The executor’s job is complex. Given that executors could be held personally liable for their mistakes, should executors purchase insurance to protect themselves?
Executor’s insurance is a direct result of the increasing possibilities for executors to get themselves into trouble, says Jordan Atin, counsel at Hull & Hull in Toronto and adjunct professor at York University’s Osgoode Hall Law School.
“There’s more estate litigation now than there was 20 years ago,” he explains. “Law has become more complex, and estates are increasingly complex. There are new tax issues; there are new legal matters that arise now. There is a whole list of things where executors can get sued for making mistakes.”
Common mistakes include improperly interpreting the terms of the will, favouring some beneficiaries (or creditors) over others and not maximizing sale value on estate assets, Atin says.
He points out that beneficiaries have become more assertive. When estate information was less accessible, beneficiaires often assumed “the executor or the lawyer was doing what they were supposed to be doing,” Atin says. “That’s less common now.”
With the growth of online estate planning and legal resources, it’s now easier for beneficiaries to inform themselves about their entitlements. Atin says insurance is a good idea for any third-party executor, and a “no brainer” for those dealing with difficult beneficiaries. A basic policy from ERAssure, the company that introduced the product in 2011, covers a variety of damages and legal costs (see “What executor’s insurance covers,” below).
Policy premiums depend on estate size, the type of assets and the number of executors, as well as their qualifications. Policies can be written for any amount, with coverage for a $1-million estate costing about $2,200 for three years of protection—time enough to close the average Canadian estate.
Estate courts haven’t yet determined whether premiums should be paid by the executor or as part of estate costs. Atin typically recommends that his clients get the estate to cover the premiums.
He acknowledges protection isn’t necessary in all cases. If the executor is the sole beneficiary, for example, there’s little point in getting insurance against oneself.
At the same time, he says executors often underestimate how contentious their work can be. “You don’t know which estates are going to go bad,” he says.
Beyond the financial protection, Atin says the most valuable part of the insurance is the policy requirement that executors work with an estate lawyer; without such an agreement, executors can’t purchase the insurance.
“The insurance people want to make sure you’re getting advice,” he says. “They’re banking on the fact that if they make you probate the will, and they make you use a lawyer to assist you, then the odds of you screwing up are greatly reduced.”
Geoff White, counsel at Clark Wilson LLP in Kelowna, B.C., thinks insurance is a good idea for most executors, but it’s not always obvious whether they’re going to need it.
White says an executor’s first job is to assess the estate’s potential risks. For example: Does the estate contain complex business assets or foreign-domiciled assets? Is there a history of family conflict?
If you’re a third party who doesn’t know all the family members, you’re at a higher risk, he says. “Covering yourself a little bit better [so you’re] protected is probably not a bad thing.”
White says that while insurance is worthwhile, it won’t cover disputes that arise before the executor is officially appointed, for example, nor will it cover applications to remove an executor, or disputes over compensation.
There are also limits on the coverage offered for disputes over business assets and foreign-domiciled assets (to a maximum of 15% of the value of the estate in both cases).
Above all, executor’s insurance doesn’t remove the necessity for due diligence, White says.
What executor’s insurance covers… and what it doesn’t
What it covers…
- Liability arising out of negligent administration of an estate
- Defense costs associated with defending an action based on such negligence, whether actual or alleged
- Damages to correct an executor’s error or to “make the estate whole”
…And what it doesn’t
- Foreign or business assets: if foreign assets or business assets exceed 15% of the total value of the estate, the policy limit is reduced to the lesser of $100,000 or 15% of the limit of liability stated in the policy for claims arising out of such foreign assets
- Tax liabilities owed to federal, provincial, or municipal governments
- Failure to provide or maintain insurance on estate assets: fire insurance on real property within the estate, for example
- Fraud, dishonesty, and malicious acts or activities