To Be or Not To Be - The Executor: His Powers, Obligations and Liabilities

INTRODUCTION

The position of executor brings with it incredible responsibility and serious potential for liability. Although the fees awarded for fulfilling the duties may seem generous, in all honesty, you are paid for what you get. A person should consider a number of factors, before agreeing to assume the role of executor. Consideration should be given to the time involved, the level of remuneration, the personal relationship of the appointee with the beneficiaries, the character of each of the beneficiaries, the nature of the testator’s assets, the particular terms of the Will and the potential for personal liability under statute or from any breach of trust that may arise in the course of administering the estate. Where a Will creates ongoing trusts the duties of the executor as trustee could extend for decades. This paper discusses in detail all of these considerations and more. The intent of this paper is to impart enough knowledge so that an informed decision on whether to act as executor may be made.

I. SHOULD YOU ACT

A. Intermeddling

A prospective executor must be very careful not to deal with the assets of the estate in any manner whatsoever or otherwise intermeddle, or interfere, in the estate until he or she has decided to act as the executor. A prospective executor will not be seen to be intermeddling if he or she is solely paying funeral expenses or performing acts of necessity or making inquiries into the deceased’s assets. A person is likely to be considered to have intermeddled if he or she acts in relation to the deceased’s property in a way that suggests an intention to assume the responsibilities of the executorship. For example, if the prospective executor is collecting or releasing debts due to the deceased, taking possession of a legacy given in the Will or holding himself or herself out as an executor it will likely amount to intermeddling. Once a prospective executor has intermeddled then he or she may not renounce executorship and may incur personal liability for any loss or damage resulting from improper administration of the estate.

If there has been no intermeddling then the person cannot be compelled to act as the executor or a co-executor and the person may renounce his or her appointment as executor or co-executor, as the case may be. Under the Wills, Estates and Succession Act, S.B.C. 2009, c.13 (“WESA”), a renunciation must be unconditional and in the prescribed Form P17. The renunciation will not be complete until it is filed with the court and at such point the executorship is terminated, unless the court otherwise orders.

If an executor named in a Will does not apply for a grant of probate of a Will, any person interested in the estate may, in accordance with the Supreme Court Civil Rules, serve a citation requiring the executor to (1) accept or renounce probate of the Will or (2) explain why administration should not be granted to the executor or to another person who is willing to act. If a person does not answer the citation within 14 days or obtain a grant of probate within six months after being served with a citation, they are deemed to have renounced their right to apply for probate and others are allowed to apply in their place. If this occurs, the citor may swear an affidavit of deemed renunciation in Form P34.

B. Insolvency

An estate will be insolvent if its liabilities exceed its assets. If an estate in British Columbia is insolvent it can be administered by an executor under Part 6 Division 12 of the WESA or by a trustee in bankruptcy under the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 (“Bankruptcy and Insolvency Act”). Since bankruptcy and insolvency fall under federal authority, however, an executor who undertakes to administer an insolvent estate runs the risk of being overridden by the appointment of a trustee in bankruptcy at the instance of creditors. Such an executor may lose the right to receive remuneration, as any fees or disbursements to which the executor would otherwise be entitled will be treated as the claim of an unsecured creditor in bankruptcy. An executor of an insolvent estate must observe the order of priorities of creditors under s.170(1) of the WESA, if there is no bankruptcy, or s.136 of the Bankruptcy and Insolvency Act, if there is a bankruptcy. As a practical matter it is recommended that if an estate is truly insolvent it be handled through the federal insolvency legislation by a licensed trustee in bankruptcy. At the very least the executor should have an insolvency lawyer or accountant assist in the administration.

C. Potential Litigation

An executor must consider whether litigation may arise in respect of the estate. There may be ongoing or pending actions against the deceased, for which his or her estate may be liable. In particular, claims often exist under family law and dependent’s relief legislation. The particular claims that may be brought under this type of legislation differ in the various provinces.

In British Columbia a surviving spouse or former spouse may have rights by virtue of an order under the Family Law Act, S.B.C. 2011, c. 25 (“Family Law Act”) or a separation agreement existing before death, which could continue to bind the estate. Even if an order or settlement has not been reached prior to death, if a “date of separation” has occurred, as defined under the Family Law Act, the surviving spouse will have an undivided interest as a tenant in common in the family property and equal responsibility for family debt.

In British Columbia, Division 6 of Part 4 of the WESA (the “Variation of Wills”), which is the successor to the Wills Variation Act, R.S.B.C. 1996, c.490 , provides that a child or spouse (including a common law spouse) of a testator may commence an action if he or she feels that the testator has not made adequate provision under the Will for such spouse or child’s proper maintenance and support. The court has the authority to order, if the court determines it to be appropriate, that the estate provide for such spouse or child in a manner determined by the court to be adequate, just and equitable in the circumstances. This action must be commenced within 180 days of the date of the grant of probate of an estate. A notice of the claim must be served on the executor within 30 days after the expiration of the limitation period, unless the court grants an extension, which essentially extends the 180 days to 210 days.

Note that under the WESA the definition of “spouse” has changed. Section 2 of the WESA defines two individuals as spouses if they were married to each other or had lived with each other in a marriage-like relationship for at least two years. Note there is no requirement for cohabitation in this definition. Section 2 also provides that two individuals cease being spouses in the case of marriage upon an event occurring under the Family Law Act which results in an interest in family property. Under the Family Law Act, an interest in family property occurs on the “date of separation”, which is not defined but could be the date upon which one of the spouses leaves the family home with an intent to permanently live separate and apart. As a result of the potential for a married spouse to have lost spousal status without divorce, one must carefully consider whether a married spouse has standing to bring a Variation of Wills claim. Similarly, spouses living in a “marriage-like relationship” will cease to qualify as spouses under the WESA, and therefore cease to have standing to bring a Variation of Wills claim, when one or both of the spouses terminate the relationship.

Where the testator was domiciled in British Columbia, a claim to vary a Will applies to all assets of the deceased’s estate except for real property located in other jurisdictions. Where the testator was domiciled outside of British Columbia, it will only apply to the real property of the estate located in British Columbia. Property of the estate for these purposes do not include assets that pass to a surviving joint tenant or designated beneficiary under a plan or policy.

To avoid personal liability, an executor must not distribute any of the assets of an estate to any beneficiary before 210 days after the issuance of a representation-grant unless all persons who would be entitled to bring an action under the variation of Wills provisions or anyone else interested in the estate consent to the distribution or unless the distribution is authorized by court order. If an executor makes a distribution without either of these circumstances having occurred the executor may be personally liable for any loss that results from that distribution. If an action for variation is commenced then there can be significant further delay in distribution as no such distribution can be made without the consent of the court order. Other than making distributions to beneficiaries, the executor may continue the administration of the estate within the limitation period unless the court has suspended the administration pursuant to Section 66 of the WESA. He may pay duties, taxes, debts and testamentary expenses and can fully realize assets other than real estate. The sale of real estate to a third party within the limitation period is technically permitted; however, there is a risk that a claimant may obtain a certificate of pending litigation prior to the sale. If an action is commenced and the claimant files a certificate of pending litigation against title to real property in the estate, the co-operation of the claimant or a court order will be required prior to any sale of such real property.

D. Duties

The role of executor requires a high degree of diligence and integrity and involves duties imposed by both common law and statute. The law requires that an executor act with the level of skill and prudence that would be expected of a reasonable person of business. If the executor is a professional he or she will be held to the standard of the profession.

An executor’s authority to act comes from the Will. The duties of the executor are broadly described in s. 142(2) of the WESA. In addition, the duties may be specifically described in the Will and will also generally include the following:

ensuring appropriate funeral arrangements are made;
taking possession or control of the deceased’s assets and holding such assets in trust for the estate;
paying debts and making provision for other liabilities of the estate;
notifying beneficiaries of their rights under the Will;
acting personally in respect of the management and administration of the estate, subject to any powers of delegation that may be permitted in certain circumstances;
ensuring that any investment of estate assets is authorized under the Will and the Trustee Act, R.S.B.C. 1996, c.464 (“Trustee Act”);
acting impartially;
safeguarding and managing the assets of the estate in accordance with the Will;
continuing or bringing and maintaining actions on behalf of the estate;
keeping proper accounts and being ready to account; and
distributing the assets of the estate to the beneficiaries.

An executor is a trustee and therefore owes the obligations of a fiduciary to the beneficiaries of the estate. A fiduciary is a person who is required to act for the benefit of another person in all matters within the scope of the fiduciary’s relationship to that person. In law fiduciary obligations are highly regarded and must be strictly adhered to. If such obligations are breached it would be open to the beneficiaries to bring action against the executor and the executor could face personal liability to the extent of the breach.

