How Executors Avoid Personal Liability. Lynne Butler
bracket. You may not know the reason for the trust, but you are still required to set up the trust as directed by the will.
If the will directs you to set up a trust, it is not up to you to decide that a trust is not really needed. That decision simply is not within an executor’s authority.
Beneficiaries are sometimes annoyed or even angry that their inheritance is to be held in trust. They take it as an insult. They make comments such as “I’m not a minor, and I’m not disabled, so why can’t I have my money now?” They will pose the same question to you, the executor, and will exert a great deal of pressure on you to simply hand over the inheritance.
Before you give in to that pressure, consider this situation. Say the will instructs you to hold $100,000 in trust for Roger until he turns 30. Roger is now 22. The will contains the usual wording that Roger may have access to the money for medical or educational expenses at any time before then. Neither you nor Roger can see any obvious reason for the trust, so you pay it out to him.
However, every trust is written with instructions on what to do with the money if the beneficiary does not reach the age set out for receipt of the money. Say, in this case, that the will says that if Roger passes away before age 30, Roger’s sisters will receive the money in the trust.
Let us say that Roger dies at age 28 in a car accident. His sisters then step forward to claim the $100,000. The funds are no longer in trust because you paid them to Roger, who left them in his will to his wife. You would be liable to the sisters for the $100,000, plus interest.
The only safe route for you is to set up the trust as directed by the will. There are some parts of estate distribution that may be changed if all beneficiaries agree in writing, but this is not one of them. If there is a good reason to challenge the money being in the trust, you may approach the court and ask for permission to do so. However, you should be aware that courts in general do not like to second-guess the testator’s reasons for the trust.
4. Ignoring Parts of the Will
Similar to ignoring trust instructions, this section refers to an executor who decides to follow only the parts of the will that are convenient. An example of this is an executor who really does not feel like working with a co-executor, so simply ignores the part of the will that appointed the second executor and does not tell anyone about it. This has been tried by some executors, but they are always found out.
Executors have also been known to ignore sections that they do not believe to be fair (as discussed in section 1.). For example, an executor might not want to sell the family farm even though that is directed in the will, or may not wish to pay out a bequest to a charity. The fact that the executor wants to farm the land himself or herself, or does not approve of the named charity, is simply not good enough.
As an executor, you must carry out all directions given in the will, even if some of them are not what you would have done had the property been yours.
5. Acting while the Testator Is Still Alive
A fact that does not always seem to be clear to those named as executors is that they have no authority under a person’s will until that person has passed away. A surprising number of people will attempt to look after a parent’s estate while the parent is still alive. These executors state that they are allowed to sell Mom’s house or distribute Dad’s bank account because of their appointment as executor.
These individuals in fact have no legal right whatsoever to access the parent’s assets. They likely have the roles of executor and Power of Attorney confused. Only a person named under a Power of Attorney document may deal with a person’s assets while that person is still alive.
Many an executor has experienced frustration, confusion, and even anger when banks, lawyers, realtors, and financial advisors refuse to help them deal with the parent’s assets while the parent is still alive. The simple solution, if the parent still has mental capacity to deal with legal documents, is to advise the parent that in order to provide help sooner rather than later, the executor will also need to be named under a Power of Attorney.
When you think about it, this makes perfect sense. Nobody can sell our assets, because we own them. The fact that we have named someone to do something for us in the future does not allow him or her to take, sell, or distribute what we own now. Executors who are the children of aging parents often do not seem to be able to step back and see their parents as individuals with rights that exist outside the family. They tend to think that because they are the children of that person, they can usurp that person’s rights when that person gets older.
The law simply does not allow this. Being someone’s child does not give you any right to dispose of his or her property. Being named as someone’s executor does not give you any rights while he or she is alive. You must still follow the law, even with your parents.
Chapter 3
An Executor Must Obtain Valuations
When you are dealing with monetary assets such as bank accounts, bonds, or investments, it is easy to ascertain the value of the asset simply by looking at a statement from the financial institution. You are entitled to rely on a current, bank-generated statement as being accurate. Other assets are not as easy to valuate.
As an executor, you are liable for the loss to the estate if you sell an asset for less than it is worth. You are also liable if you give something away or throw it away thinking it is worthless, and it later turns out to have value. You must be very careful to understand what you are dealing with in an estate and to place correct values on all assets.
Wherever possible, get appraisals or estimates to back up the value you put on assets. For example, when you sell a house or other property, you would do well to get at least one appraisal first. Many executors obtain two or three appraisals and average them out to determine the selling price. You must sell at fair market value. If you do not, you could be held liable for the difference a beneficiary may not have received as part of his or her inheritance, if that person decides to take you to court. The more expensive or complex a property, the greater the chance that at least one beneficiary will believe that you have sold it too cheaply. If the beneficiaries are already arguing about this, or if one of them wants to buy an estate property, protect yourself by getting two or three appraisals.
Where an estate is modest and it just does not make sense to hire an appraiser, you should at the very least get estimates from local realtors. These can be obtained at no cost. Two or three valuations by realtors are better than one. Get these in writing and keep them to demonstrate why you sold the property at a given price.
Also note that when you are preparing the estate inventory (the list of assets), the values you place on the assets must be the value on the date the person died. If on the day your mother died she had $15,000 in her chequing account and owed $1,000 on her Visa card, you must show both of those amounts on the inventory. If you have already paid the Visa by the time you prepare the inventory, that does not change anything. You must show the situation as it existed on the date of death.
It is also important to remember that when you prepare an inventory of the estate, which every executor must do, you will have to swear under oath that the values are accurate. Therefore you should do everything you can to ensure that you are not swearing to something falsely, which is also referred to as committing perjury.
1. Selling Major Assets below Market Value
If you are selling a vehicle, do a bit of research first to see the selling price of similar vehicles of similar age and condition. Look around to find the usual asking price for the vehicle. Do not just look at one classified advertisement or eBay offering; look at several so that you are confident you know the price is right. Keep these advertisements or printed web pages in your files to show how you arrived at the selling price. Quite often, there may be a nephew or a friend who would like