More often than not, people who act as executors have never done so before and may never do so again. Being a first time executor is no easy task, especially when you consider that an executor may be personally on the hook for losses suffered by an estate.
Examples of when an executor may be personally on the hook to repay a loss include:
- The sale of property, such as jewelry or art, for less than fair market value;
- The sale of real estate for less than fair market value;
- Penalties or interest payable for filing late tax returns without a good reason for the late filing; and
- Payments to the executor for expenses that are not legitimate estate expenses such as meals or travel.
To guard against personal liability for the sale of estate assets, executors may want to get professional assistance in appraising the value of items. A professional appraisal or estimate documents the efforts of the executor to make sure the estate receives fair market value for any estate assets sold. Appraisals or estimates are usually not necessary for items which only have nominal value such as clothing, costume jewelery, or used furniture.
For executor expenses, keep in mind that the estate only pays for reasonable costs related to the proper administration of the estate. If you live in Edmonton and have to drive to Saskatoon to meet with a realtor and get a house ready for listing, you may properly claim your mileage, accommodation and meals but only to the extent that these expenses are reasonably required as part of the administration of the estate. If you mix estate business with a visit with friends and family, you should keep estate related expenses separate from personal expenses. In addition, an executor may not claim for expenses that resulted from his or her avoidable mistakes or negligence.
Executors who are honest, keep clear records of estate transactions and expenses, regularly update the beneficiaries about the estate, and move the estate administration forward at a reasonable pace are unlikely to become personally liable to the estate. Getting the assistance of professionals like accountants, lawyers, and realtors will also help ensure that you do not find yourself personally on the hook for estate losses.