How Executors Avoid Personal Liability. Lynne Butler
and would have included the specific powers you need to do that. In an estate where there are no disputes or struggles, the powers may be less crucial, but in most estates, the executor must rely on the powers for his or her legal authority to carry out certain tasks.
Even though federally it is implied that administrative tasks may be outsourced by the executor, some of the specific powers that you should be able to find in the will you are administering are:
• Power to sell real estate.
• Power to make income tax elections.
• Power to hire agents such as accountants, lawyers, or realtors.
• Power to give items to beneficiaries in specie, which means the ability to give a beneficiary an actual item without having to sell the item and give the beneficiary the funds.
Some wills need more powers than others, based on the needs of the person whose will it is. For example, a person who owns a business should have a will that allows his or her executor to carry on the business until the company is sold, and to deal with corporate matters such as registry filings and corporate resolutions.
When there are minor beneficiaries of the estate, further powers are needed to let the executor know who may handle money on behalf of the minor.
The lack of these powers in the will is a tricky situation for executors. Where the powers are present in the will, you can carry out the steps you need to take based on the will. Where the powers are absent, local law often requires either the written consent of all of the beneficiaries, or an order of the court allowing you to take the step. Be cautious when you want to carry out steps for which there is no specific power given. You may wish to consult a lawyer for an opinion on whether you have the legal authority to take steps such as:
• Selling, winding down, or carrying on a business.
• Selling a home even though there is enough money in the estate to pay the debts without selling the home.
• Rolling over an RRSP or RRIF to a spouse.
• Settling a lawsuit or claim on behalf of the estate.
Chapter 2
An Executor Must Follow the Will
Though the heading “an executor must follow the will” seems straightforward, a failure to do so includes a whole variety of ways in which you can get into real trouble. Executors do not always understand — or perhaps, do not want to accept — that the will is the foundation of the estate. It is not simply a document that confers a title of authority on him or her; it also contains important instructions for an executor to follow. Doing anything else amounts to paying the wrong amounts to people, which creates liability for the executor.
1. Making the Will “More Fair”
One scenario that is shockingly common is that of an executor who decides that the will “isn’t fair” and decides to distribute the estate in a way not set out in the will. Typically, this happens in a family when one sibling is made the executor. He or she may think it is unfair that everyone gets the same amount under the will when one sibling was a caregiver to the parent for years and received nothing for it. Or, he or she might decide that it is not fair that one person is supposed to receive more than another person, since their parents loved all of them equally.
Executors and beneficiaries alike may be confused when they see a will that, on the face of it, treats the beneficiaries differently, when over the years they have heard their parents say that everyone would be treated equally. They forget that their idea of what it means to be treated equally simply may not be the same as that of the parent. They may not know everything that transpired between the parents and each child.
Rearranging the distribution in the name of improved fairness may also arise in a blended family. An executor who is a member of the deceased’s first family may decide that it is not fair that some of the estate goes to the second family, or vice versa. Occasionally, executors who are children of the first marriage attempt to ignore their parent’s wish to leave a part of the estate to the new spouse. Blended families can be a minefield of estate litigation because of executors who get caught up in emotional issues of what is and is not fair.
Sometimes executors overlook the fact that on intestacy, all biological children of the deceased are included in the distribution to children. If the deceased had a child of a previous marriage, or had a child out of wedlock, that biological child is entitled to the same share as a child who was born in the deceased’s current marriage. This is true even where the deceased had little or no contact or relationship with that child.
Despite the fact that an executor can convince himself or herself that this is reasonable, it is not. It is neither the executor’s will, nor the executor’s money, and therefore it is not the executor’s decision to make about what is fair. Like it or not, the executor’s job is to carry out the instructions contained in the will and not to change them to suit his or her own values.
An executor who changes a will to make it “more fair” runs a very substantial risk of being sued by someone who is left out in the cold by the reconfiguring of the estate distribution. In fact, a lawsuit against you is all but guaranteed in that circumstance. If you have been named as an executor but feel that you simply cannot deal with an estate because it is just so unfair in your mind, then perhaps you should decline the job altogether.
2. Giving Personal Items to Those Not Entitled to Them
Another situation that is distressingly common is when the executor allows family members or others who are not named in the will to select personal items from the deceased’s home as a memento. Though this sentiment is usually well-intentioned, it is not within the executor’s authority. If you allow this, the beneficiaries have a right to object, and you should expect to pay for those items out of your own money.
This is a tough one for many executors. You may be pressured by family members who will play on your sense of fairness and loyalty to family members. You may end up feeling guilty and tight-fisted if you refuse to give a Royal Doulton figurine to a niece or the power tools to a grandson, even though those individuals are not named under the will. Try to remember that although it may please that niece or grandson to be included, your actions will likely upset someone else.
Not all wills contain specific instructions on how to deal with household and personal goods. The best wills contain a separate paragraph or two that give directions as to who may share in the division of household items. Usually this will include giving the executor the power to resolve a dispute when two beneficiaries want the same item. Remember that if household and personal goods are not specifically mentioned in the will, they become part of the residue of the estate and belong to the residuary beneficiaries. They are not yours to give away.
If two beneficiaries want the same item from the estate, you must resolve the dispute. Take care to use a method of resolution that is fair to both people and shows no favouritism on your part. Flipping a coin is acceptable.
3. Not Following Trust Instructions
On occasion, an executor is directed by a will to set up a trust for an individual. The reason for a trust described in the will you are administering may or may not be obvious to you from the will itself. Most people realize that trusts are required for underage beneficiaries and individuals who are mentally challenged. Many people also know that trusts can be set up for people who are not very good at handling money. However, there may be any number of reasons that the deceased wanted a beneficiary’s share to be held in trust.
Trusts are sometimes set up because the deceased wanted to protect the beneficiary from creditors, or from a spouse in a shaky marriage. The deceased might have wanted to preserve an asset for another beneficiary after the first one. Perhaps the trust was set up so that the beneficiary would