opened-door

You’ve paid estate bills, distributed assets to beneficiaries and received a clearance letter from CRA. As an executor, your job is done, right?

Maybe not: What happens if a creditor steps forward years later, saying he’s owed money? Or if a previously unknown child surfaces? What is your responsibility as executor if an estate needs to be reopened after being distributed?

A job that’s never done

Roy Boettger, counsel at Field Law in Calgary, acknowledges that “it’s kind of a ‘blue-moon’ thing” as people have become more conscious of the need for proper record-keeping and for seeking professional help with estates.

That said, Boettger points out that the question of what to do if an estate is reopened is somewhat misleading. “The question begs the definition,” Boettger says, “because in Canada we don’t have a formal order closing the estate to wrap things up. I have seen it in the U.S.”

As Boettger explains, in a strict legal sense, executors continue to be “managers” of an estate even after known assets have been sold and distributed. “In theory, the job is never done,” he says. “If six years down the line, somebody comes out of the woodwork and says, ‘I am a child and the will said [distribute assets] equally among my children; here are the results of a paternity test,’ it then would be a matter of contacting the executor.”

In that case, the executor’s role would depend on how thorough he or she was in notifying any potential creditors and beneficiaries during the administration of the estate. That task involves reading the will, but could also include searching files for old bills, opening digital records, looking through previous years’ tax returns, and contacting any financial advisors or other professionals the person hired. “The degree of inquiry is up to you,” Boettger says. “But you have to go through the inquiry.”

If the executor had taken the additional step of advertising for potential estate creditors and claimants unnamed in the will, the executor’s role would be limited. (Traditionally, that advertising involved placing a newspaper notice in the city where the testator resided. Last July, the Ontario Superior Court confirmed online notices are now acceptable in that province.)

“The executor is the one with estate authority, so they would be involved to some degree,” Boettger says. “But that claimant has to start proceedings against the estate. It would be something that would end up in front of a judge by filing an application to seek direction on the recovery and redistribution of assets based on the circumstances.”

What’s reasonable?

Eleanor Carlson, associate at Carbert Waite LLP in Calgary, says that a judge would decide based on the facts of the case, legislation and common law.

As Carlson explains, any case that involves a previously unknown creditor or a long-lost heir will depend on the context of the executor’s actions. “It’s a reasonableness standard,” she says, which may vary from province to province. “The executor has a duty to—among many other things—take reasonable steps to ascertain beneficiaries and determine whether there are outstanding creditors or potential creditors.”

What constitutes reasonable? “[It] depends on the circumstances of the deceased and the estate,” Carlson answers. “It’s all about what the executor [did] based on [knowledge of] the person whose will they’re administering.”

For example, if a spouse had full access to her partner’s finances and intimate knowledge of his life, then there would be no need to advertise for creditors, because it would be reasonable to assume that any debts would be known to the spouse.

On the other hand, if the deceased owned a small business, or just completed a large home renovation or was known to be a spendthrift, it would be reasonable for the executor to place a notice for potential creditors in the local paper, just to be sure all debts have been accounted for.

If the executor’s actions were reasonable given the circumstances of the estate, then the executor is sheltered from liability if a creditor or claimant brings action against the estate. If not, it becomes a matter of negligence.

“If the executor has done something negligent, they can be personally liable,” Carlson says. “If it was reasonable to assume that there were creditors out there, and you didn’t put a notice in the newspaper—that could move that line to negligence. It moves it out of the estate, because the source of the damage is the executor’s ‘unreasonable’ decision.”

James Dolan is a Vancouver-based financial writer.

Originally published in Advisor's Edge

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