If you are asked to be someone’s estate trustee/executor, you may wonder what liability you are assuming. That is on top of the regular workload, as settling the testator’s financial affairs and distributing the remaining assets to their beneficiaries usually takes a year, involving visits to banks, lawyers and other relevant parties. Much can happen in that time, and beneficiaries may be pressuring you to quickly pass along their share of the estate.
Here are some important points to keep in mind with personal liability.
Many Last Wills and Testaments contain phrasing meant to protect loved ones as they carry out their executor duties, usually along the lines of: “No trustee acting in good faith shall be held liable for any loss, except for loss caused by his or her own dishonesty, gross negligence or a wilful breach of trust.”
That type of clause is important, but there is still some liability that comes with the position.
First, let’s make it clear that an executor does not incur personal liability for the debts and liabilities of the deceased. However, it is the executor’s duty to ensure that financial obligations are paid from the estate before any money goes to beneficiaries.
The potential liability here is particularly significant with respect to taxes. Most estates will have taxes owing, so it is the executor’s duty to ensure that all outstanding tax matters are resolved. Section 159 of the Income Tax Act requires executors to obtain a clearance certificate. This document confirms that the taxes of the deceased have been paid in full. If the executor does not obtain this certificate and the funds from the estate have already been distributed, they will be personally liable for taxes owed.
There is always a chance that an executor could discover the testator was not meeting their tax obligations to the Canada Revenue Agency (CRA). There are a number of reasons this may arise, ranging from simple carelessness to deliberate tax evasion. No matter the situation, the executor is responsible for rectifying that shortcoming using the estate’s funds, before money is given out to beneficiaries.
The CRA has created a Voluntary Disclosure Program that allows executors to come forward and voluntarily correct any errors or omissions without being subject to penalties or prosecution.
Personal liability for executors also arises if they spend money on professionals to help with the administration of the estate. That could include such people as lawyers, accountants, investment advisors, real estate agents, or art appraisers. Estates can be complex, so it is well within the scope of diligent executors to seek professional guidance. Accordingly, the cost for these services will be borne by the estate, not by the executor.
Detailed records must be kept of any money spent, as executors have a duty to account to the beneficiaries. These records must show all expenses paid by the estate and what money the estate received, from insurance benefits, banks or other sources.
In most cases, beneficiaries of an estate will approve, or consent to, the accounts as kept by the estate trustee. But if they feel finances were not properly managed, they can ask for court approval of the records, known as a “passing of accounts.”
Since executors have a duty to maximize the recovery, and value, of estate assets, they are personally liable for any losses they cause. That could include being reckless with the assets, which causes a loss in monetary value. Examples of this would be if an estate has to pay penalties on a tax return that the executor filed extremely late for no good reason, or if a home was sold for much less than market value.
The good news is that if an executor performs their duty diligently and honestly, any financial liability they assume will be paid by the estate.
Be safe, and have a great day.
On May 31, 2019, I blogged on the decision of Justice Morgan in Krieser v. Garber,  O.J. 1619. There, the court found that a dock constructed by the Garbers (at a cost of $150,000) was improperly positioned, and posed a nuisance to the adjoining land owners, the Kriesers. The dock was ordered to be removed. The Garbers and the dock builder were also ordered, jointly and severally, to pay $100,000 in punitive damages, and $518,000 in legal costs, and the Garbers were ordered to pay further legal costs of $80,000.
The story does not end there. The Garbers and the dock builder appealed. In a decision released on November 5, 2020, the Ontario Court of Appeal allowed the appeal in part. The Court of Appeal upheld the finding of nuisance and the order to remove the dock. However, it struck the award of punitive damages against the dock builder. Further, it reduced the cost liability of the dock builder to $108,000.
With respect to punitive damages as against the dock builder, the Court of Appeal found that it was incorrect to treat the Garbers and the dock builder “as one” for the purposes of assessing punitive damages. Where there are multiple defendants, the court must consider the misconduct of each of the defendants separately. Punitive damages were appropriate as against the Garbers, as the protracted nature of the interference and their failure to accept a reasonable offer were significant factors. However, these did not apply to the dock builder. The dock builder had no power to move the dock, or to accept the offer to settle. Accordingly, the dock builder’s acts were “not so outrageous that punitive damages were rationally required to punish, deter or denounce it.” In addition, the dock builder was already punished by a criminal court, where a fine was imposed ($4,500), and by the judge’s order that the dock be relocated at the dock builder’s expense.
