What do I need to know about Executor Liability Insurance?

What do I need to know about Executor Liability Insurance?

Many people know what an executor is, but very few actually realize there’s a laundry list of estate administration tasks that come with the role.

Being an Executor is the miserablest, rottenest, nastiest job that you never applied for.”

Jim Kibble, Founder of Ontario Estate Consulting Solutions Inc.

As a future executor with aging parents, you should be asking yourself – what do I need to know about Executor Liability Insurance?

In this exclusive interview, estate experts Scot Dalton and Jim Kibble give essential estate planning advice from over decades of insurance experience:

Meet Your Hosts

Scot Dalton

CEO of ERAssure
40+ Years Insurance Experience
Certified Executor Advisor

Jim Kibble

Founder of Ontario Estate Consulting Solutions Inc.
Trust and Estate Practitioner
Certified Executor Advisor

Listen to the Full Interview

Main Takeaways for Executors

  1. Transparency is key when you are an executor or Power of Attorney.
  2. As the executor, you can be sued by claims against the estate. That means potentially paying out-of-pocket for legal fees, lost value in the estate, and other expenses.
  3. In the event of estate litigation (being sued), defence costs can range from $500 – $1,000 per hour to defend your actions.
  4. Read your will. It isn’t that complicated of a document, and there can be small errors like misspellings and incorrect calculations.
  5. How current should your will be? The will should be reflective of any life change in your life or the life of your beneficiary (death, birth, remarriage, real estate purchase, large asset purchase, etc.)
  6. If you’re going to exclude someone from your will, either speak to them about it directly or leave an explanation in your will. Leaving it to be a surprise can be a common source of estate litigation.
  7. Late-life will changes are often a red flag when it comes to potential estate litigation issues.
  8. Trusts can sometimes be an unfair burden on your executor. Instead consider leaving your executor the funds to purchase an annuity for the person instead, which is much less work.
  9. Leave a private document for your executor explaining the reasoning behind any decisions you have made – do not leave it up to interpretation.
  10. To secure executor liability insurance for yourself, make sure you submit your application within 60 days after date of death.
  11. To secure executor liability insurance for your own executor (i.e. your child), include an Estate Services Plan in your estate plan.

There’s a lot more to the planning than deciding who does and doesn’t get your money after you’re gone.” – Scot Dalton

Scot Dalton, CEO ERAssure

The Basics

What is an executor?

“An executor is the individual, and in my experience it’s normally a family member, that’s named in the will as the person who will make sure that the testator’s instructions are properly followed.”

  • Personal Representative of the Estate is also known as the Executor
  • You have all of the rights and obligations of the deceased party, and that includes suing people and being sued

What is an estate?

“An estate means the assets and the liabilities that are left by an indiviual at the point of death.”

What does fiduciary mean?

“When you’re acting as an executor, you’re acting as a fiduciary, which is a person who has a higher-than-normal accountability for their activities because they are managing finances for someone else. This means they have a personal liability.

Executor Tasks

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  • Obtaining the will
  • Notifying the creditors
  • Preparing accountings for the assets and liabilities
  • Collecting assets
  • Protecting assets (i.e. a home is secure)
  • Determine tax liabilities
  • Collect receivables (i.e. collecting outstanding loans)
  • Verify claims against the estate
  • Liquidation and distribution of the assets (this includes beneficiaries)

You can see more executor tasks for Canadians here.

Will Preparation & Mistakes

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  • One of the first things looked at when you apply for executor insurance is the lack of will preparation.
  • Some wills are poorly prepared and have obvious errors (even things like the incorrect spelling of a name, incorrect dates, incorrect math in the division of the assets, and missing beneficiaries).
  • Imagine if you accidentally divided the estate incorrectly and there was 5% remaining that everyone then fights over.
  • Wills that have been prepared close to the date of death and also have significant changes to the beneficiaries or splits between them are often a source of litigation. Late-life will changes can cause suspicion and raise questions of competency and manipulation.
  • We also run into bad surprises, like when someone you expected to be included in the will is not. For example, when one of three children is omitted from inheritance and there is no explanation or forewarning. This creates a fair amount of tension the executor then has to deal with – usually ending in litigation. Different amounts of inheritance are also a common cause of estate disputes.
  • When should you review my will? In January 2015, the Government of Ontario made large changes making the burden of the executor much greater. If you have not reviewed your will since then, we recommend you do it ASAP.
  • Leave a private document for your executor explaining the reasoning behind any decisions you have made – do not leave it up to interpretation. For example, you may have left more money to one child than the other because one is more well-off than the other.

“Nobody likes to deal with their mortality, but we find outdated wills that do not reflect the current state of the family can cause a problem for the executor when settling the estate.”

