Executor-Beneficiaries of Wills in BC: Can Fees be Reduced by Overlapping Self-Interest?

Executors are very often also beneficiaries of the estate they are tasked with administering, and it can be challenging to keep personal interests apart from estate business. That was the issue in Reagh Estate (Re), 2021 BCSC 1807, where the passing of accounts factored in a BC executor’s overlapping roles and failures in administering an estate.

BC estate worth approximately $2.6 million

Mrs. Euphemia Reagh died in Burnaby, BC on January 28, 2015 at the age of 93. Mrs. Reagh was predeceased by her husband in May 1991. Mrs. Reagh was survived by her four sons: Ronald, Terry, Gary, and Randy. Mrs. Reagh’s estate was worth approximately $2.6 million. The main asset was her Burnaby home, which eventually sold for $1.995 million. She had a bank account worth approximately $300,000. She also owned several lots at the north end of Pitt Lake, BC (the “Pitt Lake Properties”) with a combined value of approximately $325,000.

Deceased’s last will and testament

Mrs. Reagh left a Will dated August 7, 2014 appointing her youngest son Randy as executor. The Will provided that Mrs. Reagh’s estate be divided equally amongst her four sons, with the exception of four of the Pitt Lake lots: Lots 1, 3, 6, and 7. The Will gave Randy and Terry options to purchase those lots. Pursuant to clause 3(b) of the Will, Randy had the option to purchase Lots 1 and 3 at a price “which shall be fair and equitable” in the sole discretion of the executor, and pursuant to clause 3(c) of the Will, Terry had the option of purchasing Lots 6 and 7 at a price “which shall be fair and equitable” in the sole discretion of the executor. The monies from the sale of the Pitt Lake Properties would be credited to the estate for the benefit of the beneficiaries (i.e. divided equally amongst the four sons). On August 13, 2015 a grant of probate with respect to the 2014 Will and Mrs. Reagh’s estate was issued to Randy by the Supreme Court of British Columbia.

Beneficiaries dispute ownership of property

Unfortunately, ownership of the Pitt Lake Properties became very controversial. Both Randy and Terry sought to exercise the options to purchase the lots pursuant to their mother’s Will. Randy already owned another lot (Lot 2), which had been gifted to him by his mother in 1991. After Mrs. Reagh’s death, Randy and his wife maintained Lot 2 as their principle residence. The executor and beneficiaries disputed the fair purchase price for the lots. None of the Pitt Lake Properties were waterfront. Access was required through a waterfront property. Randy and his wife brought a petition to the BC courts to determine access to the dock and foreshore at the Pitt Lake Properties. Resolving the issues surrounding the Pitt Lake Properties consumed a significant portion of Randy’s time and considerable legal fees. Legal title to the four contested lots was not transferred until 2019.

Passing of executor’s accounts

An executor is entitled to fair and reasonable remuneration for the care and time spent administering an estate and carrying out the wishes in a Will. Because of the disputes concerning the Pitt Lake Properties, the passing of Randy’s accounts for his role as executor of his mother’s estate did not take place until more than six years after the grant of probate. Two of the beneficiaries objected to Randy’s accounts, taking issue with out-of-pocket expenses of the executor, the legal costs, and the proposed executor’s compensation.

Executor’s out-of-pocket expenses and overlapping Interests

An executor is entitled to be reimbursed out of the estate for all out-of-pocket expenses properly and reasonably incurred in the administration of the estate. The threshold is low; so long as they were not improperly incurred, they are to be reimbursed. Registrar Nielsen approved of Randy’s claim for reimbursement for fuel, insurance for a cabin at Pitt Lake, a hotel stay, and miscellaneous expenses relating to travel, meal expenses, printing, postage, paper, ink, and office supplies. Those expenses were reasonable and properly incurred to attend to estate business. However, Randy’s claim to be reimbursed for the cost to repair his computer was not. He used his personal laptop to do estate accounting. During the time he was acting as executor, his laptop required repair costing $211.68. Registrar Nielsen disallowed that expense, noting that incidental repairs of an executor’s personal property used only occasionally for estate purposes are the responsibility of the owner, not the estate.