In reducing the dock builder’s cost liability, the court noted that the dock builder had limited ability to settle the claim. It could not relocate the dock without the Garbers’ approval. “It is unclear to me how [the dock builder] could have brought the action to an end prior to trial without Garber’s agreement.”
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Paul Zigomanis (“Paul”) died on April 20, 2015 as a result of an explosion that destroyed the home he lived in for 24 years (the “Brimley House”). At the time of Paul’s death, title to the Brimley House was in the name of Paul’s parents, John Zigomanis (“John”) and Mary Zigomanis (“Mary”).
A passerby who was driving by the Brimley House at the time of the explosion, and impacted by it, brought an action for negligence and under the Occupiers’ Liability Act as against Paul’s Estate and John’s Estate (Zambri v Cooperman, 2018 ONSC 7679). A motion was brought by the Estate Trustee During Litigation of Paul’s Estate, Jonathan Cooperman, (the “ETDL”) to determine whether the Brimley House was an asset of Paul’s Estate or John’s Estate, as this was an important issue that had to be determined before the litigation could proceed (Zigomanis Estate, 2017 ONSC 6855).
As there were more assets in John’s Estate, than in Paul’s Estate, the interested parties in the litigation would suffer an adverse consequence were it determined that the Brimley House properly belonged in Paul’s Estate.
The primary position of the ETDL was that a trust relationship was established between Paul’s parents and Paul, whereby a resulting trust arose between John and Mary and Paul and that title to the Brimley House “resulted back” to Paul upon John’s death on December 31, 2014.
On December 31, 1990, John and Mary took title as joint tenants to the property where the Brimley House was eventually built on, for $270,000.00, as joint owners. In May, 1991, Mary and John signed a deed transferring the Brimley House to Paul for “natural love and affection”. The Court found that Paul ultimately paid John and Mary $140,000.00 for the Brimley House. It was further held by the Court that the family understood that John and Mary were always going to help Paul to purchase a home.
After moving into the Brimley House, Paul developed a drug addiction. Thereafter, on August 1, 1996, Paul transferred the Brimley House to Mary and John for $2.00. Mary and John put all the insurance, taxes and utility bills into their names and had the bills sent to their own home, however, Paul would transfer $500.00 per month to them for the payment of these expenses. It was understood by the family that this was done in order to protect the Brimley House from the potential repercussion of Paul’s substance abuse problems.
Mary died on March 23, 2013, leaving her Estate to John, who at the time suffered from dementia. Shortly thereafter, Gail MacDonald (“Gail”) and Violet Cooper (“Violet”), Paul’s sisters, who were managing John’s affairs, realized that Paul stopped making regular payments to their parents towards the Brimley House and offered to have the Brimley House transferred to Paul, immediately. Importantly, this letter was written well before the explosion giving rise to the litigation, took place.
John died on December 31, 2014, leaving his Estate to Gail, Violet and Paul, equally. Gail was named as the Estate Trustee of John’s Estate. Before Paul’s death, Gail, through her counsel, and Paul, through his counsel, were engaged in settlement negotiations with respect to the Brimley House. The draft minutes of settlement exchanged included the following: “AND WHEREAS Mr. Zigomanis asserts that the Brimley Road property was transferred to the Deceased to be held in trust for the benefit of Mr. Zigomanis”. The Court held that this particular piece of evidence was indicative of the fact that it was always understood by the family that Paul was the beneficial owner of the Brimley House.
Paul died intestate and he did not have a spouse or any children. His beneficiaries were Gail and Violet, and the sole beneficiaries of his Estate.
Analysis and Decision
The Court was satisfied that, on a balance of probabilities, and in considering all of the evidence, John and Mary transferred both legal and beneficial title to the Brimley House to Paul in 1991, for valuable consideration. As such, no presumption of a resulting trust applied to this transaction.
The Court further held that the nominal consideration for which Paul transferred the Brimley House to John and Mary triggered the presumption of a resulting trust, such that the Court had to determine what Paul intended at the time of the 1996 transfer.
Based on the evidence considered, the Court found that the presumption of a resulting trust could not be rebutted, such that Paul was the true owner of the Brimley House, because John and Mary intended to transfer the legal title back to Paul, once they were reassured in his ability to control ownership. As a result, the Brimley House was ordered to be returned to the trustee of Paul’s Estate, effective January 1, 2015, being the following day after the death of John.