Where there are two or more executors the terms of the Will often provide whether the executors must act unanimously. Where no such terms are expressly contained in the Will, acts done for purposes of the administration of the estate with respect to real property require unanimity of the executors but acts done by one executor with respect to personal property are deemed to be the act of all executors. Where an executor is a trustee of a trust created by the Will unanimity will be required with respect to all trustees of such trust unless the terms of the Will specifically provide to the contrary.

A distinction is drawn between discretionary and administrative powers. Discretionary powers may generally only be delegated if the Will expressly permits such delegation. An executor may employ agents to perform services that are purely administrative and that the executor is not qualified to perform if a prudent business person would also have retained an agent to perform such services. Such agents must be properly supervised by the executor.

The duty to account is a very important duty of the executor. The executor must account to the beneficiaries of the estate and any unpaid creditors of the estate. The accounting must show all of the assets of the estate, the value of the assets, where they are held, what monies have been received, and what expenses have been paid. Each of the beneficiaries is entitled at law to require such an accounting. The executor must, at all times, be prepared to account. There should be a system implemented whereby all necessary information is recorded and retained for the preparation of full accounts for approval by the beneficiaries or the court.

All monies belonging to the estate should be deposited to and all expenses paid from an estate account. The executor is entitled to be indemnified out of the estate for all out-of-pocket expenses properly incurred. The executor should keep very careful records of all transactions in the estate account. The executor should periodically review the banking statements for the estate. The executor should be the sole signing authority for the account and the beneficiaries should not have any authority or exercise any control over the estate account.

Prior to distributing the estate assets, an executor should prepare an accounting and circulate it to the beneficiaries. At the same time, the executor should obtain a consent and release from each beneficiary to the account. If the consent and release is not forthcoming the executor should seek approval and discharge from the court.

II. PRELIMINARY MATTERS

A. Funeral and Disposition of Remains

One of the first duties of an executor is to attend to the funeral arrangements and the disposition of the testator’s remains. This process is governed by the Cremation, Interment and Funeral Services Act, S.B.C. 2004, c. 35 (“Cremation, Interment and Funeral Services Act”). Pursuant to that act, the executor or executors named in the Will of the testator have priority to control the disposition of the testator’s human remains or cremated remains (Cremation, Interment and Funeral Services Act, s.5). This right of control is not vested in an administrator where no executor is named in a Will or where there is no Will. In this case the spouse of the deceased has first priority followed by adult children and then grandchildren, etc. If the first person on the list is unavailable or unwilling to act then the right moves to the next available person. If there is more than one person of any given rank and they cannot agree then the right begins with the eldest person. So for example, the eldest child if children are the nearest relatives would be entitled to handle the arrangements.

Ironically, it is seldom the executor acting in the role of executor that makes the funeral arrangements or initially pays the funeral expenses. Instead, it is often the nearest family members of the deceased person who make the initial arrangements as in many cases the Will is not found or dealt with before such arrangements have been made.

The written preference of a deceased person respecting the disposition of his or her remains is binding on the person who has the right to control the disposition of those remains if that preference is:

stated in the Will or a pre-need cemetery or funeral services contract;
consistent with the Human Tissue Gift Act; and
compliance with the preference would not be unreasonable or impracticable or cause hardship (Cremation, Interment and Funeral Services Act, 6).

The payment of reasonable funeral expenses from an estate is a first charge against the estate and thus it is often possible to arrange payment directly from the deceased’s bank account by presenting the appropriate receipts for the funeral costs. It is important to note that the appropriate costs payable out of the estate are the “reasonable” costs of the estate and not necessarily all funeral expenses. Accordingly, care must be taken when making funeral arrangements that the costs of the arrangements are commensurate with the size of the estate. This is particularly important where the estate may be bankrupt as the executor may be looked to for the shortfall in the event that unreasonable amounts are spent on funeral or cremation costs to the detriment of other creditors.

B. Reading the Will

Contrary to what most people have seen on television, there is typically no formal reading of the Will. Reading the Will carefully is, however, an important element of effective estate administration. At the very early stages of any estate administration an executor must read the Will to determine if there are any concerns regarding the validity of the Will, what his or her obligations will be, the identity of the beneficiaries, and whether there may be a partial intestacy as to part of the estate (for example where there is no gift of residue after specific gifts). Where a Will is made in British Columbia a Will must be signed at its end, in the presence of two adult witnesses who must both have been present at the same time and in each other’s presence and in the presence of the testator when signed. However, where there are documents that do not meet the formal requirements to be a Will, they may be cured under the court’s curative powers in s. 58 of the WESA. This could include not only unwitnessed or unsigned hard copy documents but also electronic documents stored on computers or other digital devices.

A Will made outside of British Columbia will be valid, as to the formal requirements for making a Will, and is admissible to probate if it is made in accordance with the law of (1) the place where the Will is made; (2) the will-maker’s domicile either at the date of the Will or the date of death; (3) the will-maker’s ordinary residence either at the date of the Will or the date of death; (4) the country of which the will-maker was a citizen either at the date of the Will or the date of death; (5) British Columbia; (6) the place where the will-maker’s property is situated at the date the Will is made or the date of death; (7) the place where the vessel or aircraft is registered or most closely connected, in the case of a Will made on board a boat or vessel; or (8) the law governing the essential validity of a power of appointment, to the extent that the Will exercises such power.

Where there is no attestation clause (reciting the presence of the witnesses at the time of signature) an affidavit from at least one of the subscribing witnesses must typically be obtained.

Confirmation should be obtained that a gift or appointment in the Will is not revoked due to termination of a spousal relationship by (1) the deceased divorcing a legally married spouse; (2) the occurrence of an event causing an interest in family property under the Family Law Act to arise; or (3) one of the parties ending a marriage-like relationship.

If the Will is witnessed by a beneficiary under the Will or a spouse of the beneficiary any gift to that beneficiary under the Will is invalid unless there are two other witnesses who are not beneficiaries. However, on application, the court may declare that such a gift is valid if the court is satisfied that the deceased intended to make the gift even though the person was a witness. For a personal representative to honor such a gift, either the consent of all the residuary beneficiaries or a court order should be obtained.

The Will should be reviewed with an eye to correcting any mistakes or ambiguities in the Will, which can be done at the time of the application for probate. Section 59 of the WESA permits the court to rectify the Will where the court determines that the Will does not fulfill the deceased’s intentions because of an accidental slip or omission, a misunderstanding of the instructions or a failure to follow the instructions when drafting. Extrinsic evidence, including evidence of the deceased’s intent, is admissible in the application. Such rectification application must be made within 180 days of probate (except with leave of the court).

One of the other important first steps when reading a Will is to determine whether there is any provision in the Will for executor’s compensation different from that provided by the Trustee Act, s. 88. Before intermeddling in an estate an executor can decide whether acting as an executor is something that they are willing to undertake. If the remuneration to be provided under the Will is insufficient, an executor, may choose to renounce rather than be underpaid for the work to be performed.

It is also important that an executor consider whether they have in fact found the last Will. A Wills Notice Search at the Department of Vital Statistics should be conducted to ensure no later Will was executed. At the initial stage any other documents referred to and incorporated in the Will, such as memorandums executed prior to the Will should be viewed and considered. Remember that only documents properly incorporated by reference in the Will or executed in accordance with the WESA are effective. However, if there are any codicils or other amendments to the Will their validity should be carefully determined as these documents may be permissible under the court’s power in s. 58 of the WESA to alter, revoke or revive a Will.

In addition, in some situations there may be multiple Wills involved in the administration of the estate, only one of which requires probate. Therefore, careful consideration should be given to the appointment of executor in each Will and whether the Will requires probate. The multiple Wills should be reviewed to determination what coordination has been planned between the two Wills; for example, whether one estate bears the burden of taxes and expenses or whether the Executors of each Will must come to an agreement as to which estate should bear the burden. Further, that one of the Wills does not inadvertently revoke a prior executed Will.

C. Identifying Assets and Valuation

In order to properly administer any estate, one of the first steps a personal representative must undertake is to identify the assets and liabilities of the estate and to value those assets for the purposes of an application for a representation grant. These valuations will also be important for tax purposes. Unless the personal representative was familiar with the financial affairs of the deceased person prior to his or her death, it may be necessary to do an extensive search to identify all of the assets. These searches should include:

Search of the Land Title Registry in the provinces where the deceased likely had property.
Search of the Personal Property Security Registry for any outstanding PPSA registrations.
Search of digital assets, such as iTunes songs, bitcoins, domain names or loyalty programs.
Careful review of the deceased’s documents for any signs of assets, including bank statements, and scrutinizing them for regular deposits which may indicate pension or other sources of income.
Attend at the deceased’s bank and have the safety deposit box listed.
Review the deceased’s tax returns for sources of income which may lead to further assets.

Once the assets have been identified, it is important to determine whether the deceased actually owned each asset or instead held them in trust or in some other way such that they do not form part of the estate. For example, consider whether any declarations of trust have been made with respect to any land or other assets, whether any of the assets are held in joint tenancy, whether they have a beneficiary designation (for example, an RRSP or RRIF account) or whether the deceased was a subscriber to any assets (for example, an RESP).

