Using Estate Funds to Defend the Lawsuit

In many cases, a situation arises where the executor is also a beneficiary to the estate

In estate litigation that involves a wills variation claim, executors are meant to be a neutral party and assist the Courts with any information regarding assets and administration of the estate. In Campbell v Campbell (1986) BCJ No 1221 it was determined that the executor’s fees should be paid from the estate. However, in many cases, a situation arises where the executor is also a beneficiary to the estate and has hired one lawyer to deal with all issues. In this scenario, it becomes important that the lawyer acting for the executor/beneficiary keeps separate timesheets to separate out legal fees for the advancement/defence of the estate versus legal fees to defend the beneficiary personally. The reason being, the executor/beneficiary is not to use funds from the estate to defend himself/herself personally.

The case of Steernberg v Steernberg 2007 BCSC 953 is the leading authority on this issue. In that case, the deceased’s son was the executor and a wills variation claim were brought by the deceased’s wife. Legal fees for the defendant amounted to $148,250.62 while the executor’s legal fees were $72,895.24. Both were deducted from the estate’s value. The estate also paid out the defendant’s legal fees of $60,700 prior to judgement. The plaintiff wife took issue of the fact that the estate funds were used to defend the wills variation claim. The Court made a ruling against the defendant on this issue after trial and awarded costs to the plaintiff to be paid personally by the beneficiaries. She stated the following:

[24]           It follows that it is inappropriate to withdraw funds from an estate at the start of the litigation, or throughout the course of the litigation, to fund the defence of a Wills Variation Act claim, as was done in this case, in the absence of a court order or the unanimous agreement of the beneficiaries.  A will is defended in the sense used in the case law, where an allegation is made that the will itself is invalid.  Examples would be challenges to the will on the basis that the testator lacked capacity or that there was undue influence.  In a Wills Variation Act claim, on the other hand, the validity of the will itself is not being challenged and there is, therefore, no need for an executor to “defend” the will.

[25]           Nor can it be said that the litigation in this case was caused by the testator.  That characterization applies where the testator has left interpretation problems (for example, misnaming a beneficiary) which require a court’s intervention.

[26]           There must be an accounting, not only as to the net value of the estate with all the legal fees relating to the defence of the Wills Variation Act claim accounted for (whether they were paid to the defendants’ litigation counsel or counsel for the Executor), but also with respect to income lost by the estate on the funds that ought to have been properly invested, but instead were used for legal fees. 

In the situations mentioned by the Court where litigation is commenced to defend the Will, the executor may use estate funds. Examples of legal work paid out of the estate are proving that the will-maker possessed the requisite mental capacity to execute the Will, passing of accounts, probating the estate or resolving interpretation issues surrounding the Will.  The legal fees are considered estate expenses and an executor is able to use funds from the estate for this litigation as it is beneficial for the estate to have these matters determined.

The Court in Wilson v Lougheed 2012 BCSC 1166 made a ruling on fees in a case where the executor was defending a wills variation claim brought forward by his daughter and stated the following on the duty of an executor in such an action:

[25] …           The law demands that, as executor, Mr. Lougheed comport himself impartially in the WVA Claim. In discharge of his neutral fiduciary role, Mr. Lougheed was expected, at a minimum, to provide the court with an unbiased and accurate information about the date of death assets and liabilities of the estate. He purposefully elected not to do so…

In sum, the Courts aim to prevent an executor/beneficiary from using estate funds to defend the lawsuit except where the legal work is directly related to helping/defending the estate as a whole. A defence of a will’s variation claim, for example, would not be covered personally by the executor/beneficiary.