John’s Estate’s Liability in the Litigation Related to the Explosion
Following the Court’s finding regarding the ownership of the Brimley House, Gail, as trustee of John’s Estate brought a motion for an order that John’s Estate did not owe a duty of care to the Plaintiff and was not liable under the Occupiers’ Liability Act.
The Court held that a relationship between the Plaintiff, a passerby, and John’s Estate, a non-owner of property, is not one in which a duty of care had previously been recognized. The Court further held that although John had some involvement with the Brimley House, it would not be a sufficient basis to find a relationship of proximity with the Plaintiff that would give rise to a duty of care.
Based on the above findings, the Court held that John’s Estate did not owe a duty of care to the Plaintiff and there was no other legal or equitable basis to find that John’s Estate had an obligation to manage the Brimley House on behalf of or to supervise Paul’s behaviour, including any liability under the Occupiers’ Liability Act.
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We previously blogged about the decision in Ozerdinc Family Trust v Gowling Lafleur Henderson LLP, 2017 ONSC 6, where a failure to advise of the deemed disposition date of trust assets resulted in an avoidable tax liability. Recently, additional reasons were released which set out the court’s decision with respect to costs arising from the motion for partial summary judgment. The court awarded costs to the successful plaintiffs in the amount of $160,889.76 (including tax) plus disbursements of $100,000.00
The costs decision is interesting as it thoroughly considers a number of elements of the litigation in relation to the factors listed in Rule 57.01 of the Rules of Civil Procedure.
Interestingly, while the court held that the matter was “obviously a very complex matter”, it nonetheless concluded that the costs claimed by the plaintiffs were higher than required for a motion of this nature. The court also noted, in considering the time spent by the plaintiffs on the motion for partial summary judgment, that the “total amount of time spent exceeds a fair amount and that which would reasonably be expected to be required in the circumstances”. This conclusion was made despite the court’s acknowledgment that the bulk of the plaintiff’s time was spent by junior counsel.
Another interesting comment was related to the costs awards with respect to disbursements. It seems that a large portion of the plaintiffs’ disbursements were expended to retain several experts. However, the court found that the amount claimed by the plaintiffs was out of proportion with the amounts spent by the defendants to address similar issues, and reduced the award for disbursements accordingly.
This decision may serve as a helpful reminder to litigators to be aware of the amount of their legal fees and disbursements. One should also try to ensure, as much as possible, that costs are proportional, both with respect to the size of the matter at issue, but also, based on this costs decision, with respect to the costs that may be incurred by the other parties.
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As a professional, one is never pleased to hear of a colleague being found liable in negligence. However, there are always lessons to be learned.
Ozerdinc Family Trust v. Gowling Lafleur Henderson LLP is unfortunately an example of a case where, apparently, a simple failure to account for the deemed disposition date of trust assets resulted in an avoidable tax liability. While the defendant solicitors admitted acting below the standard of care in failing to inform the plaintiffs respecting the date and consequences of the deemed disposition of the capital assets of the trust, liability was resisted on the theory that the mistake didn’t cause the loss as the plaintiffs/trustees had retained accountants who, the plaintiffs pleaded, should have been tracking and reporting on the deemed disposition date. The point was determined in a motion for summary judgment which was decided in favour of the plaintiffs; the mistake was sufficiently causative on its own.
What can one learn? It seems reasonable that the culprit here is faulty communication given that the firm and lawyers involved were of adequate experience and expertise to meet the applicable standard of care. As LawPro reminds us, mistakes are easy to make and standardized reporting systems help to avoid such errors.
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I blogged earlier this week about the availability for a trustee to bring an Application for the opinion, advice and direction of the court under section 60(1) of the Trustee Act, and, in so doing, potentially alleviate themselves from liability concerning the decision so long as they act in accordance with the court’s direction. But what should happen if, when confronted with a difficult decision, the trustee does not ask the court for direction, but rather should act of their own volition? If a beneficiary should later successfully argue that the trustee acted improperly in making such a decision, and committed a breach of trust, will the trustee always be liable for such a decision?
The Trustee Act is clear that just because a trustee commits a technical breach of trust, it does not necessarily follow that the trustee will be held liable for any corresponding damages. Section 35(1) of the Trustee Act provides:
“If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.” [emphasis added]
As is made clear by section 35(1) of the Trustee Act, so long as the trustee acted “honestly and reasonably” in committing the breach of trust, the court may in its discretion relieve the trustee from liability concerning such a decision. The leading authority regarding what is to be considered “honestly and reasonably” is the British decision of Cocks v. Chapman,  2 Ch. 763, at 777, where the court states:
“It is very easy to be wise after the event; but in order to exercise a fair judgment with regard to the conduct of trustees at a particular time, we must place ourselves in the position they occupied at that time, and determine for ourselves what, having regard to the opinion prevalent at that time, would have been considered the prudent course for them to have adopted.” [emphasis added]
If the court is of the opinion that the opinion prevalent at the time would have considered the decision prudent, it may alleviate the trustee fr
om liability concerning such a decision in accordance with section 35(1) of the Trustee Act. If not, the trustee may continue to be liable for the decision.