Having identified assets in the estate, it is necessary then to determine their value for the purposes of probate, income tax, solvency evaluation, sale or distribution. In terms of valuation, some assets, such as bank accounts, will be simple to value. Other assets, such as private company shares, may be more difficult. If appropriate, executors must obtain valuation advice from appraisers, accountants or other professionals. For some purposes it is possible to use assessed values, such as land’s assessed value for probate purposes, but such values may not be acceptable for all purposes. The relevant date for valuations is typically date of death.

Where financial institutions or others are unwilling to provide financial information to the personal representative, an Authorization to Obtain Estate Information can be issued from the court as part of an application for representation grant which will require delivery of certain information to the applicant within 30 days of the authorization.[1]

If it is not immediately possible to obtain a valuation for the purposes of obtaining letters of administration or a grant of probate, it has previously been the practice to file the necessary affidavits leaving the valuation of certain assets to be determined. If any assets or liabilities are included with the value to be determined at a later date, an undertaking to the Court to later disclose the valuations and pay the necessary probate fees will be required. This has been particularly useful where it is important to secure probate in order to sell one asset quickly while the valuation of other assets, such as private company shares, may take significantly greater time. In light of the new process for issuing probate “to be ascertained” values are not as readily accepted. At a minimum an explanation as to why a value is not available will likely be required.

When valuing assets for the purposes of a probate or administration application it is important to remember that the value of any mortgages registered against real property at the time of death are deductible for the purposes of probate. Any outstanding amounts on vehicles or other assets which may be posted as security are also deducible when valuing them for probate fee proposes.

In addition, when property is encumbered by a “purchase money security interest” (“PMSI”), as defined in s. 47 of the WESA, a specific gift of that property under a Will made after the WESA is brought into force caries the PMSI with it to the extent that the debt secured by the PMSI is attributable to the acquisition, improvement or preservation of the property, unless a contrary intention appears in the Will. Therefore a personal representative should consider the reason for the borrowing giving rise to the security and outstanding liability when such a gift is made.

D. Is There a Need for Probate?

Once the assets of the estate are identified and valued an executor must assess whether probate is necessary. Where there is no Will, then in all cases a grant of letters of administration will be required. In some circumstances where there is a Will, however, the costs associated with probate, including probate fees, may be avoided. The authority of any executor flows from the Will, not from a grant of probate. Accordingly, where the assets of the estate do not require probate in order to be administered, no probate application is necessary. For example, where the assets of the estate are private company shares or small bank accounts under the threshold for which a bank requires probate then the Will, a death certificate, and in some cases an indemnity, will suffice. The technique of arranging a person’s affairs so that his or her estate consists only of assets which do not require probate is one which must be carefully planned. Where even one asset will require probate in order to be dealt with all the assets of the estate are typically brought in for the purposes of probate fee calculation.

Where the gross value of an estate is less than a prescribed amount and is composed wholly of personal property, a new streamlined process for administering the estate will be available, although as of yet this has not yet come into force. The prior limitation set under s. 20 of the Estate Administration Act was $25,000. The Probate Fee Act, S.B.C. 1999, c. 4 (“Probate Fee Act”), provides that no probate fees are payable in regards to estates valued at less than $25,000 but following recent amendments to the Rules of Court, the filing fee of $200, which was previously exempt for estates valued under $25,000, is now payable (see B.C. Supreme Court Rules Appendix C Schedule 1).

When deciding whether to obtain probate it is important to weigh the saving of probate fees against the risks undertaken by not obtaining a grant of probate. Even where no asset requires probate in order to be dealt with, executors, particularly executors who are not the sole or primary beneficiary of an estate, may wish to consider making an application for probate. Where there is a question as to whether the Will in hand is the last Will of the deceased either due to capacity issues or the possible existence of a later Will, a grant of probate provides the executor with protection from liability when distributing in accordance with the terms of that document. If an executor were to proceed to distribute the estate without a grant of probate and a later Will is discovered, an executor can be personally liable for any shortfall in the estate that cannot be recovered from the beneficiaries under the invalid Will. In addition, where there is the possibility of a claim to vary the Will under Division 6, Variation of Wills, it is crucial to start the limitation period that runs for 180 days from the date of probate.

There is a prohibition against distributing an estate within 210 days of a representation grant under Section 155 of the WESA without the consent of interested beneficiaries and heirs or court order. This prohibition is extended if a variation action or other proceeding affecting the distribution of the estate is commenced.

III. OBTAINING THE GRANT

A. Notice

Supreme Court Rule 25-2 requires that notice of an application for a grant of probate be mailed or delivered to specified parties who are or may be beneficially interested in the estate 21 days prior to submitting an application for probate. Where there is a Will, these parties include, to the best of the executor’s knowledge, any executors or alternate executors whose right to make an application for an estate grant is prior to or equal to the applicant’s; the beneficiaries of the estate; and those who would receive the estate if it had been intestate.

The notice must be in Form P1 and include all of the information set out in such form. This includes the individual’s rights with respect to the estate and claims therein and a copy of the Will. An executor must make sure to comply with the notice requirements as failure to do so may be grounds for having a grant of probate set aside and may affect the limitation period otherwise applicable in respect of actions under the variation of wills provisions of the WESA.

The general rule for notice is set out in the Supreme Court Rules 25-1(3) and provides that notice by mail is deemed to have been given one week from the day of mailing. Rule 25-2(5) appears to create an exception for providing notice of an intention to apply for a grant of probate or administration and sets out that a document is deemed to be delivered on the day that it was mailed.

Notice can also be provided electronically. The general rule is that notice given electronically is deemed to have been given on the same day if transmitted before 4 p.m., and the next day otherwise (excluding weekends or holidays). Again, there is an exception for giving notice of an intention to apply for a grant of probate or administration, which provides that the document is deemed to be delivered on the date it is transmitted. So notice given at 11:59pm is equivalent to notice given at 3:59pm for all other documents. However, as the parties entitled to notice will not have filed documents providing the applicant with an electronic address for service, they must acknowledge receipt of notice. If the applicant does not receive a written acknowledgement, they must provide notice by personal service or by mail. Applicants who give notice electronically can apply 21 days after the date they send the notice (if they have written confirmation from all the persons entitled to notice that it was received). The applicant does not need to wait 21 days from the date the person confirmed receipt of the notice. So, if they send notice to a person by e-mail and receive confirmation of receipt two weeks later, the applicant can still submit the application for filing 21 days from the date they originally sent the e-mail.. However, waiting for confirmation that electronic notice was received is risky.If the applicant waits for written confirmation and it is not received, then they will have to provide notice by personal service or mail and then wait 21 days from that point before filing their application. Delivery of notice by electronic means is likely best used when the persons entitled to notice are known to the applicant and co-operative.

Apart from the electronic notice there is no requirement that an executor prove that a notice mailed or delivered was received by the relevant party. The Interpretation Act, R.S.B.C. 1996, c.238 defines ‘deliver’ to include “mail to or leave with a person, or deposit in a person’s mail box or receptacle at the person’s residence or place of business” and ‘mail’ as “the deposit of the matter to which the context applies in the Canada Post Office at any place in Canada, postage prepaid, for transmission by post”.

The Supreme Court Rules imposes particular requirements for delivery and forms of notices where the parties who are entitled to notice include deceased persons, missing persons, infants, mentally incapacitated persons or unborn and unascertained contingent beneficiaries. Reference to Rule 25-2 should be made in this regard.

B. Required Documents and Affidavits

An application for a grant of probate in British Columbia may be made in any registry of the Supreme Court of British Columbia. As noted previously, an applicant must first provide notice of the intent to apply for a grant of probate before filing the application, which can be filed 21 days after such notice. This is to ensure that interested parties have a meaningful opportunity to oppose the application (by filing a Notice of Dispute).

The documents required for a standard application for a grant of probate as set out under the new Probate Rules are as follows:

A submission for estate grant in Form P2, which sets out information about the deceased and the application and lists the documents being filed in support of the application.
Affidavit of executor in Form P3 or P4.
2 copies of a certificate from the chief executive officer under the Vital Statistics Act indicating the results of a Wills Notice search.
Affidavit of delivery in Form P9 confirming that notice has been delivered to all required parties.
Affidavit of assets and liabilities in Form P10, which discloses all assets and liabilities of the deceased, regardless of their nature, location or value, which pass to the deceased’s personal representative on his or her death. A significant change from the prior rules is that the applicant can file the affidavit of assets and liabilities separately if they cannot learn of all of the deceased’s financial information prior to filing the Form P2 (in which case the registry will issue an Authorization to Obtain Estate Information). Assets of the deceased that do not pass to the personal representative, such as jointly held assets, do not need to be shown on the disclosure document. The new form does not require a description of the distribution under the Will.

