It is a basic tenant of the administration of an estate that all debts and liabilities must generally be paid in priority to any distributions to the beneficiaries. In the event there are ultimately insufficient assets in the estate to pay both the liabilities of the estate as well as all bequests certain bequests may abate to fund the liabilities of the estate. But what happens if as part of the administration of the estate funds are distributed to a beneficiary, whether on an interim basis or otherwise, which later are needed to fund the debts and liabilities of the estate? Does the beneficiary who received the distribution in error need to return the funds to the estate?
When a payment to a beneficiary is made in error the beneficiary can be required to return the funds to the estate. This is summarized in the text Widdifield on Executors and Trustees, wherein it states:
“Beneficiaries will be compelled to refund overpayments, but without interest: Barber v. Clark (1891), 20 O.R. 522, affirmed (1891), 18 O.A.R. 435.”
This principle was confirmed in Abram Estate v. Shankoff, 2007 BCSC 1368, wherein the court states:
“Trustees may recover trust property that was mistakenly distributed. If a trustee mistakenly distributes property to a non-beneficiary, or overpays a beneficiary, then prima facie the trustee is entitled to recover the property. [In re Diplock, [1948] 1 Ch. 465 at 484, 488-89, 502 (Eng. C.A.), aff’d [1951] A.C. 251 at 265, 269, 273 (H.L.) (sub. nom. Minister of Health v. Simpson); Baldwin v. Kingstone, supra at 81-2 (per Barton J.A.), at 107-109 (per Ferguson J.); P. D. Maddaugh and J.D. McCamus, The Law of Restitution, looseleaf edition (Aurora: Canada Law Book), §11.500]” [emphasis added]
As a result of cases like Abram Estate v. Shankoff in the event a distribution is made in error, and the individual who received the distribution refuses to return the funds voluntarily, an Order can be obtained required the individual in receipt of the distribution to return the funds.
Thank you for reading.