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You are the Estate Trustee of an estate currently involved in a dispute with the deceased’s former business partner. In the context of such a dispute, the former business partner puts forward what you believe to be a reasonable settlement proposal which you are inclined to accept. Before accepting such a proposal however you ask yourself whether you, as Estate Trustee, unilaterally have the authority to settle such a dispute on behalf of the estate, or if you are required to involve the beneficiaries of the estate as part of any settlement?
An Estate Trustee’s authority to settle claims on behalf of the estate is established by section 48(2) of the Trustee Act, which provides:
“A personal representative, or two or more trustees acting together, or a sole acting trustee, where, by the instrument, if any, creating the trust, a sole trustee is authorized to execute the trusts and powers thereof may, if and as they may think fit, accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed, and may allow any time for payment for any debt, and may compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust, and for any of these purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as seem expedient without being responsible for any loss occasioned by any act or thing done in good faith.” [emphasis added]
While an Estate Trustee has the authority to settle any claim on behalf of the estate without the involvement of the beneficiaries, this does not necessarily mean that the Estate Trustee will be insulated from liability for their decision to have done so. The Trustee Act provides that the Estate Trustee shall not be liable for any loss associated with the settlement so long as the settlement was entered into in “good faith”. To this effect, whether or not the Estate Trustee will later be liable to the beneficiaries for any settlement will turn on whether any such settlement was entered into in “good faith”, with such a determination often being made within the context of a later Application to Pass Accounts. If the court concludes that the settlement was entered into in “good faith”, the Estate Trustee will not be liable to the beneficiaries. If the court concludes that it was not entered into in “good faith”, the Estate Trustee may be liable to the beneficiaries for the settlement.
In order to reduce any concern that the beneficiaries may later take issue with any settlement, many Estate Trustees will reach out to the beneficiaries to seek their prior approval. While such a route is often the safest option for the Estate Trustee to take, it is not necessarily mandatory, and the Estate Trustee may unilaterally enter into any settlement on behalf of the estate so long as they are prepared to justify any such settlement to the beneficiaries on a subsequent passing of accounts.
It is well-known that executors and estate trustees have fiduciary obligations. We have discussed some estate trustee liabilities and obligations on this blog before. Although it may seem obvious that estate trustees must act selflessly and in the best interests of the beneficiaries and the estate, a recent decision from the Ontario Superior Court of Justice provides an instance where estate trustees were held liable for failing to carry out the terms of a will and self-dealing, even by passively standing by.
In Cahill v Cahill, 2016 ONSC 2863, the named estate trustees of an estate were held jointly and severally liable for failing to establish a trust pursuant to the Deceased’s will. The relevant facts are as follows: The Deceased left a Last Will and Testament naming two of his adult children, Sheila and Kevin, as Estate Trustees. The terms of the Will provided that Sheila and Kevin were to set aside $100,000.00 in a trust fund for the benefit of another of the Deceased’s adult children, Patrick, and that he would receive $500.00 per month from the trust until his death or until the principal was reduced to nil. The funds to set up the trust came from the sale of the Deceased’s home, and were put into a Non-registered Investment Plan with London Life (the “London Life Plan”), owned by Kevin.
For a period of time, Patrick received the payments of $500.00 per month, until the summer of 2014, when several of his cheques were returned for insufficient funds. He then discovered that in May 2012, Kevin had withdrawn the principal remaining in the London Life Plan, which was approximately $92,000.00 at the time, as a mortgage with respect to some commercial premises purchased by him for his business, and lost the funds when his business failed and the bank realized on the property.
The Court found that both Kevin and Sheila were in breach of their fiduciary obligations to the beneficiaries of the Estate, as they had failed to carry out the instructions set out in the Will. In fact, the Court found that the trust fund provided for by the Will was never actually set up. Even though Kevin opened the London Life Plan with the $100,000.00 amount, and he was noted as the legal owner, his application for the London Life Plan did not mention a trust, Patrick was not disclosed as a beneficiary, and Patrick therefore did not have equitable title to the Plan. The Plan therefore did not meet the requirements for a trust. The court held that Kevin’s self-dealing by using the funds for his personal benefit was a “wrongful and deliberate misappropriation of the funds” and that he had breached his fiduciary obligations by his conduct in this respect.
