Estate Risk Insurance

Estate Risk Insurance

Protect yourself from unnecessary risk

Protect yourself from unnecessary risk

Background

Changes to family law legislation, a state of constant fluctuation in the financial & real estate markets, and increased litigation involving estate management has increased the potential liability risk for persons acting as administrators of family estates. Baby boomer wealth transfer, estimated to total approximately $1 Trillion in Canada by 2050 represents an emerging and growing risk for those who are, or will be, involved in managing this process.
When someone dies, and executor or estate trustee is responsible to manage the estate and distribute assets to beneficiaries. The duties of handling and estate can be complex and challenging. These duties may involve operating a business, managing investments, or preparing sophisticated tax returns that require specialized skills. Most executors are not prepared or formally trained to handle this role or navigate the complex laws that govern their conduct. More importantly, most people that act as executors are not aware that they are legally liable to the estate’s beneficiaries for their actions or aware that personal insurance policies – such as a homeowners’ insurance policy – does not cover them for liability assumed as a result of this role.

What is Estate Risk?

An estate executor is legally responsible to locate, manage, and preserve the estate assets. They are expected to determine appropriate values, manage the securities and financial instruments, advertise to creditors & pay legitimate debts, and to distribute the estate proceeds to the beneficiaries as directed by the Will or in the absence of a Will, in accordance with applicable law of the jurisdiction.
In the modern world estates are much larger than they have typically been in the past, the level of litigation has increased dramatically, and courts have become more likely to award legal costs and damages. Even a minor error in asset administration can produce a significant loss for the estate. As a result the onus on executors is greater than ever before.

Even after the estate is distributed, liabilities of the estate can follow the executor until statutory limitation periods expire.

What can go wrong?

The management of estates typically fall off track because the executor and one or more of the beneficiaries are unable to communicate effectively.
When a loved one has died, emotions are elevated and even worse: money and greed may be involved. Even though lawyers are often involved in administration, probate and the majority of chores performed by the executor this does not reduce the exposure to litigation an executor can face.

Examples of common issues that can arise during the administration of an estate that can result in significant damages and legal expenses for an executor:

  • The executor distributes cash from the estate to the beneficiaries immediately following probate. A claim is then brought under applicable family law provisions by the child borne out of wedlock to the deceased. As the estate has been distributed, the executor is now responsible to defend and settle the action personally.The executor fails to properly value estate assets which are subsequently sold privately in an estate or garage sale. One of the assets is later discovered to have been a valuable work art sold at auction for a substantial sum. The beneficiaries can sue the executor for negligence in the estate administration for the net proceeds that would have been achieved at auction plus legal expenses.
  • The executor delays the liquidation of a stock portfolio and as a result sustains a significant reduction in the value of the estate when one of the major investments plunges. The beneficiaries can sue the executor for negligence in the estate administration to recover the value of the portfolio prior to the investment value plus legal expenses.
  • The executor delays the liquidation of a stock portfolio and as a result sustains a significant reduction in the value of the estate when one of the major investments plunges. The beneficiaries can sue the executor for negligence in the estate administration to recover the value of the portfolio prior to the investment value plus legal expenses.
  • The executor fails to investigate one beneficiary’s claim of a debt due to them from the estate. The executor distributes the proceeds of the estate to each of the beneficiaries without any provision for the claimed debt. The beneficiaries can then sue the executor s for the debt and legal expenses, which the executor would be obligated to pay out-of-pocket, if an attempt to recover the incorrect distribution from the other beneficiaries was unsuccessful.
  • The executor sells the estate home privately to avoid paying real estate commissions. The purchaser successfully sues the estate for the cost of correcting serious structural deficiencies that existed but were not disclosed to the purchaser. However, the estate assets have already been distributed to the beneficiaries. The executor is now responsible to the purchasers for the award of damages, since there are no estate assets available to the executor.

These are issues for which the executor, not the estate, is responsible and the cost to the executor to defend these actions and indemnify the wronged parties can be significant.

How can an executor protect themselves?

Estate Risk Insurance
AC&D and its insurer partners offer products that cover the cost of defences and indemnity for damages that arise out of negligence committed during the administration of an estate.

How much does estate risk insurance cost?

Policy premiums depend on a number of factors such as:

  • Estimated size and complexity of the estate
  • Type of assets
  • Number and qualification of executors
  • Amount of coverage.

For a typical estate valued at less than $1 Million the approximate premium would be under $2,000 for the 3 year term that is suitable for the administration of most estates.

Who needs to consider estate risk insurance?

You should purchase estate risk insurance if you are:

  • Preparing your Will;
  • Updating your current Will;
  • Considering or currently acting as an Executor or Estate Trustee for a friend or relative.

There are practical and personal risk implications that you should understand and plan for. Estate litigation (suing estates and estate executors) is being called “the new legal frontier” in the context of an aging population; this is a significant uninsured personal risk for ordinary people that become involved in estate administration for a friend or family member.

How Can AC&D Help?

1) We can provide you with “A Practical Guide to Inheritance Planning” that will help you:

  • Protect your named Executor(s) from significant risk through a simple provision in your Will.
  • Identify the key personal security information you’ll need to communicate to your Executor and your family.
  • Identify the role and responsibilities as an Executor during administration of an Estate and risk management solutions, including insurance protection when available.
  • Get started with the basic information required to have a professional prepare your Will if you
    don’t already have one. Nearly half of all Canadians have no Will; the government has rules on
    how to distribute your assets if you don’t have a Will – this might be a problem for your survivors.
  • Understand what happens if you are unable to look after your health and financial affairs due to
    illness or injury; the government also has rules on who makes your decisions for you when you
    don’t have a Power of Attorney prepared – this might be a problem for you, personally, and your
    family members.

2) If you are currently acting as Executor, or may be in the near future, please contact our office to receive a complimentary copy of the “Executor Guide”. The Executor Guide will help to:

  • Identify possible estate risk areas
  • Provide you an outline of the many duties of the executor and help you get started
  • Assess if executor liability insurance makes sense for you in reducing your own exposure.

Contact Us if you wish to receive a complimentary copy of A Practical Guide to Inheritance Planning and/or The Executor Guide or Request a Quote.