There are many areas of potential legal liability exposure that an executor could face. Here is an overview of some of them:
Slow Distribution of the Estate
There is generally no absolute time period by which the estate must be distributed. The executor usually has a year of grace, known as “the executor’s year,” in which to deal with the affairs of the estate before the beneficiaries can bring an action against the executor for failure to satisfactorily perform the executor’s duties. Even then this action will only be possible if the executor has not been performing his or her required duties. It may take several years to properly distribute the estate.
Wills Variation Legislation
An executor must wait for a certain period from the date the will is granted Letters Probate. Otherwise the executor may be personally liable if the will is challenged, since under provincial wills variation legislation the surviving spouse and children of the deceased have the time set by provincial legislation to apply to the court to have the will varied.
Common-law Spouse
Most provincial legislation provides that a common-law spouse of the deceased has a certain period from the date of the Grant of Letters of Probate to apply to the court for a share of the estate. Therefore, even where there is no will, it is advisable to wait this required period before distributing the estate if there is any possibility at all of such an application being made.
Creditors
By publicly advertising for creditors, you should be legally protected from any future claims by creditors against the estate after it has been distributed.
Canada Revenue Agency (CRA)
Under the Income Tax Act, you will be personally liable for any unpaid taxes, interest and penalties that may be payable by the estate if you distribute the estate before obtaining clearance certificates from the CRA certifying that all taxes, interest and penalties have been assessed and paid. In most cases, there are two different clearance certificates that can be obtained. One covers the period up to the deceased’s death and the other covers the period for trusts established after the deceased’s death.
Release from Beneficiaries
It is recommended that you obtain a properly executed release from every beneficiary before distributing the estate. Basically, you should get the beneficiary to release you from the job of executor by having the beneficiary acknowledge receipt of the gift, and review and approve of the accounts. You should then have the beneficiary agree in writing to give up any claims he or she may have against the estate and to indemnify you if necessary, in other words, to protect and free you from any personal liability for future claims against the estate for the value of the amount of the gift.
Duty to Act in Good Faith
This would include the responsibility to act without any conflict of interest or bias or unjustly enriching yourself to the detriment of the value of the estate.