Throughout these events, Sheila had been quite passive. She claimed that she had relied on Kevin to do most of the work required to administer the Estate, as he had expertise in the field of financial management. However, the court held that the case law is clear that there is no distinction between sophisticated and unsophisticated individuals in fulfilment of the obligations of Estate Trustees. As such, if Sheila was not confident in her knowledge of the role, she should have either obtained the necessary guidance, or renounced as Estate Trustee. Furthermore, she failed to discharge her obligations by failing to ensure that all proper steps were taken to set up the trust fund. If it had been set up, Kevin was to be the sole trustee, but as the court found that it was not, in fact, established, there was never a point at which Sheila was relieved of her obligations as Estate Trustee.
Ultimately, the court held that Kevin and Sheila were jointly and severally liable and were required to fund the trust in accordance with the terms of the will. It is therefore vital to always keep in mind the seriousness of the duties and obligations of estate trustees.
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When someone passes away, their executor is responsible for paying out of the estate any debts and liabilities for which the deceased was responsible. However, when there is debt for which two or more people are jointly liable, who becomes responsible when one of the joint debtors dies?
In the case of a joint debt, presumably all joint debtors will have taken responsibility and signed for that debt. Accordingly, when one joint debtor dies, the other joint debtors will be responsible for the full amount of the debt.
This obligation to pay the full amount of a joint debt is between the debtor(s) and the creditor. The creditor can thus seek repayment from either joint debt holder, or, after the death of one joint debtor, from the surviving debtors. As between the debtors themselves, however, there may be remedies for a situation in which one joint debtor is made to pay the full debt, without contribution from the other joint debtor. This may arise upon the death of one of the joint debtors if the Estate refuses to pay back any of the debt.
The courts have held that if liability for joint debt is shared, but only one debtor is ultimately made to pay the full amount of the debt, there may be an equitable remedy available. In Parrott-Ericson v Stockwell, 2006 BCSC 1409, the court stated that, even if there is no specific arrangement between the estate and the survivor who becomes responsible for a joint debt, “equity will impose that obligation in order to avoid unjust enrichment. That is the usual rule, because ordinarily there is unjust enrichment if the liability is not shared.”
In that particular case, unjust enrichment was not found. The joint debt in question was a line of credit secured against two properties owned jointly by the Deceased and his surviving spouse. The line of credit had been used to acquire the properties. Upon the death of the Deceased, the spouse took sole title to the properties by right of survivorship, and she also became liable for the balance of the line of credit. The court held that, although normally the estate would be unjustly enriched in this situation, as the spouse was receiving the entire benefit of the properties, it was not unjust that she be responsible for the full amount of the loan relating to that property.
Ultimately, the answer to this question may not be completely straightforward. Ensure that responsibility for joint debt is clear as between any joint debtors to ensure that you are not liable to pay the full amount of a joint debt after someone’s death, and that you have recourse to claim contribution from the deceased’s estate if necessary.
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Venturing out into the great beyond this long Victoria Weekend? Is the Thule packed full of musty sleeping bags and the fixin’s for S’mores? Perhaps instead, the allure of a commercial outfitter was simply too much to resist. You signed the papers, cut the cheque, and now, the adventure-of-a-lifetime lies in wait.
Wise customers always read the fine print, and as a recent article in Outside magazine demonstrates, that adventure-of-a-lifetime might not be the only thing that lies in wait; some of those liability-release waivers pack quite the punch. As the articles states, the liability-release waiver is a "binding contract that leaves you powerless". If you refuse to sign on the dotted line, you’ll be roasting those S’mores over a hibachi in your backyard. Sign, incur injury and file suit and the results are about as fruitful. Apparently judges toss out 90% of recreation-based lawsuits.
For example, "damages caused by a wild creature in its natural habitat" are often unrecoverable (think shark bites). And if you are white water rafting, you’ll likely be asked to sign a waiver acknowledging the risk of not only falling into the water but knocking heads with your seatmate. The bottom (dotted) line is that waivers are all about assuming acknowledgment of risk especially where the risk is beyond anyone’s control.
Have a happy (and safe) long weekend!
David M. Smith – Click here for more information on David Smith.