Being named as an executor under a Will is a mark of trust, but it is far from a ceremonial role. It comes with serious legal and financial obligations that many people do not anticipate. An executor’s duties include protecting the estate’s assets, paying debts and taxes, and ensuring the property is distributed according to the Will and the laws of British Columbia. On paper, these tasks might seem clear, but in reality, estate administration often involves complex decisions and even family conflict. Will-makers may not realize that an executor can be personally liable for mistakes, even honest ones.
Why Executors Can Be Personally Liable
Under the governing legislation – B.C.’s Wills, Estates and Succession Act (“WESA”) – an executor is considered a trustee and must carry out the administration of an estate in good faith, with reasonable care, and in accordance with the law. These duties create fiduciary obligations, and when they are not met, the consequences can be serious. Something as simple as distributing assets before paying outstanding debts or waiting too long to sell real estate in a declining market can result in a claim against the executor personally.
While B.C.’s Trustee Act gives the Court discretion to excuse liability where the executor acted honestly and reasonably, this result is not guaranteed and should not be relied upon by an executor as a safety net.
Why Indemnity Clauses Do Not Eliminate Risk
Most Wills include some form of indemnity clause. Such a provision generally states that an executor will not be liable for their decisions or that they will be reimbursed from the estate for any losses suffered. While these clauses provide some comfort, they are not a complete shield.
Notwithstanding the inclusion of an indemnity clause in a Will, the law does not allow a clause to protect an executor from certain serious mistakes, dishonest actions, breaches of fiduciary duty, or the failure to follow statutory obligations under WESA.
These clauses also do not stop lawsuits from being filed in the first place and they do not cover the upfront cost of defending a claim, which costs would have to be paid by the executor personally. Further, such provisions do not apply to claims by creditors or tax authorities.
Even if the executor has acted in good faith and has incurred out-of-pocket expenses, an executor is reimbursed from the estate’s assets, only if there are enough funds available. In short, an indemnity clause may reassure an executor, but it does not remove the risk of personal liability.
What Executor’s Insurance Covers
Executor’s insurance, which is commonly termed executor liability or estate administration insurance, is designed to protect an executor from personal financial exposure for unintentional errors or omissions in managing an estate. If a claim is made against the executor, the policy can cover legal defence costs, court-awarded damages, costs to remediate a decrease in estate asset value, and related expenses. That being said, fraud, criminal acts, and intentional misconduct are not covered. Some insurers do not provide coverage for certain categories of estate assets, such as foreign property.
Most insurance policies are written on a claims-made basis, which means that the claim must be reported during the policy period in order to be covered, even if the mistake happened earlier. Insurers typically require the policy to be purchased soon after the will-maker’s death, usually within 30 to 60 days, and before any disputes or claims have arisen. Generally, once a lawsuit has begun, insurance cannot be retroactively purchased and is no longer available.
How Common is Executor’s Insurance in British Columbia?
Executor’s insurance is a relatively new product in British Columbia, and most people are not yet familiar with it. While placement of such insurance is not necessary for every estate, interest in this coverage is increasing as estate values rise and family dynamics become more complex. Disputes among beneficiaries, the existence of blended families, and significant real estate holdings all increase the potential for claims being made against an executor.
This type of insurance can provide peace of mind in situations where there is a high risk of conflict or when the financial consequences of an error may be severe. For example, estates that include multiple properties, business interests, or significant investments are often more challenging to administer and leave the executor exposed to greater personal liability.
As awareness grows, executor’s insurance is likely to become a more common consideration, particularly for individuals acting as lay executors, who do not have professional experience with estate administration.
The estate practice group at LK Law is equipped with the knowledge and experience to help you navigate these complex issues. Contact us today to book an initial consultation.
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.
