New Insurance Product Helps Estate Executors Douse Potential Fires

Article by Chuck Howitt, Record staff:  November 10, 2012

KITCHENER — It’s a task you might be asked to perform once or twice in a lifetime, if at all.

Usually an elderly parent or close family relative is the one who will ask you to handle the job. The responsibility is usually accepted on a whim without much thought of the obligations required.

“We call them the trusted family friend or unfortunate relative,” Scot Dalton says.

Dalton is talking about the executor of the estate, the person tasked with identifying the assets in a person’s will and distributing them to the appropriate beneficiaries.

Dalton is chief executive officer of ERAssure (pronounced era-sure), a Kitchener firm he launched recently with partner Myron Neufeld to provide insurance for executors, estate trustees and estate administrators in Canada.

His use of the word “unfortunate” to describe a relative tapped to do the job is no accident.


Serving as an executor is a much more onerous task than many people think, he says. The list of duties is daunting.

It includes identifying and protecting the assets of the estate; identifying and notifying beneficiaries of the estate; determining accurate values of the assets; providing accounting and reporting materials to beneficiaries, creditors and third parties who may be affected; liquidating assets to pay any debts; and distributing money and assets to beneficiaries.

While the process of serving as an executor hasn’t changed much in the past 25 years, the dynamics have, says Neufeld.

For one thing, divorce and remarriage are much more common nowadays. This poses a major challenge if the will leaves assets to groups of beneficiaries not specifically named, such as grandchildren, nieces or nephews.

The growth in private sales has made the real estate market more complex than it was years ago, and volatility is the norm on financial markets nowadays, creating all kinds of timing issues, Neufeld says.

Not only that, people are living longer, interest rates have been flat for years and beneficiaries are often carrying unprecedented debt levels, Neufeld says. “When the son-in-law was thinking he was going to get $300,000 and finds out now that when dad passed away there’s only $50,000 left because the markets have declined and they’ve eaten into that capital, it poses real challenges.”

Beneficiaries are more inclined to sue today if they feel wronged, and armed with data from the internet they have more information at their fingertips on which to judge the performance of the executor, Neufeld says.

Many people leave money to charities, Dalton says. With donations in short supply these days, those charities are more likely to come after an estate if they feel shortchanged, he notes.

Unexpected issues can crop up such as dad making a $100,000 personal loan to one of his children that wasn’t paid back, or selling the house privately and not disclosing a serious crack in the foundation that’s discovered a year later, says Neufeld.

The house deal that everyone thought was closed may not be closed after all, he says.

Protecting physical assets is also part of the executor’s mandate. But what happens if a sister goes into the house and takes a valuable antique promised to her by the parent, but not included in the will?

And just because all the money has been distributed doesn’t mean the job is over, says Dalton. “The tail of liability” can follow an executor for up to 15 years, he estimates.

Years ago, closing accounts and paying bills was much simpler when there was a paper trail, but in today’s world of electronic payments and passwords, that task is no walk in the park, Neufeld says.

He estimates a typical executor has about 70 different jobs to perform. Many people want their estate handled by someone with a close personal relationship to the family, but the executor who goes to a professional for help can’t offload their responsibility if a problem arises, the pair says.

Dalton likens estate administration to driving through a neighbourhood where there’s going to be a house fire. You just don’t know where it’s going to be and what the cause is, he says. It’s a task performed “for little or no compensation and little or no thanks,” he says.

Erassure — the name comes from Estate Risk Assurance — is the first firm in the country to provide insurance for executors and estate trustees, the pair says.

The product hasn’t been offered in the past because insurers generally prefer to underwrite something tied to a single event, such as a fire or car accident, rather than something that stretches over time such as an estate closure, Dalton notes.

Erassure manages the product line and distributes it through independent brokers across the country. The insurance itself is underwritten by Waterloo-based Economical Insurance.

“It may be the first truly new insurance product in the property and casualty marketplace in the last 25 years,” says Dalton.

The idea came about when Dalton helped his mother-in-law with the administration of her husband’s estate in 2008. The task turned out to be much more complicated than he thought and also entailed some financial risk on his part.

When he discovered there was no insurance to cover his exposure, he and Neufeld began assessing the feasibility and risk of offering such a product.

They were shocked to learn that nearly half of the roughly 250,000 people who die in Canada every year don’t leave a will. In such cases, an executor is appointed by the courts.

Many lawyers told them they were surprised that someone hadn’t offered this kind of insurance a long time ago, says Dalton, who met Neufeld about 10 years ago while they both worked at Fairfax Financial in Toronto.

Dalton has a background in property and casualty insurance, having worked at his father’s fromer firm, Dalton & Associates, in Kitchener. Neufeld’s background is in life insurance. In 2002, the pair decided to form a brokerage in Kitchener, called the Encore Group, that specialized in both types of insurance.

They still run that brokerage out of an office tower on Duke Street. Erassure, which has 11 employees including Dalton and Neufeld, is managed out of space on another floor in the tower.

The company did a soft opening about 18 months ago. Much of that time was spent testing the concept with the legal community, earning Erassure the status of preferred supplier of estate insurance by the Canadian Bar Association.

In all, Neufeld estimates they’ve talked to about 3,000 lawyers about the program.

Only recently, has Erassure begun offering the product through insurance brokers.

The cost of the insurance is “very inexpensive” compared to the potential liabilities, Dalton says. For the average estate with less than $1 million in assets and a closure time of less than three years, the cost is under $2,000 and would be paid from the assets of the estate, he says.

Ian Hull, a lawyer specializing in estate litigation with the Toronto law firm of Hull & Hull, says some of his clients already are using Erassure’s insurance. “It’s always amazed me that it wasn’t out there before,” he says.

“I’ve seen a huge volume of problems arise in an estate administration and estate litigation, most of which are entirely unforeseen by the parties involved,” Hull says.

“I see it as obvious choice. If I’m going to go into something (like an estate administration), I would do it with a little insurance behind me.”

With about $1 trillion in personal assets expected to change hands in Canada over the next 25 years, the pair see a huge business opportunity.

Wills and estates law is the biggest growth area in the legal field since changes in family law in the 1970s and 80s, Dalton says.

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