When administering an estate, the Executor has a duty to remain a neutral representative of the estate. Administering an estate often involves financial expenses, including professional fees for lawyers and accountants. The law recognizes that reasonable professional fees for lawyers and accountants are recoverable from the estate’s assets in priority to beneficiaries.
However courts, including the BC Court of Appeal, have set limits on the expenses for which the Executor may be reimbursed. In the case of Wilcox v. Wilcox, 2002 BCCA 574, the court found that executors who are also beneficiaries of the estate must separate the legal costs incurred to protect their personal interests and those of the estate.
In Georganes v. Bludd, 2014 ONSC 4655, a ruling of the Ontario Superior Court reinforced that executors should think carefully about who their expenses are benefitting. In Georganes, a dispute began among four beneficiaries of a will, Timothy, Brian, Melissa, and Tara, over who held a beneficial interest in one of their late father’s assets, a residential property. Tara claimed the property had been transferred to her during their father’s lifetime, while the other three argued the interest in the property should be equally divided amongst the four beneficiaries. The disagreement resulted in litigation that was costly for all parties involved and eventually the matter settled.
Brian and Timothy were the Executors. Melissa was not an Executor, and had hired her own lawyer for the property battle. Melissa paid for her own legal fees. Brian and Timothy, on the other hand, had caused the estate to pay their legal fees in excess of $50,000 in their litigation with Tara. After Melissa became aware of this, she launched a lawsuit to recover the funds. The court found that the estate had no obligation to pay Brian and Timothy’s legal fees, because the fees were incurred to protect their personal interests in the Estate as beneficiaries. The court noted:
[12] Where an estate trustee incurs legal fees to protect both his own personal interest in an asset and the estate’s interest, he has a duty to separate the legal costs incurred in each.
The court concluded that Brian and Timothy were required to repay Melissa her share of the legal costs. Executors who are also beneficiaries of an estate should be diligent in keeping their personal interests separate from the estate’s interest. In particular, Executors must ensure that they are not directing the estate to pay legal fees for services that benefit the Executor, rather than the estate. If you are an Executor seeking advice about this or other issues pertaining to an estate administration, please contact the lawyers of our Wills, Estates + Trusts Practice Group.[1]
Subscribe to RSS Feed