Legal Fees of Estate Trustee Denied
An estate is not an entity that can sue or be sued directly. The estate trustee must be named as the proper party. As a result, the estate trustee’s burden and responsibility, can sometimes involve not only time and effort, but also significant financial expense.
In recognition of this burden and the benefit to the estate, the law has traditionally recognized the right of an estate trustee to be indemnified for expenses incurred during estate administration, see for example Goodman Estate v. Geffen (SCC, 1991). As a starting point, this means that expenses, including legal fees, are generally recoverable from the estate’s assets in priority to beneficiaries.
However, earlier this month the Superior Court of Justice in Ontario released a decision, Georganes v Bludd, 2014 ONSC 4655, which reminds lawyers and estate trustees that there are limits to this recoverability.
In the Reasons for Order released August 11, 2014, Justice Price distinguishes costs incurred in pursuit of personal interests in an estate asset from costs incurred to protect the interest of the estate. He reasoned that an estate trustee, who incurs legal fees to protect both his/her own personal interest in an asset as well as the estate’s interest, has a duty to separate the legal costs incurred by each.
In this particular case, a dispute arose between four beneficiaries of a will – Tara, Timothy, Brian and Melissa – as to who had a beneficial interest in an asset of the estate, namely, a residential property. Tara believed it was hers alone, while the others felt the interest was to be divided equally between the four. Litigation subsequently ensued, and after substantial costs were incurred by all, the matter was eventually settled. Timothy and Brian were the named executors and were represented together with the estate; however Melissa was separately represented and paid her own legal fees throughout the litigation process. Melissa was distraught when she learned that Timothy and Brian, while acting as trustees for the estate, had caused the estate to pay legal fees of over $55,000.00, and that, additionally, Brian had caused the estate to pay compensation of $11,300 to him as trustee, without prior approval of the court or consent of the other beneficiaries.
Upon hearing Melissa’s submissions Justice Price held that the estate had no obligation to pay the legal fees that Timothy or Brian incurred to protect their own personal interests in litigation, and that it was improper for them to draw on estate funds to pay those legal costs incurred in defending their personal interests in the home.
This decision reminds us that estate trustees and lawyers acting for estate trustees must be aware of potential challenges by a beneficiary or anyone with a financial interest in the estate when legal fees are to be paid out of the estate.
Thank you for reading,