C. Probate Fees

As stated above, a grant of probate will not be issued until the probate filing fees have been paid to the probate registry. Probate fees in British Columbia are imposed by the Probate Fee Act. Probate filing fees are payable in respect of all the assets of the deceased situated in British Columbia, and all intangible assets, wheresoever situate, that pass to the executor. The general test of whether an asset is situate in British Columbia is whether the asset can be dealt with effectively in British Columbia. The basic fee for a grant of probate is $200 (reduced following recent amendments to the Rules of Court from $208). Additional probate fees are payable at the rate of $6 for each $1,000 or part of $1,000 of the value of an estate that has a value of more than $25,000 but not more than $50,000 and $14 for each $1,000 or part of $1,000 of the value of an estate that has a value of more than $50,000.

The requirement for probate fees to be paid prior to the grant may necessitate the executor or one of the beneficiaries having to advance the funds to satisfy the probate fees and enable the grant of probate to be issued. This is because the executor will not be able to deal with the estate assets until the grant has been issued. On some occasions, however, the deceased’s financial institution may be willing to release the required funds payable to the Minister of Finance.

D. Unusual Circumstances

Affidavits may be required to obtain a grant of probate if it is necessary to explain any missing document purported to be attached to a Will or Codicil. An affidavit may also be required to satisfy the registrar that any alteration, interlineation, erasure or obliteration that appears in the Will or Codicil was in existence before the Will or Codicil was executed. The burden of proof in respect of these matters is on the party applying for the grant of probate.

If the original Will or Codicil has been lost or is otherwise unavailable or if there is doubt as to whether the Will or Codicil was duly executed or if the attestation clause is missing or lacking, the documents may be cured by the court’s powers under s. 58 of the WESA to permit these documents to be admitted to probate. This could include curing not only unwitnessed or unsigned hard copy documents but also electronic documents stored on computers or other digital devices.

If the testator’s name was signed by another person, the testator was blind or illiterate or did not understand English or if it is unclear from the language of the Will that the Will was read over by the testator prior to its execution then an affidavit of execution may be required to show the testator’s knowledge of the contents of the Will and how the Will was executed.

If it is unknown as to the exact date on which the deceased died the executor will need to provide an affidavit indicating the date on which the deceased was last seen alive and the date on which the deceased’s body was discovered. If a person disappears and no body is located it is necessary to obtain a presumption of death order in advance of probating the Will.

IV. ADMINISTERING THE ESTATE

A. Safeguarding Assets

One of the duties of an executor is to protect the estate by safeguarding its assets. To do this the executor will need to make sure that the assets are adequately insured against loss.

If any residential real property that forms a part of the estate is vacant the executor should notify the insurer of the vacancy and ensure that proper coverage is maintained. In addition to insurance, the executor will need to make arrangements to have the property, and any buildings on the property, inspected regularly to confirm that no damage arises.

If maintenance is required in respect of real property the executor will need to ensure that it is done properly.

The executor’s duty to safeguard assets extends to any business that may have been owned by the deceased. An executor cannot retain a business unless there is very clear language in the Will permitting him to do so. Regardless as to whether the business is to be retained or sold the executor will need to ensure that competent persons manage the business until the business is sold or otherwise disposed of in accordance with the terms of the Will.

The safeguarding of digital assets and the deceased’s digital identity should also be considered. The proper procedure for securing and likely closing social media accounts, such as Facebook, LinkedIn or Twitter, should be determined and followed. The passwords to online accounts should be compiled and maintained. Where possible computer backups should be made of those digital assets with potential financial or sentimental value. Each service will have its own terms of use, including who owns the content stored.

An executor has a duty to monitor the assets of the estate for the purpose of maintaining and preserving their value. The executor must ensure that any investments qualify as authorized investments for the estate under the Trustee Act or are otherwise specifically permitted under the terms of the Will. Assets or investments that do not qualify must be converted so that they do qualify within a reasonable time. An executor could face liability if a risky or unauthorized investment is retained for an unreasonable period of time or if estate investments are not properly diversified.

B. Dealing with Creditors

The executor has a duty to ensure that all debts and other financial obligations of the testator are satisfied before the assets of the estate are distributed to the beneficiaries or any trusts created under the Will are funded. This would include contingent or ongoing liabilities such as personal guarantees, pending lawsuits, obligations of the testator to pay spousal or child support and obligations as a leasee under a lease. In addition, the estate may be bound by shareholders’ agreements, partnership agreements or other types of contracts. At common law, an executor has the power to sell personal property of the testator to satisfy the debts and liabilities of the estate. The WESA extends this power to include real property and provides that land charged by the Will with the payment of debts is primarily liable; otherwise, land and personal property abate together.

Executors can protect themselves from liability for failure to pay an estate liability before distribution by placing advertisements in local newspapers requesting that any creditors of the estate present their claims by a specified time limit. Under the WESA the advertisement must be placed only in the BC Gazette (this is significantly less onerous than under the prior law). The advertisement should state that if creditors do not notify the executor of their claims by the specified time limit the estate’s assets will be distributed regardless as to whether claims are still outstanding against the estate. The WESA provides that the specified deadline may not be less than 30 days after the date of last publication. If the executor is unaware of a creditor, the advertisement will protect him from liability for proceeding with the distribution of estate assets. If the executor is aware of a creditor, even if the creditor does not make a claim, the executor will not be protected with respect to that claim.

It should be noted that even if the assets of the estate are distributed, equitable tracing principles permit a valid creditor to pursue the assets of the estate from the hands of the recipient beneficiaries.

If an executor is knowledgeable about the testator’s financial affairs, or is the sole beneficiary of the estate, the executor may decide not to place an advertisement for creditors of the estate. This is a matter of common sense and judgment. Where an executor determines not to advertise for creditors, the executor should seek an indemnity from future claims from the beneficiaries of the estate.

An executor may pay or allow any liability or claim on any evidence he or she thinks sufficient. In exercising this power, however, an executor must act in a reasonable and prudent manner. The executor must therefore make reasonable enquiries to determine whether the claim of a creditor is valid and enforceable before the executor makes payment. Consideration should be given as to whether there are valid legal defences to the claim, such as whether a claim has become statute-barred (note that applicable limitation periods may have changed with recent amendments to the British Columbia Limitation Act). If an executor determines that a claim is false or unenforceable, the executor should not make any payment unless and until the creditor proves the claim in court.

C. Tax Filings and Clearance

The executor must file the deceased’s terminal T-1 tax return and pay from the assets of the estate any unpaid Canadian income taxes. The executor is also required to file any returns the deceased failed to file before his or her death. The T-1 return covers the fiscal period between January 1^st of the year of death and the date of death. If the deceased died before November 1^st in any year, the terminal period income tax return must be filed by April 30^th of the year following the year of death or by June 15^th of such year if the deceased or the deceased’s spouse was carrying on a business in the year of death. If the deceased died after October 31^st in any year the terminal period income tax return must be filed by the later of the day on or before which the return would otherwise be required to be filed and six months following the date of death (s.150(1)(b) of the R.S.C. 1985, c.1 (“Income Tax Act”)).

Where the deceased’s Will establishes a tainted “spouse trust” to which subsection 70(7) of the Income Tax Act applies, the filing deadline for the T-1 return is extended to 18 months from the deceased’s death. This deadline applies even if the “spouse trust” is successfully untainted under paragraph 70(7)(b) of the Income Tax Act. In such circumstances, however, paragraph 70(7)(a) of the Income Tax Act provides that interest will accrue on any unpaid tax from the date the return would have been due had the “spouse trust” not been tainted (i.e. in most cases, from April 30^th of the year following the year of death). Similarly, even if the deadline for filing the deceased’s T-1 return is extended to June 15^th in the year following the year of death because the deceased or the deceased’s spouse was carrying on a business, any income tax payable will be due on April 30^th and will bear interest from that date onwards.

The executor should consider whether a “graduated rate estate” election should be made. In general, a graduated rate estate (a “GRE”) is an estate that arose on, and as a consequence of, an individual’s death. A GRE can only exist up to 36 months after an individual’s death and it must meet the definition of a “testamentary trust”. If an estate qualifies as a GRE then it is eligible for graduated tax rates (rather than being taxed at the top marginal rate like other estates and trusts), among other things. To qualify as a GRE an estate must file a timely election indicating that it is a GRE in its first tax year.

