What you may not know is that as the Executor, you’re also financially and legally responsible for the estate. That means that if anyone has a problem with the way you’ve handled the estate funds and assets, you could be sued.
So just what is Executor Insurance? It’s the protection between you, the Executor, and the risks that come with the role.
Estate litigation disputes are unfortunately quite common in Canada. They occur when someone takes issue with the way estate administration tasks are being handled by the executor, such as the division of personal assets.
Wills that don’t reflect the reality of the family situation are one of the leading causes of estate litigation disputes. This is usually the result of an outdated will or late-life will changes. Many people are unaware that marriage, remarriage, divorce, or separation are appropriate times (among other life events) for a new will or will update.
Many Canadians don’t have a will at all, which can leave the division of your estate to government rules. This could be the opposite from what your family was anticipating, and the resulted estate dispute isn’t strong without a will to interpret.
2. Family Law
Some Executors get an ugly surprise when they find out that the estate is still owing child support, alimony, or promised reparations. Death does not excuse you from family law obligations – it simply passes them on to your executor, who is typically a family member.
Don’t leave the burden of negotiating a settlement with an ex-spouse or estranged child to your loved one.
In many cases estates are tied up awaiting probate, which means the Executor will have to cover the bills until the estate funds can be accessed. (What’s probate? A process required for accessing the estate bank and investment accounts and for transferring real estate titles.)
It can sometimes take months to collect the information, apply, and receive the court-prepared documents that are issued when the probate fee or estate administration tax is due.
Lawsuits that arise during the course of administration can be a problem for the executor and the beneficiaries of the estate.
Estate litigation legal fees can run as high as $800 per hour, so preventing the estate funds from being drained by potential legal costs and court outcomes is a real concern.
6. Family Dysfunction
Petty grievances, long-standing grudges, and conflicting personalities can all rise to the surface after the death of a parent or loved one.
It can make it very difficult for the executor to conduct their estate administration tasks, and the longer an estate takes to close, the higher the tension grows as beneficiaries wait for their inheritance.
One common family dispute is over personal items. The Executor must take inventory of all assets and repay all estate debts before giving out anything – money or otherwise – to beneficiaries. But family members often want a memento or personal belonging right away.
7. Executor Compensation
Executors are entitled to be paid by the estate for the work they perform. After all, the average estate can take two years to close – and that’s without any estate litigation disputes.
Being an Executor is often compared to having a part-time job, but often a thankless one as coming to an agreement with beneficiaries about a reasonable executor fee is often challenging.
Sometimes there are family members excluded from the will or given a lesser inheritance, and this often incites legal action and should be considered a red flag.
If you are planning on omitting someone or making a specific decision in your will like giving one child more than another, please include a personal note of explanation with your will documents. It will make your Executor’s life a lot easier.
Undocumented or poorly documented loans from the estate may require collection by the executor. This can become an estate litigation dispute quickly, as the legal obligation requires the executor to claim it, no matter their relationship with the borrower.
“Everyone who has loaned money from a parent will insist that it was a gift and not meant to be repaid. This can cause a problem if that isn’t what the will says.” – Scot Dalton, ERAssure CEO
10. Hyper Vigilant Beneficiary
The executor who has previously acted as Attorney for Property or Personal Care for the deceased person is often named as an executor of the estate. This is always a bit of a red flag, because hyper vigilant or skeptical beneficiaries may be suspicious of the executor’s previous role.
For example, were they managing the estate honourably as the Power of Attorney or with their own personal gain in mind?
If estate litigation disputes are so common in Canada, then how do we resolve them? You can’t 100% prevent someone from taking you to court, but there are things you can do as an Executor to reduce the risk:
If you can,ask the testator or owner of the will to include a personal letter of explanation, specifically outlining any potential red flag areas like if there is existing child support, if a family member is omitted, if there are any outstanding debts and if they are to be repaid, etc. Leaving as little interpretation as possible in the will is critical.
Keep a detailed record of all your decisions, tasks, and communications as Executor. Important things to note are communications with beneficiaries, payments made, debts repaid, important estate decisions made, real estate dealings, potential delays in estate closure, inventory of personal assets and their whereabouts, etc.
Be as clear, cooperative, and communicative with your beneficiaries as possible. Many estate litigation disputes come from beneficiaries either as a result of a strained executor-beneficiary relationship, perceived estate administration mistakes, or issues with the will interpretation.
Create a timeline of the expected estate closure and share it with the beneficiaries. Some may be very eager to receive their inheritance and frustrated with any delays in estate administration.
Always have a legal professional assist in the interpretation of the will. This is a critical step in the process and a topic that produces many disputes. Review and gather the estate documents, make a plan for completing your tasks, and then review the will with your legal representation.
Are you 100% certain you’ve thought of everything you need to cover in your estate plan? Children, real estate, pets, financial assets, business succession plans, and charitable donations are the tip of the ice berg.
It’s a big mistake that you may not even know you’ve made – you’ve forgotten to add a beneficiary to your RSP or RIF.
When you’re setting up an RSP (or RIF) OR transferring funds from an RSP to an RIF, you need to triple check the paperwork and make sure your beneficiary is properly named or transferred from the previous account.
Every year brings new technology to make our lives easier and more efficient, but as we all sign up for electronic billing, social media accounts, and financial planning apps, it makes estate planning in Canada more complex.
If you or a loved one were to pass away suddenly, consider these questions:
Does anyone have your social media passwords?
Does your significant other know all of the apps and accounts you use for online banking, investing, taxes, and budgeting?
Does anyone have access to your subscription services like Netflix, Spotify, or Disney+?
Is there a record of any cryptocurrency you may own, like Bitcoin?
Do you own an eCommerce store like Etsy or Shopify? Does anyone have access and is there a succession plan for managing it?
Some people are beginning to plan ahead by using password storage solutions such as Passpack, but many Canadians are still not even considering the fact that their Executor could be locked out of very pivotal accounts with essential information.