageable

• Arranging administration insurance can cover many legalexpenses that result from administrative issues that ariseout of the terms of a will

• Trust agency services and insurance protection bothneed to be organized before the estate becomes volatile

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