Protecting executors from personal liability By Jordan Atin
A group of lay people were asked at a recent seminar if any of them had acted as an executor before. About three-quarters of the group proudly raised their hands. The next question —would any of you do it again? — resulted in many fewer raised hands.
For those who counsel executors, the reaction is not surprising. The workload, the endless calls from beneficiaries about their inheritance, the stress of deadlines and working with professionals, the necessity of keeping meticulous accounting, and even the reams and reams of paper and documents that must be kept, make the thankless job time-consuming and frustrating. More correctly, the job is worse than thankless. How often do we see disgruntled beneficiaries criticising the job the executor has done and seeking to reduce the compensation that the executor has sought?
But it can get much, much worse. When you take on the job of executor, you are putting your own personal assets on the line. As Justice Maurice Cullity stated in Personal Liability of Trustees and Rights of Indemnification: “The risk of personal liability is an incident of the office of trustee.”
Negligence by the executor can render the executor personally liable to the beneficiaries and creditors of the estate. Some common examples where executors could be found negligent are:
Personal liability even extends to an executor who makes a contract in relation to the estate assets. The executor is personally liable to the contractor, but may be subrogated to an executor’s right of indemnity against the estate if the expense or charge of the estate was properly incurred (see Dockrill v. Kikas,  O.J. No. 134 (Ont. S.C.J.). This includes the hiring of professionals, such as lawyers, accountants, real estate agents and the like.
Under Ontario’s Estates Act and in many other jurisdictions, a judge may order damages against the executor for misconduct, neglect or default which results in loss to the estate.
There are many examples where courts have found that executors have breached their duty as fiduciaries. Often, the executor’s compensation is reduced and no additional damages are ordered against the executor.
However, in Zimmerman v. McMichael Estate,  O.J. No. 3022, Justice George Strathy found that the trustee had been negligent in the administration of the trust. In addition to being deprived of compensation, the court ordered that he reimburse the estate personally. The trustee was also required to pay the beneficiaries over $270,000 in costs from his own pocket.
As lawyers, we have professional E&O insurance which may protect us when we act as a sole executor. Of course, we pay the premiums for that policy and, if a claim is made on it, we pay the increase in the premiums and the deductible. What about our client/executors who have no insurance?
At the Ontario Bar Association Annual Institute this year, a new product — executor’s insurance — was unveiled to the profession.
The benefits seem clear; a client won’t have to put his or her own house on the line when granted the “honour” of acting as executor. The executor would also have some protection for legal costs incurred in defending a negligence claim by the beneficiaries which might not be covered by the estate.
Since the estate itself can look to the policy to be made whole from the executor’s negligence, without having to chase the executor for damages, executors’ insurance should appeal to the beneficiaries as well. In Zimmerman, the trustee ultimately died before repaying the estate. In The Globe and Mail, one of the beneficiaries was quoted as saying “I’m not sure that [we] will recoup anything, but we’ll see.”
Will executor’s insurance become like title insurance — recommended as a matter of course in most estates? Depending on the costs and the coverage, it will likely appeal to many of our clients.
Jordan Atin is a mediator and counsel at Hull & Hull LLP in Toronto. He is the co-author of The Family War — Winning the Inheritance Battle, and appears regularly on Canada AM and the Business News Network as an expert on estate matters.http://www.lawyersweekly.ca/index.php?section=article&articleid=1360
The information posted here is absolute and clear; Obtain the Insurance to protect your assets and the costs of a lawsuit against disgruntled or dissatisfied beneficiaries. Barry had this direct comment " Being an executor can be trying and challenging to one's skills, the chances of being sued by family members is a reality especially when we have second and third marriages, non-traditional families and inter-related people who hardly know each other."