Similarly, the executor should consider whether a trust created under the terms of the Will will qualify as a Qualified Disability Trust (“QDT”) for tax purposes. An election to qualify a trust as a QDT must be made on an annual basis and will permit a trust to qualify as a testamentary trust and therefore benefit from a separate graduated tax rate, with potential tax savings, among other things. In general, a QDT for a taxation year is a testamentary trust that arose on the death of a particular individual, that jointly elects, with one or more beneficiaries under the trust (or a legal guardian if the beneficiary does not have capacity), in its T3 return of income for the year to be a QDT for the year. In addition, the following conditions have to be satisfied:

the trust must be factually resident in Canada;
each electing beneficiary must be named as a beneficiary in the instrument under which the trust is created;
each electing beneficiary must, for the beneficiary’s taxation year in which the trust’s year ends, be an individual who is certified as being eligible for the disability tax credit (i.e., an individual with a severe and prolonged impairment in physical or mental function and in respect of whom the certification required for the disability tax credit has been filed with the CRA);
each electing beneficiary may only make one QDT election;
the trust is not subject to the new recovery tax for the year.

Note that there is no relief for a late filed election and therefore if not so elected on time, the trust will be taxed at the highest marginal rate for the year.

The executor may elect to file more than one income tax return for the year of death. The advantage of filing more than one return is that personal tax deductions and credits may be duplicated and an overall lower marginal tax rate may be achieved (Interpretation Bulletin IT-326R3). For example, if the taxpayer operated a business as a proprietorship or was a member of a partnership having a fiscal year other than a calendar year, for the income from the business or partnership a separate return may be filed, upon an election by the executor. In the case of a partnership, this election will only be applicable when the death of the partner causes the fiscal period of the partnership to end (s. 150(4) of the Income Tax Act and Interpretation Bulletin IT-278R2, para. 2).

The executor may also elect to file a separate return if the deceased taxpayer was an income beneficiary of a testamentary trust that had a taxation year other than a calendar year. This return may only include income of the deceased from the trust that arose after the end of the last taxation year of the trust and before the date of death of the taxpayer (s. 104(23)(d) of the Income Tax Act).

Lastly, an election may be made to file a separate return in respect of the value of “rights or things” owed to the taxpayer at the time of death (s. 70(2)). “Rights or things” generally include income that has been earned, and that the taxpayer has an absolute right to receive as of the date of death, but that have not in fact been received by that time (for example, matured but uncashed bond coupons, dividends that have been declared but are not yet paid at the time of death, and unpaid salaries relating to pay periods ending before the date of death). The deadline for filing a “rights or things” return is the later of one year from the deceased’s date of death and 90 days after the mailing of any Notice of Assessment in respect of tax assessed on income of the deceased for the year of death (s. 70(2) and Interpretation Bulletin IT-212R3). Subsections 70(5), (5.1), and (5.2) deem a deceased taxpayer to have disposed, immediately before death, of all depreciable and other capital property, eligible capital property (goodwill), resource properties and land included in the inventory of a business for proceeds equal to the fair market value of the property. This results in the taxation of recaptured depreciation and accrued capital gains, which, in the case of land inventory, will be taxed as ordinary income.

If acceptable security is furnished to the Minister the executor may file an election to pay the tax that arises on the death of the testator by installments (s. 159(5)). A maximum of ten equal consecutive annual payments are allowed and interest will be payable from the day the tax would otherwise have been payable on the balance of tax outstanding. Not all sources of income may be paid by installment. Examples of sources of income that may be paid by installment are “rights or things” included in the deceased’s income, recapture or capital cost allowance in excess of terminal losses, capital gains in excess of capital losses and income in excess of expenses from deemed dispositions of resource property and land inventory.

As a practical matter an executor is required to obtain a clearance certificate from CRA in respect of the deceased’s tax obligations before distributing any property under his or her control (s. 159(2)). A clearance certificate from CRA certifies that all tax, Canada Pension Plan contributions, unemployment insurance premiums, interest and penalties payable by the deceased have either been paid or have been secured to the satisfaction of the Minister of National Revenue. If all returns have been filed and all tax, interest and penalties have been paid, CRA will issue a certificate for final distribution of all property remaining in the estate. An executor will be personally liable for any tax, interest or penalty that is outstanding if the executor distributes the assets of the estate without obtaining an income tax clearance certificate (s. 159(3)).

When a distribution is made from a Canadian resident trust to a non-resident beneficiary the non-resident beneficiary is considered to have disposed of a capital interest in a trust. If within the previous 60 months more than 50% of the fair market value of the trust interest was derived directly or indirectly from Canadian real property or resource property then the capital interest is considered to be taxable Canadian property. When a beneficiary disposes of this type of capital interest to the trust it is necessary for the “purchaser” of the interest, namely the Trustee, to apply for a Clearance Certificate pursuant to Section 116 of the Income Tax Act or withholding tax must be remitted to the CRA. If however, the Trustee determines after reasonable inquiry that the non-resident person is resident in a country that has a Treaty with Canada and the capital interest in the trust would be treaty protected then all the Trustee has to do is provide notice of the acquisition to the CRA in accordance with subsection 116(5.02). This notice has to be sent within 30 days of the acquisition of the capital interest which would be calculated from the time the distribution is made to the beneficiary in satisfaction of the capital interest.

The executor should also determine if the deceased is liable for tax in any other jurisdiction. For example, a U.S. citizen is subject to U.S. income tax on his worldwide income and is obligated to file annual income tax returns in the U.S. Further, a U.S. citizen is subject to U.S. estate tax on his worldwide estate. The U.S. estate tax also applies to Canadian residents to the extent they own assets considered to be situated in the U.S. at the time of their death. A U.S. estate tax return must be filed within nine months of the date of death unless an extension is requested prior to the expiration of that period. An executor is personally liable for unpaid U.S. estate and income taxes to the extent assets have been distributed from the estate and there are insufficient assets in the estate to satisfy the liability.

D. Compromising/Resolving Claims

As previously noted an executor has the authority to compromise claims against the deceased. If the compromise is made without the prior written consent of all beneficiaries a beneficiary may later object to the payment as being inappropriate. Where approval cannot be obtained the executor can make the compromise subject to approval at a passing of the estate accounts. At the passing evidence should be given about the perceived validity of the claim, the projected costs of contesting the claim, and the projected delay in distribution that would result if the claim were litigated.

A probate action such as a challenge to the validity of the Will cannot be compromised without leave of the court.

Claims under the Division 6 of the WESA (Variation of Wills), cannot be dealt with by a consent order as the court has discretion. If all beneficiaries, including contingent beneficiaries, are adults then the parties may enter into an agreement of settlement and proceed without a court order. However, this may have adverse tax ramifications, which should be considered before proceeding without a court order. When all beneficiaries are not adult or a party is under a disability, an order of the court is mandatory.

V. BENEFICIARIES AND THEIR EXPECTATIONS

A significant task of any successful executor or administrator is managing and meeting the reasonable expectations of beneficiaries. Inevitably, beneficiaries are anxious to see the completion of administration and to receive their share of the estate. They may often unreasonably estimate the time it ought to take to properly administer an estate, including the payment of all creditors and taxes and proper accounting for all assets. Keeping the beneficiaries informed and happy is perhaps the most difficult task of a personal representative.

An executor is a trustee, and thus a fiduciary, who owes duties to the beneficiaries. A fiduciary owes a duty to account to the beneficiaries for all that he or she does with the property that is held for the beneficiaries (Law of Trusts in Canada, 4th Ed., D.M. Waters et al, (Toronto: Carswells, 2012) at 3.I.A). The trustee must, of course, “adhere to the terms of the trust, and he cannot depart from them unless he has the authorization of statute or of the Court.” (Waters, supra at 18.0). In addition to the duties imposed by the terms of a trust, a trustee’s duties are governed by the Trustee Act, and the common law that has developed over time. These duties are discussed in general terms below.

First, the trustee is not permitted to delegate unless otherwise permitted by the document in which he or she is appointed or by the governing statute. In the case of trustees, including executors and administrators, apart from any power of delegation included in a Will, there exists in the Trustee Act the ability to delegate for certain purposes. A personal representative may, without anything further in the Will, authorize a solicitor (or banker in respect of a policy of assurance) to receive and give a discharge for money (Trustee Act, s. 7). A personal representative may also delegate authority with respect to investment in the manner of a prudent investor provided there is monitoring (Trustee Act, s. 15.5). A general rule of thumb with respect to the delegation of trustees’ powers is that they ought not to delegate any discretion to make decisions concerning the ultimate distribution of the estate.

Trustees are generally not permitted to act in a conflict of interest between their own personal interests and those of the beneficiaries. This is particularly important where a personal representative is one of several beneficiaries of the estate. In such circumstances, the personal representative must be careful to balance his or her personal interests against the interests of the other beneficiaries in the estate (for example, in distributing assets in specie or in the sale of a particular asset).

An area where conflict of interest can often arise with unexpected consequences is in the context of a personal representative who is also acting as a director, officer or shareholder of a company in which the estate has an interest. In such circumstances, care must be taken not only to ensure that the interests do not conflict, but also that necessary steps are taken to ensure that the executor is properly remunerated for both functions. If an executor is appointed as a director of a corporation by virtue of his or her role as executor, it may be that any fee to which he or she would otherwise be entitled for acting as a director is not recoverable by that executor but is instead owing to the estate (for a more complete discussion see Waters, supra, at 18.II. D.6 (b)).