Challenging the executors actions

An executor is entitled to be indemnified for reasonable legal costs incurred for carrying out the business of the estate. A review of the legal costs will canvass the issues of whether the fees charged are excessive, whether they relate to the administration of the estate, or work done for the executor as beneficiary, and therefore in his personal capacity. In any of these circumstances, the executor may be held personally responsible for the fees, rather than the estate.

During the five-year period subject to this accounting, a total of $184,652.84 in legal fees was incurred. Included in the legal fees claimed were costs related to a petition brought by Randy with respect to the dock and foreshore at the Pitt Lake Properties. Registrar Nielsen found that controversy involving the Pitt Lake Properties had a purely personal dimension aspect, as well as an estate aspect. At the center of the controversy was the executor himself. Randy’s conduct and approach in relation to the Pitt Lake Properties went far beyond the role of an executor. It was impossible not to draw the conclusion that Randy had a discreet personal interest in the outcome, as did his wife, who played a part in the associated controversy. There was obvious overlap between the legal costs properly billed to the estate, and those that pertained to Randy, purely as beneficiary. Registrar Nielsen concluded that Randy was personally liable for $25,000.00 of the legal billings which were not related to his proper role as executor and were not the responsibility of the estate.

Randy’s brothers also took issue with the fact that Randy sought reimbursement for legal fees related to advice concerning executor remuneration. However, in BC it is common practice that the estate is reimbursed for legal advice pertaining to executor fees. Indeed, executor fees is often the sole issue in a contested passing of accounts. It is an issue arising within a passing of accounts by reason of the executor’s role and responsibilities, the provisions of the Will, and the Trustees Act. In other words, it is a legal disbursement properly incurred, and subject only to being reasonable in all the circumstances.

BC executor’s fee

Where the deceased’s will does not specifically outline the executor’s fee, then s.88 of BC’s Trustee Act governs remuneration and the executor is entitled to be paid a “fair and reasonable allowance” to a maximum of 5% of the gross aggregate value, including capital and income, of all of the estate. Randy sought a 3% capital fee, but Registrar Nielsen found that a capital fee of 1.5% was appropriate (in addition to the full care and management fee as claimed). Various criteria are to be considered when determining whether the proposed executor’s fee is “fair and reasonable” including but not limited to the success (or lack thereof) achieved in the administration. Randy’s dealings surrounding the Pitt Lake Properties was not successful. It was overshadowed by self-interest and consumed an exorbitant amount of time and legal fees when weighed against the values of the properties within the overall estate. Further, it was the Pitt Lake Properties which ultimately held up the final resolution of the estate.

Recovering executor costs from passing of accounts

The ordinary rule is that an executor should recover costs associated with the passing of accounts, on a special costs basis, from the estate. Registrar Nielsen saw no need to depart from that rule and ordered that Randy be fully indemnified for his costs of the Registrar’s hearing to pass his accounts. Interestingly, the Registrar also considered the role of the respondent’s counsel (the lawyers representing the beneficiaries who challenged the executor’s accounts) to have been equally helpful and thus granted the respondent’s costs of the passing of accounts on a special costs basis payable by the estate.

Bottom line on executor-beneficiaries of wills: Estate litigation advice

While passing of executor accounts is one of the last steps in administering an estate, it should by no means be treated as an afterthought. Beneficiaries should carefully review estate accounting to ensure that expenses and fees claimed are reasonable and properly incurred for carrying out the business of the estate. If you have questions or concerns about the fairness of executor’s fees claimed, reach out to our experienced probate and estate administration lawyers for advice.

If you have any other Estate Litigation matter, our team of experienced lawyers can help. Contact our team of litigators today.