To a Boater it’s a Boat; To a Beneficiary it’s a Yacht

Let’s face it – people are living longer today, but all boaters meet their maker sooner or later. Have you ever considered what happens when you appoint a relative or trusted family friend to manage the administration of your estate as an estate trustee or executor? Very few people that make a will understand the significant obligations they are asking their executor to assume, and even fewer understand the personal risks that accompany acting as an executor for a friend or relative.

The role of executor is a personal engagement that carries a very high level of responsibility to the beneficiaries, creditors, and third parties to the estate of the person that has passed away. They are legally required to perform at a very high level of skill in order to protect the interests of the beneficiaries and creditors of the estate – typically to a much higher standard than most people conduct their own personal affairs.

 

Should the executor fail to deliver on their duties, they risk personal financial liability to the beneficiaries, creditors or third parties that are interested in the financial affairs of the estate – and this liability exposure is not insured under typical home, auto or watercraft liability policies.

Some executors claim a fee from the estate for their activities, while many others waive the fee and act for free, but this does not absolve the executor of the statutory obligations and personal liabilities that attach to the role, which is identical in both cases.

So, what do executors do wrong that can result in significant personal financial risk for an error that they have made? There are at least eighteen significant risk areas that surround the role of executor. Here are a few relevant risks related to the administration of a boater’s estate: not properly valuing estate assets; not properly protecting estate assets; delay in payment to beneficiaries; and failure to keep accurate records of the administration.

Let’s consider a boat – say an older 42 foot express cruiser which is located at a marina.

The executor is responsible to protect the asset – should they perhaps haul it mid season, winterizing the systems, and covering it appropriately to protect it from the elements while they advertise to try to sell it “on the hard”? Or should they leave it in the water and try to figure out what’s required to maintain it, protect it, insure it and sea trial it while it’s at dockside? Do they delegate the matter to another individual or to the marina and trust that this will produce a better result?

Next, what about valuation of the asset? Is there a qualified surveyor available that can competently provide valuation, or should the executor rely upon a published guide on boat values in North America? Is the boat a creampuff that was lovingly maintained and upgraded by a single careful owner, or is it a dog that has changed hands through multiple careless owners? Does the manufacturer have a good or bad reputation and will it impair or improve the marketability of the boat? How long is reasonable to hold the asset for sale? The length of time required to sell a boat is often (but not always) a function of price. Does the executor drop the price to encourage the sale in order to pay the beneficiaries quicker, or wait for a period of time for the market to harden in order to fetch a better market price?

These are often hard questions for which there are often no absolute right or wrong answers. We’ve all seen boats at the marina that have been for sale there for, well, years – and the owners may be knowledgeable boaters that have wrestled with these questions, trying to weigh storage and insurance costs versus dockage and operational expense, paying commissions versus private selling and yet remain unable to sell the boat.

The estate executor may be a person that knows absolutely nothing about boats and may not know anyone to consult with in the short term (like, say, around haul-out time) when a wrong decision or delayed decision can have a profound impact on the ultimate condition and price of the boat. Now, consider the perception of the value of the asset; do the beneficiaries of the estate have a reasonable expectation of the value? Remember that to a landlubber, a boat that contains a head is a “yacht” and that means valuable!

The decisions taken will ultimately be scrutinized by the beneficiaries and creditors after-the-fact. Even though the executor may have taken every reasonable step to maximize value and minimize expense, they could still face a lawsuit from dissatisfied beneficiaries (which could include charities entitled to some of the estate proceeds) or creditors that believe that the “yacht” asset was mismanaged, poorly protected, undervalued, or sold too slowly or too quickly and thus reducing the value of the estate. This is a particular risk when the estate doesn’t include a house, and the boat is perceived to represent a large part of the value of the estate . . .

If the executor is unable to defend their actions, they may be required by the Court to personally pay some or all of the costs of defending his or herself, reimburse some or all of the unrealized value of the boat asset back to the estate, and reimburse the beneficiaries for the costs of their action.

Sound far-fetched? It’s not. Estate litigation is a growth area in the practice of law given the aging population, new and unusual family dynamics that result from divorce and remarriage, general comfort with litigation as a means of dispute resolution, and most importantly, access to information and benchmarking standards made available as a result of the existence of the Internet. And the same executor risks apply to any asset under estate administration, not just the boat in this example.

Some solid planning makes sense:

  1. Make sure to prepare a will (half of Canadians don’t have one) and have your lawyer help you to draft terms to deal with appropriate disposal of such a specialty asset, perhaps leaving it specifically to someone who actually wants it; and
  2. Talk to your executor about the terms of the will and provide them with some technical information that might help with managing their affairs; and
  3. Provide direction within your will that direct your executor to purchase specific Executor Liability Insurance to protect the executors’ personal liability resulting from the estate administration, and which contingently protects the beneficiaries; and
  4. Discuss the terms of your will with your beneficiaries so they have some idea of what to expect (or what not to expect) which will make the executors’ task more manageable.

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Downloadable Resources

Want more information on planning, preparing and administering an estate? Download our easy to use reference guides and resources to help you along the way.

 

  • Executor Liability Insurance - Return the completed application to our office to find out if you are eligible for executor liability insurance.

 

  • Fiduciary Bonds - Have you been asked to provide a bond for the estate? Download the application and follow the directions to apply for a bond.

 

  • Free Executor Guide - If you have been asked to be an executor or are acting as an executor this guide will help you understand your responsibilities and help track your activities.

 

  • Free Will Preparation Guide - A step to step guide to the questions you will need to address when preparing your will.

  


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