In addition, a personal representative trustee cannot purchase an asset from the estate unless the Will specifically permits him or her to do so (Waters, supra, at 18.II. D. 2). Without such permission, self-dealing by the personal representative is prohibited.

A. The Even Hand Principles

In addition to the duty to act fairly as between the executor/trustee and the beneficiaries, the executor must also act fairly as between the beneficiaries.

“It is a primary duty upon trustees that in all their dealings with trust affairs they act in such a way that, if there are two or more beneficiaries, each beneficiary receives exactly what the terms of the trust confer upon him and otherwise receives no advantage and suffers no burden which other beneficiaries do not share. In this way the trustees act impartially; they hold an even hand.”

(Waters, 19.III.A.)

There are two general ways in which this even-handed principle applies itself to administration of estates. First, a trustee must act in an even-handed manner as between beneficiaries having similar interests. Second, they must act in an even-handed manner as between beneficiaries of various classes. With respect to beneficiaries in the same class, it is necessary for the trustee to act in such a way that each of the beneficiaries taking a particular interest in the estate receives the same interest as the other beneficiaries receiving the same interest. For example, in the estate of an intestate who died leaving two children and no spouse, it is necessary to ensure that the two children each receive one half of the net value of the estate. Where there are assets which are of differing characteristics and which have different tax consequences (such as cash versus securities), and those assets are to be distributed in specie those characteristics and tax consequences must be considered when making a distribution.

The most common example of circumstances where the treatment of various classes of beneficiaries must be considered is where you have a life tenant with remaindermen taking the remainder on the death of the life tenant. Unless the Will provides otherwise, the executor must consider both the life tenant and remainderman when investing and distributing estate assets. In this case a trustee must consider the income and capital generated by the trust assets and whether there is a balance between those two kinds of earnings such that there is sufficient income generated while still achieving some capital growth. The preference of the testator as to income or capital investment is sometimes expressed in a Will, usually in favour of a life tenant. In such circumstances the trustee is liberated from the duty to hold an even-hand as between life tenant and remaindermen in order to favour the life tenant with the production of income during his or her lifetime.

In addition to investment, the even-handed principle often arises in the context of payment of expenses. It is important to properly determine from which fund, either income or capital, an expense is properly deducted. Without such consideration, it is possible that a remainderman could complain that an income expense was incorrectly deducted from capital. The nature of the burden will determine whether it is borne by the income or capital beneficiaries (Widdifield on Executors and Trustees, 6th ed, Carmen S. Theriault, ed. (Toronto: Carswell, 2005) at 7-1). Income expenses are typically those expenses which are recurring, ordinary outgoings. A common example of such an income expense is property tax. By contrast, capital expenses are generally one time costs for the preservation or protection of the trust capital. Such expenses include major repairs or improvements to real property.

Of course, the greater the discretion available to the trustees, the more opportunities there will be to act in a way other than in an even-handed manner. Thus, in the context of a truly discretionary trust, the trustee must ensure that he or she properly considers any proposed distribution but the Trustee may, in any event, prefer one beneficiary over another.

B. The Personal Effects

While personal effects are usually not the most valuable assets in an estate, they are often the most contentious. Unless a testator has set out in his Will a specific distribution scheme for personal effects, it will be up to the personal representative to determine the appropriate distribution. In such circumstances, the even-handed principle should be kept in mind in distributing the assets and ensuring equal value is distributed among persons sharing equally in the personal effects. It will, therefore, be necessary to consider the “value” of the personal effects. This may require appraisals or other valuations in order to ensure that no inequity is rendered upon the beneficiaries as a result of insufficient information. As well, certain personal effects will have greater or lesser degrees of emotional value (even if they have the same monetary value). Where there is no process set out in a Will, it may be useful for an executor to establish a process (such as the drawing of lots) for the beneficiaries to choose personal effects in order to achieve an unbiased and even-handed distribution.

From a practical perspective, a personal representative should not permit beneficiaries to remove or take personal effects from the deceased’s home without the personal representative first cataloguing them and determining their approximate value. If personal effects are to be held by the personal representative for any length of time, the executor should consider obtaining insurance against the possibility of theft or damage prior to distribution.

C. Keeping the Beneficiary Informed

Part of the battle in maintaining a positive working relationship between personal representative and beneficiaries is ensuring that the beneficiaries receive sufficient information both as to the initial status of the estate but also the progress in estate administration. Apart from the formal passing of accounts process (discussed below) it is often helpful to provide beneficiaries with brief updates as to the administration, particularly where the estate administration is complex or in some way delayed by events such as environmental problems, difficulties in selling a property, income tax disputes, etc.

Beneficiaries are entitled to request certain information and documentation from the personal representative. However, they may not be entitled to every scrap of paper produced in an estate administration. This issue is particularly problematic where there are contentious matters between trustee and beneficiary or where third parties have claims against a beneficiary and seek information on trust affairs. For many years the basis upon which documents were deemed producible was that the beneficiary had a proprietary right in the document by virtue of his or her interest in the trust. Such “trust documents” have been described as those in the possession of the trustees, containing information about the trust which the beneficiaries are entitled to know and in which the beneficiaries have a proprietary interest (Re: Londonderry’s Settlement, [1965] Ch. 918 (C.A.)). It has been held that such documents do not include minutes of trustees exercising their discretion. This old law has been cast in some doubt by the decision of Schmidt v. Rosewood Trust, [2003] UKPC 26. This case involved an offshore trust and the disclosure of trust documents to a discretionary beneficiary. The Privy Council held that the true basis for disclosure of trust information was not a proprietary right, but the court’s jurisdiction to supervise and intervene in the administration of a trust. Accordingly, no beneficiary would have any entitlement as of right to disclosure. On the basis of this judgment, there would be no proprietary right to documents, although there continues to be a duty to account. The B.C. cases that have considered the Schmidt decision have adopted the premise that questions of disclosure have to be answered by balancing the competing interests of the parties involved (see Camosun College Faculty Assn. v. College Pension Board of Trustees, [2004] B.C.J. No. 1470 and Re: Martin Estate, [2009] B.C.J. No. 2020). As the law in this area has not yet been fully considered in Canada, a trustee asked for production of documents would be wise to obtain advice before complying with or refusing any request for production of documents.

In providing information to beneficiaries it should be remembered that the personal representative must ultimately decide how the estate is administered. Discretion on the part of a personal representative should not be lightly relinquished to beneficiaries. Trustees are ultimately responsible for the decisions they make and unless all adult beneficiaries who have capacity have agreed in writing as to a particular course of action, trustees are well advised to obtain their own counsel concerning the estate administration. Without unanimity among beneficiaries, it is the Court that must decide whether a trustee has been prudent in their administration of the estate.

D. Infant Beneficiaries

Where there are infant beneficiaries of an estate, either under a Will or on intestacy, there are special considerations that a personal representative must keep in mind. If there is a Will the terms of the Will concerning the ultimate distribution of the infant beneficiary’s share of the estate must be considered. In the Will there may be permission to pay a guardian the share of an infant beneficiary. If there is no such provision then the guardian cannot give a valid receipt for the infant’s share except in limited circumstances (discussed below). The infant’s share may also be held in trust, which would require the executor or a separate trustee to hold the infant’s share until a particular date.

If there are no terms in the Will creating a trust and no provision to allow an infant’s share to be payable to the guardian of an infant, then WESA s. 153, provides that an executor must pay the share of an infant’s estate to the Public Guardian and Trustee in trust for the minor. This is always the case in circumstances where there is no Will. Where the property is other than money, the Public Guardian and Trustee may convert the property to money or transfer the property to the minor. The Public Guardian and Trustee then has authority to manage the interest of the infant beneficiary until that beneficiary attains the age of majority at which point the distribution is made to the infant. The Public Guardian and Trustee holds an infant’s share of an estate as a trustee under the Trustee Act and may make payments of all or part of the money for maintenance, education or benefit of the infant prior to distribution (Infants Act, R.S.B.C. 1996, c. 223, s. 14). The Public Guardian and Trustee may also decline to accept the minor’s interest and instead recommend to the court that a private trustee be appointed. The Family Law Act sets out a procedure for appointment of such trustee. Under the Family Law Act guardians are permitted to receive small amounts on behalf of minor children under certain conditions without provision in the Will or court order (the prescribed limit is currently $10,000 total funds held by a guardian under s. 24 of the Family Law Act Regulation).

Another twist where there are infant beneficiaries of an estate is that an infant beneficiary cannot approve the accounts of an executor or administrator. Accordingly, in all cases where a personal representative seeks to be released from liability with respect to the administration of the estate for any period, he or she must either periodically pass his or her accounts before the Court, or wait for a release upon the minor attaining the age of majority. Depending on the age of the beneficiary, this latter option may not be practicable and thus a Court application(s) will be necessary. The process for applying for Court approval of accounts is discussed further below.

