By Peter Boys
‘The Financial Coach’
Many people will become executors (now called a personal representative) for the wills of their parents, family members or close friends.
But the job’s responsibilities may expose them to significant liability. The biggest risk to a personal representative is the will itself, because when it’s unclear, it can put them in a dangerous position. When people who use do-it-yourself will kits, there’s often little guidance about the duties and roles of a personal representative, so it’s important to get professional advice.
Personal and household items can be especially problematic. As wills often don’t cover the contents of the home, family members end up helping themselves to mementos they believe their parents meant them to have. The resulting family disputes can be especially bitter when they centre on sentimental items such as photo albums.
This can lead to accounting headaches for the personal representative.
Personal representatives may avoid hiring professionals to mediate these issues to minimize expense to the estate. Yet they are liable for any loss they may cause through negligence or mistakes, even if acting in good faith.
Personal representatives can be liable for losses resulting from selling property below its market value, accidentally selling valuable items at garage sales, or giving expensive household goods to charity.
Regular communication with all the beneficiaries of the will is the most effective way to avoid complaints, misperceptions and accusations of bias. Keep good records. Receipts, bank deposits and other documentation help prove a personal representative acted expediently and professionally. If you don’t know, get qualified help; an accountant to file a tax return, a money manager to manage trusts, a lawyer for probate, etc. to help avoid errors and mistakes.
Obtain three appraisals before selling or disbursing real estate, personal property, collectibles and other assets of unknown value.
It’s tempting to try to save money by not hiring appraisers, or hurrying the process along to keep beneficiaries happy by, but not taking the time to understand what is being sold is a serious mistake. In extreme cases, Personal representatives can be removed, forced to repay losses out of their fee, and even taken to court. They can also be liable for court costs.
Personal representatives concerned about potential liability can purchase insurance to cover negligence, errors and legal fees if a challenge is brought to court.
Typical insurance costs $1,700 for a three-year term per $1 million of estate value. Most offer three years of protection, enough time to wrap up most estates.
Most insurers require that a qualified estate lawyer be hired before issuing a policy.
For those worried about potential liability, insurance is the only option, as there’s no other way to protect one’s self against damages or costs of a legal defense. Before setting up a will, it’s common courtesy to get permission before appointing someone to be the personal representative to a will. If you are inexperienced you might want to avoid getting involved in a difficult estate in the first place.
If you have been appointed you should take the will to an experienced lawyer and ask what potential problems there could be. Could it end up with me being sued?
A qualified lawyer can help you detect problems that might arise from such things as out-of-date wills, illogical or unusual provisions, business or real estate assets that might be difficult to sell or value, or overseas beneficiaries. You can choose to decline the appointment, or purchase insurance before administering the estate.
— Money Talk