Scot Dalton, CEO of ERAssure

The Unwanted Trust

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  • A trust is essentially the obligation to look after one of the beneficiaries, typically a family member, that has difficulty taking care of their own affairs.
  • The executor will be left with a trust to pay out the assets, and income on certain assets, to one of the other family members over the life of that individual.
  • This often creates an unfair burden for the executor and leads to problems because the way in which they handle the administration of the long-term trust can lead to hard feelings.
  • The solution typically requires lawyers and estate litigation; not ideal.
  • So what’s the ideal solution? Trusts are expensive to set up and administer. There are annual reporting requirements as well, but sometimes the circumstances may allow you to leave money for your executor to purchase an annuity which is on “autopilot”, so to speak.

What about the Power of Attorney?

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  • Who is the POA? Another well-meaning individual looking after the financial affairs of the testator.
  • A POA is often a child who is taking care of their parent who is unable to maintain their own finances.
  • When that person passes away, often the POA becomes the executor of the estate.
  • As a POA, you are not required to divulge your actions to anyone and this can bring about questions about how those finances were handled. Sometimes lawsuits against the executor can arise; suspicions such as “where did the money go?” are common.
  • We recommend before taking on the role of POA, you are fully aware of the accountability. If you do take on the role, keep meticulous records of all decisions and large transactions.

The #1 Executor Problem

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  • If an executor makes a mistake, or are perceived to have made a mistake, they may be sued by various parties.
  • We have seen executors sued by beneficiaries, creditors, third-parties that have business with the estate, family members, etc.
  • What does that mean? You could be ordered by a court to pay your defence and reimburse the estate for any devalue of the estate caused by your mismanagement.
  • Having insurance allows you to act comfortably as the executor because if litigation does arise, it will cover the cost of defence and pay the cost of restitution if you’re ordered to put money back in. This could happen if you make a mistake with the finances and lose estate funds.
  • Keep in mind defence costs can range from $500 – $1,000 per hour to defend an estate administration claim. In a recent case, it took over 7 years and $1 million CAD to settle.

“You’ve heard blood is thicker than water, but often money is thicker than blood.”

Scot Dalton, CEO of ERAssure

How can I make sure my executor is protected?

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  • I’ve named my son, daughter, sibling, or close friend as my executor. How do I make sure I’m not leaving them a huge problem?
  • When you’re preparing your estate, you can have your lawyer add a specific clause that includes Executor Liability Insurance. Funds from the estate can be set aside to pay for this protection.
  • At the very least, include a clause that gives your executor the OPTION to buy the Executor Liability Insurance.

“The Executor is often a favourite or older child of the testator, but the fact is when someone is choosing an executor, the characteristics they are looking for should be pragmatic. Two basic things to be an effective executor: an excellent record-keeper and an excellent communicator. If they are one of or neither of those two things, it usually means there will be a challenge.”

Scot Dalton, CEO of ERAssure

How to Secure Executor Liability Insurance at Time of Need

  • The application process is very simple and straightforward; it’s three pages of basic information you can fill out on your own.
  • Submit the complete application with a copy of your will.
  • ERAssure then reviews the estate situation, application, and the will.
  • On average about 30% of applications are declined, but mostly because they are submitted too long after the estate has been created.
  • Try to submit your application within 60 days of the testators death.
  • If your application is accepted, your executor liability insurance will be secured in a one or three-year policy.
  • On average, it costs about $750.00 CAD per year in Canada.

“If you make your application submission within 30 days of the date you’re appointed as the executor, the number of applications declined is very insignificant. What we unfortunately find is people get involved in the role, they start managing the estate, and then three or four months in the estate gets “spicy”. It could be an angry beneficiary and it has now gone off the rails. After speaking to a lawyer and realizing the out-of-pocket cost, they then start to consider insurance. Unfortunately, this is very much like having your house on fire. When you call the insurance company with a house on fire, it’s too late.”

Scot Dalton, CEO of ERAssure

Can I secure Executor Liability Insurance ahead of time?

  • When creating your will, you can include an Estate Services Plan as protection and a helpful resource for your executor.
  • All you need to do is reach out to your Financial Advisor and ask about securing an Estate Services Plan.
  • The plan also includes notification services, creditor notices, Executor Liability Insurance, and other support for your executor.
  • It can be paid in advance by the testator or in monthly instalments.
  • The protection will automatically kick-in once the testator has passed away.

“Instead of making the executor act on their feet and submit an application within 60 days, they can arrange protection ahead of time.”

Jim Kibble, Founder of Ontario Estate Consulting Solutions Inc.

Reach out to your Financial Advisor today and ask about Executor Liability Insurance from ERAssure.If you are a Financial Advisor, you can find product resources here or contact our team with your questions.

Final Takeaways

  • Most estate litigation risk can be managed with a little bit of preparation while you are alive. It will save your family time, a lot of emotional upset at an already difficult time, and it’s going to save money.
  • Spending a bit of time to thoroughly think it through was a modest cost and money very well spent. If you want to get your affairs in order, do it now.
  • Don’t use your legacy to pay your legal bills.

Need help preparing your estate?

Use these free estate planning resources to help you close gaps in your will, educate your executor, and prepare your estate properly without any mistakes or surprises.

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