VI. WRAPPING IT UP

Once all the assets have been identified and valued, all the liabilities ascertained and paid (in the appropriate order), a clearance certificate obtained for tax liabilities and any other directions to the trustee under the terms of a Will have been followed, it is time for the executor or administrator to complete the administration. This involves preparing a final accounting of the estate, which includes the proposed compensation to the personal representative. Then the executor may obtain a release either by way of agreement of all the adult beneficiaries or by way of Court order.

A. Compensation

Where there is a Will, it is possible for a testator to dictate the compensation available to an executor. Whether the compensation set out in the Will is sufficient compensation for the work to be undertaken is one of the elements that an executor must have considered prior to acting. If there is no provision in the Will for compensation then the Trustee Act governs. The Trustee Act provides that compensation may be:

up to 5% of the gross aggregate value of the estate, including capital and income for his or her care, pains and trouble and his or her time spent in or about trusteeship.
up to 0.4% of the average annual market value of assets for care and management.

(see Trustee Act, s. 88)

The percentage claimed by the personal representative must bear some reasonable relationship to the amount and nature of the work involved (see Brown v. Martin, citing Re La Chance, [1955] 15 W.W.R. 141 (B.C.S.C.)). These fees are in addition to reimbursement for reasonable expenses. Where there are multiple personal representatives the fee must be shared among them.

In considering the appropriate percentage to be awarded to a trustee, a number of factors must be considered. These factors are:

the magnitude of the trust,
the care and responsibility involved,
the time occupied in the administration,
the skill and ability displayed, and
the success achieved in the final result.

(Re: Toronto General Trusts Corporation (1905), 6 O.W.R. 350

(Weekly Ct), Re: McColl Estate (1967), 65 W.W.R. 110 (B.C.S.C.))

CRA takes the position that, where an individual earns executor’s fees for the administration of the estate, such income is income from an office and thus it is necessary to withhold income tax and CPP (where the individual is less than 70 years of age) from the executor’s fees. The amounts withheld are to be submitted to CRA and a T4 summary and T4 slip prepared and filed. While there is some question as to whether CRA’s position is correct with respect to the characterization of executor’s fees as fees from an office, to avoid any complications, you may wish to comply with its position.

Unless all beneficiaries consent, where executors provide professional services to an estate in addition to services as executor, the Will must include a charging clause if the professional fees are to be paid. Such clauses typically provide that an executor who provides services to the estate in his or her professional capacity may charge their normal business charges for such work. The charging clause usually extends to the partners or employees of the executor in order for those persons to charge as well. The principle that a trustee, such as a personal representative, cannot benefit from his or her office would otherwise deny the personal representative professional compensation for work performed by him or her or by his or her firm. Even if the Will contains a professional fee clause, if the executor witnessed the Will then the charging clause is invalidated.

One final element to consider where executors or administrators are seeking compensation is whether those personal representatives have retained others to do work on their behalf which they ought to have done themselves. For example, it is often tempting for executors to retain lawyers and accountants to deal not only with the legal and accounting elements of an estate, but also to deal with the day to day administration and communication issues. In such circumstances, beneficiaries may take issue with the claims for compensation of an executor in addition to the payment out of the estate of the legal and accounting fees related to administration work. In such circumstances, the personal representative may be personally responsible for paying third parties for doing estate administration related work from his or her fee. If the third party fees exceed the fees that the personal representative would otherwise receive, the personal representative may be obligated to indemnify the estate. This is why in most circumstances professionals providing services to executors provide those services to the executors personally and the executors then seek indemnification from the estate. Where administration work is performed, it may be useful for professionals to render separate accounts.

B. Accounting

The common law and the Trustee Act require that trustees, including personal representatives, be ready to account for their dealings with trust funds at all times and to account to the beneficiaries on a periodic basis. Section 99 of the Trustee Act requires that unless the accounts of a personal representative are approved in writing by all beneficiaries, a personal representative must pass his or her accounts within two years from a grant of probate issuing and subsequently at the time the Court directs.

The form that trustee accounts should take is not the same as a standard balance sheet or financial statement. Rule 25-13(6)(a) requires all accounts to be passed before the Court by way of affidavit (Form P38) and a statement of account affidavit (Form P40) (see Schedules “A” and “B”, respectively). Trustee accounts should always be prepared in a form that could, if necessary, be presented to the Court.

Where there are no minor beneficiaries or incapacitated beneficiaries involved in the accounting the general process is to provide the accounts to each beneficiary. If all of the parties approve the accounts, the beneficiaries will be requested to sign a release and the distribution can then occur.

Where there are minor beneficiaries or incapacitated beneficiaries involved, a new provision under WESA, section 157(3)(c) provides that the guardian of the minor’s estate or a nominee can consent to the accounts without a formal passing of accounts. However, such individual cannot sign a release on behalf of the minor or incapacitated beneficiary, discussed in further detail below.

Where consents cannot be obtained from all the beneficiaries (or such beneficiary’s guardian or nominee), then the executor should apply for a reference to the Registrar (without notice) supported by an affidavit (Form P38) and a statement of account affidavit (Form P40). Under the WESA the default will be that the Registrar may certify the result and that the certificate, when filed, will be binding on all parties (if filed under Rules 18-1(9)). The executor should then file the documents at the registry where the grant was issued and arrange for a date for the appointment.

The executor should then serve the beneficiaries with the accounts, the affidavit in support of the application to pass accounts, the order, and the appointment. Each of the adult capacitated beneficiaries may attend the hearing before the Registrar and litigation guardians are often appointed for minor or incapacitated persons to raise any concerns that he or she may have concerning the accounts. Unless the Court orders otherwise, the Registrar must then certify the results and the certificate is binding on all the parties.

The executor may want to consider applying for a discharge at the same time, where appropriate, the process for which is discussed in further detail below.

C. Release

As mentioned above, if all the beneficiaries agree to the form of the accounts then a release should be obtained from each beneficiary before any distribution is made. This release typically releases the personal representative from all liability with respect to his or her administration of the estate and may deal specifically with payments out under a varied Will or other specific issues relating to the particular estate. The release sometimes includes an indemnity of the executor depending upon whether there remain potential tax or other liabilities that have not yet been fully ascertained. Of course, an indemnity is only as valuable as the assets of the person giving the indemnity and thus a personal representative is well advised to take great caution in accepting an indemnity over full payment of all creditors prior to distribution. A release should also include an acknowledgement of full receipt of accounting, approval of the accounts and waiver of a further accounting. The release should be binding upon the beneficiaries and their estates and, where an interim distribution is made, is often conditional upon receipt of a holdback upon receipt of final tax clearances.

Where a release cannot be obtained, for example where a minor beneficiary is involved as a release cannot be obtained on his or her behalf, a personal representative may apply to be discharged as personal representative under s. 157 of the WESA. Such a discharge provides a more limited release to a trustee then a standard release signed by the parties. The procedure for seeking a discharge under the WESA has been simplified, as it is now possible for personal representatives to apply for a discharge without notice, if the accounts are passed or the court determines the accounts do not need to be passed.

VII. TIPS FOR AVOIDING LIABILITY

If you do choose to act as executor, always tread carefully. When in doubt always seek professional advice and have the advice reduced to writing. Thorough record keeping is a must. Respond to beneficiaries in a timely, reasonable and professional manner. Supervise investments and make sure there is proper diversification. A conservative, well thought out approach will protect you from significant personal liability.

SCHEDULE ‘A’

AFFIDAVIT IN SUPPORT OF APPLICATION TO PASS ACCOUNTS FORM P38

FORM P38 (RULE 25-13 (2))

This is the …..[1st/2nd/3rd/etc.]….. affidavit

of ………….[name]…………. in this case

and was made on …….[dd/mmm/yyyy]……...

[Style of Proceeding]

AFFIDAVIT IN SUPPORT OF

APPLICATION TO PASS ACCOUNTS

[Rule 22-3 of the Supreme Court Civil Rules applies to all forms.]

I, …………….[name]……………., of …………….[address]……………., …………….[occupation]……………..,

SWEAR (OR AFFIRM) THAT:

1 A ……….[specify the type of estate grant to which this affidavit applies]…………. of the estate of

……………………, deceased, was made to me by this court on ……..[dd/mmm/yyyy]…….. .

2 I have administered the estate to the best of my ability.

3 I have filed with the registrar a full and correct accounting of the estate, showing all property,

money and effects and the proceeds from them that have come into my hands as personal

representative, and also a full and correct statement of all disbursements, with a full and

correct statement of the assets not yet disposed of.

4 I have not been awarded any compensation for my services as personal representative by this

or any other court except …………………… .

5 The persons interested in the administration of the estate as beneficiaries of the deceased are

as follows: ………………………….., and all of them are of the full age of 19 years except

…………………… .

6 I know of no creditors of the estate who still have unsettled claims against it that I consider to

be valid except ………………………….. .

