Are you prepared for the risks?
Executors can be held personally liable for the decisions they make in the course of estate administration. Although you will be acting in good faith, errors – or disagreements and the perception of errors – can result in the executor and the estate being sued by beneficiaries.
Communication is the single biggest source of problems for the executor.
Why do executors get sued?
Challenges for executors typically occur when the executor has made an error or a beneficiary thinks the executor has made an error in any or all of the following areas in the administration of an estate:
- Favouritism: Preferential or prejudicial treatment of certain beneficiaries resulting in a loss of entitlement by another beneficiary.
- Loss of money or value: Timing issues related to the sale of real property or various types of financial instruments that result in diminished value of the asset.
- Conflict of interest: Allegation of conflict of interest on the part of the executor whether the executor is also a beneficiary or not.
- Error in value: Failure to valuate or improper valuation of assets.
Here are some real examples that resulted in a lawsuit against the executors:
- The executor allowed the newly divorced son of the decedent to move into the family home as that’s what the executor thought the decedent would have wanted. However, the executor let the son live in the home rent free for over a year while he got back on his feet. The cost to the estate was $15,000 in lost rental income.
- A woman was appointed the executor of her grandmother’s estate which included a house. As the grandmother had lived in the home for over 50 years, the executor decided to have a garage sale and sell all the junk, including an oil painting for $10. A beneficiary later came forward and indicated that the deceased had some valuable art pieces – including the painting the trustee had sold for $10. The cost to the estate was $65,000.
- The executor of the estate moved power tools from the deceased’s premises into storage while preparing the house for sale. Later, when the executor returned to collect them, he discovered that the owner of the storage facility had sold the tools for arrears of rent. Cost to the estate $35,000.
- A mother dies dividing her estate between her 4 children. While distributing the assets of the estate, the sole executor gifted the decedent’s boat to his brother-in-law leading to a claim for favourtism by the beneficiaries. The arguments brought by the beneficiaries did not lead to a finding of favourtism by the courts. In this case, the defense costs incurred by the executor were ordered to be paid by the estate. Cost to the estate $84,000 for legal fees.
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