Bad Legal Advice Costs Executors Plenty – Part 2

You recall from my last post Blake was Uncle Jerry’s estate trustee. I will finish Blake’s tale. You’ll learn how a simple matter can cost an executor plenty. In this post, I’ll also give you steps to protect yourself as executor.

Blake, the executor or “estate trustee” in Ontario, was looking for a win-win solution.

Uncle Jerry’s will called for Blake to sell his uncle’s cottage. Then Blake was to divide the proceeds between Paul and his sister Carol. But Paul offered to buy the cottage property from the estate. Paul said this would allow an early sale without the estate paying the real estate agent’s commission. “That will be a win-win for everyone”, Paul said.

Paul based his offer to buy the cottage on an old appraisal price. Uncle Jerry had ordered this appraisal two years before he passed.

Paul’s lawyer prepared the offer and Blake accepted these terms of sale to Paul:

Cottage sale terms

1. Sale Price $200,000 – based on Jerry’s old appraised value,
2. Down payment – $50,000 paid by Paul,
3. Balance of purchase price – mortgage from the estate to Paul for $150,000.

Blake sold the cottage to Paul on those terms. He brought the signed offer to his lawyer.

Was the executor in trouble?

Carol found out about the sale and objected to the $200,000 price. She went to her own lawyer who obtained a new appraisal. The new appraisal showed the cottage was worth $300,000. This was $100,000 more than the sale price to Paul.

Carol was upset.

Her lawyer demanded that Paul transfer the cottage back to the estate. Carol’s lawyer claimed Blake neglected his duties as an executor.

Blake’s failures as estate trustee

Carol’s lawyer sent a letter claiming that Blake, as executor, failed to:

• set the sale price for the cottage as that was his responsibility, and he could not delegate this to Paul;
• list the cottage with a relator to get market value;
• comply with his duty to sell the cottage at market value;
• obtain a current appraisal to set the sale price;
• set a sale price that benefited Carol as the other beneficiary;
• realize he had no legal right to give Paul a mortgage from the estate.

But Blake protested. He hired a new lawyer.

Now Blake claimed that he never got proper legal advice. He tried to blame everything on his first lawyer.

But Blake’s first lawyer said he was given the offer after it was signed. It was too late to ask questions. Blake’s lawyer was never told the price was based on an out-of-date appraisal. The lawyer thought this was a simple family deal. He thought Carol had been told about the terms.

Paul eventually reconciled with his sister Carol. Paul listed the cottage for sale with a real estate agent. A neighbouring cottage owner bought it for $325,000. This was more than the appraisal of $300,000.

Paul was going to transfer the $325,000 sale proceeds to the estate. But he wanted Blake to reimburse him for his legal costs.

Who pays for the legal fees?

Paul had to pay for two lawyers’ fees. First, Paul paid a lawyer to buy the cottage from the estate for $200,000. Then Paul paid a lawyer to sell the cottage for $325,000.

Paul also paid land transfer tax. In all, Paul wanted $12,000 from the estate.

Blake also wanted all his own legal fees to be paid from the estate.

Blake paid a lawyer to sell the cottage to Paul and set up the mortgage.

Carol would not have any part of this. Her lawyer claimed Blake was responsible for his executor mistakes and misconduct.

Carol claimed Blake would have to pay all legal fees out of his own pocket. These legal costs did not benefit the estate.

A judge settled legal costs

The legal expenses to sell the cottage that Blake incurred did not benefit the estate. They were a waste of time and money.

The judge ordered Blake’s legal costs to be thrown away. Blake could not claim them as proper estate expenses.

Blake would have to pay these legal costs personally. It was no defense that Blake had bad legal advice.

Blake should have realized he was doing something wrong. So Blake’s first lawyer’s fees and his new lawyer’s fees were his personal costs.

What about Paul’s legal costs?

Paul’s costs also were of no benefit to the estate. They were a waste or thrown away.

The estate did not benefit so it did not have to pay Paul $12,000. The estate did not benefit from the legal fees caused by Blake’s mistakes.

Blake had no right to use estate money to reimburse Paul $12,000 to re-sell the cottage.

The judge said Paul would have to claim the $12,000 from Blake.

It would be up to Blake to reimburse Paul personally and not the estate.

Blake would then have to take this up with his lawyers.

The moral of the story

Being an executor or estate trustee can be difficult.

Getting the wrong estate lawyer to advise you makes it more difficult.

Improper estate legal advice can cost an executor plenty.

Executor self-defence steps

1. Hire a lawyer with estate experience.
2. Deal with a lawyer who handles estate administration. This is more than getting probate or selling a house. You need advice about estate tax clearances to protect yourself.
3. Do not assume all lawyers have the same abilities. You would not expect every doctor to give you the same advice would you?

Not every estate trustee needs advice from a certified specialist. Contact me if you need expert estate advice.

About Ed Olkovich

I am Toronto estate lawyer, author and editor of Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. I am a Certified Specialist in Estates and Trusts law. I have handled estate disputes and probate problems since 1978. © 2015