7 The only portion of the estate that remains unadministered is as follows: ……………………, and

the reason it has not been administered is …………………… .

SWORN (OR AFFIRMED) BEFORE

ME at ……………………., British Columbia

on ……….[dd/mmm/yyyy]………. .

………………………………………………….

A commissioner for taking affidavits

or British Columbia

….[print name or affix stamp of commissioner]….

)

………………………………………………………………….

SCHEDULE ‘B’

STATEMENT OF ACCOUNT AFFIDAVIT FORM P40

FORM P40 (RULE 25-13 (6))

This is the …..[1st/2nd/3rd/etc.]….. affidavit

of ………….[name]…………. in this case

and was made on …….[dd/mmm/yyyy]……...

[Style of Proceeding]

STATEMENT OF ACCOUNT AFFIDAVIT

[Rule 22-3 of the Supreme Court Civil Rules applies to all forms.]

I, .……..…….[name].……..……., of .……..…….[address].……..……., .……..…….[occupation].……..……., SWEAR

(OR AFFIRM) THAT:

1 Attached and marked as Exhibit A is a Statement of Account for the Estate of .……..……..……. .

2 The information set out in this statement of account is true and complete to the best of my

knowledge.

SWORN (OR AFFIRMED) BEFORE

ME at .……….………….., British Columbia

on .………[dd/mmm/yyyy].……… .

………………………………………………….

A commissioner for taking affidavits

for British Columbia

….[print name or affix stamp of commissioner]….

)

………………………………………………………………….

This is Exhibit A referred to in the affidavit of

…………………………………., sworn (or affirmed)

before me on ……………[dd/mmm/yyyy]…………..

……………………………………………………………….

A commissioner for taking affidavits for

British Columbia

STATEMENT OF ACCOUNT FOR THE ESTATE OF ………………………………, DECEASED

For the period from ……..[insert commencement date – dd/mmm/yyyy]…….. to ……..[effective date of this statement of account – dd/mmm/yyyy]…….. .

1 In this Statement of Account, the “commencement date” means

(a) the deceased’s date of death, or

(b) if one or more statements of account have been filed in respect of the estate under

Rule 25-13 (6) of the Supreme Court Civil Rules, the effective date of the most recent

of those statements of account.

2 This Statement of Account consists of the following:

(a) Statement of Assets and Liabilities of the Estate of .……..……..……..……. as at

.…….[commencement date – dd/mmm/yyyy].…….;

(b) Statement of Capital Transactions of the Estate of .……..……..……..…….;

(d) Statement of Assets and Liabilities of the Estate of .……..……..……..……. as at

.…….[effective date – dd/mmm/yyyy].…….;

(e) [include only if remuneration is sought at this time] Statement of Proposed Remuneration in

relation to the Estate of .……..……..……..……..……..……..……..…….………….…….;

(f) Statement of Distribution of the Estate of .……..……..……..……..……..……..……...…….;

(g) Statement of Proposed Distribution of Residue of the Estate of ..……..……..……..….. .

STATEMENT OF ASSETS AND LIABILITIES OF THE ESTATE OF .……..……..……..…….

AS AT.…….[commencement date – dd/mmm/yyyy].…….

Item	Assets [Describe estate assets, or include that information in an attached Schedule and bring forward totals here.]	Asset Values [Set out fair market value as at the commencement date of this statement of account.]
A1
A2
		Total asset values $………………

Item	Liabilities [Describe liabilities of estate, or include that information in an attached Schedule and bring forward totals here.]	Liabilities [Set out amount of liability as at the commencement date.]
B1
B2
		Total amount of liabilities $………………

STATEMENT OF CAPITAL TRANSACTIONS OF THE ESTATE OF …………………………..

For the period from ……..[commencement date – dd/mmm/yyyy]……..

to ……..[effective date of this statement of account – dd/mmm/yyyy]……..

Item [list in chronological order]	Date [date of transaction – dd/mmm/yyyy]	Transaction [Describe transactions, or include that information in an attached Schedule and bring forward totals here.]	Debit	Credit
C1
C2
			Total of debits $………………….	Total of credits $………………….

STATEMENT OF INCOME TRANSACTIONS OF THE ESTATE OF …………………………..

For the period from ……..[commencement date – dd/mmm/yyyy]……..

to ……..[effective date of this statement of account – dd/mmm/yyyy]……..

Item [list in chronological order]	Date [date of transaction – dd/mmm/yyyy]	Transaction [Describe transactions, or include that information in an attached Schedule and bring forward totals here.]	Debit	Credit
D1
D2
			Total of debits $………………….	Total of credits $………………….

STATEMENT OF ASSETS AND LIABILITIES OF THE ESTATE OF …………………………..

AS AT……..[effective date of this statement of account – dd/mmm/yyyy]……..

Item	Assets [Describe each estate asset, or include that information in an attached Schedule and bring forward totals here.]	Asset Values [Set out fair market value as at the effective date of this statement of account.]
E1
E2
		Total asset values $………………

Item	Liabilities [Describe each liability of estate, or include that information in an attached Schedule and bring forward totals here.]	Liabilities [Set out amount of liability as at the effective date of this statement of account.]
F1
F2
		Total amount of liabilities $………………

STATEMENT OF PROPOSED REMUNERATION IN RELATION TO THE ESTATE OF ………………………….

[Complete if remuneration is sought at this time.]

Capital Fee
(A) Proceeds of disposition of capi tal assets realized since the commencement date	$
(B) Market value of capital assets, realized or transferred since the commencement date, in respect of which no proceeds of disposition have been obtained	$
(C) Current value of unrealized capital assets included, on the commencement date, in the estate	$
(D) Gross aggregate value of capital assets of estate – [(A) + (B) + (C)]	$
(E) Capital Fee – (D) x ……..% [insert claimed percentage, up to a maximum of 5%]	$

Income Fee

(F) Gross income earned by the estate for the period from ….[commencement date –

dd/mmm/yyyy]…. to …..[effective date of this statement of account – dd/mmm/yyyy]…..

except interest income already capitalized and included in (D)

(G) Income Fee – (F) x ……..% [insert claimed percentage, up to a maximum of 5%]

Care Management Fee [Prepare one set of the following calculations for each reporting period following the commencement date, where a reporting period is each calendar year, or portion, from date of death to the date of final distribution.]
(H) Market value of estate assets as at the beginning of the reporting period	$
(I) Market value of estate assets at the end of the reporting period	$
(J) Average market value of estate assets for the reporting period [(H) + (I)] / 2	$
(K) Care and Management Fee for reporting period [(J) x 0.4%]	$

Total of Fees Claimed

(L) Total remuneration sought – [(E) + (G) + (the total of every (K) determined for a

reporting period following the commencement date)]

STATEMENT OF DISTRIBUTION OF THE ESTATE OF ………………………….

Specific Bequests and Legacies

Item	Distribution (Yes/No)	Date of distribution	Beneficiary

RESIDUE OF ESTATE

(R1) Market value of estate assets at effective date of this statement of account

(R2) Applicant’s estimated reserve for final income tax, accounting and legal costs

and remuneration

(R3) Distributable estate (R1) – (R2)

STATEMENT OF PROPOSED DISTRIBUTION OF RESIDUE OF THE ESTATE OF ………………………….

Beneficiary [Identify beneficiaries who receive assets or cash from residue.]	Assets [Identify assets distributed to the named beneficiary and the market value of those assets.]	Cash [Indicate amount of cash distributed to the named beneficiary.]
[Name]		$
[Name]		$
[Name]		$
[Name]		$

BIBLIOGRAPHY

Bussey, S. and Hanson, S. Death of a Taxpayer (7^th ed. Canada: CCH Canadian Limited: 2001)

Corbin, S. and Newton, C. “Responsibilities of an Executor” for Institute of Chartered Accountants of Ontario 2004-2005 Course Material (Canada: The Institute of Chartered Accountants of Ontario: 2004)

MacLean, M. ed. Professional Legal Training Course 2003: Practice Material, Estates (British Columbia: The Law Society of British Columbia: 2003)

Vogt, J. ed. British Columbia Estate Planning and Wealth Preservation (Canada: The Continuing Legal Education Society of British Columbia: 2004)

Vogt, J. ed. British Columbia Probate and Estate Administration Practice Manual (Canada: The Continuing Legal Education Society of British Columbia: 2004)

DM Waters et al, Law of Trusts in Canada, (4th Ed. Toronto: Carswells, 2012)

[1] At least one Credit Union is currently requiring such authorization for all estate inquiries although information used to be provided where there was a Will valid on its face.

Genevieve N. Taylor

Genevieve is a Legacy principal who practices in the areas of Wills, Estates, Trusts, and Adult Guardianship.

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Christine M. Muckle

Christine practices in the area of estate planning, trust administration, estate administration, and related tax matters, with a focus on cross border U.S.-Canada transactions.

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