An estate will normally bear the burden of all legal fees incurred by the executor for its administration, which includes not only fees for core services but also those paid to handle more complex matters, including when a dispute arises and litigation ensues.
However, there are some exceptions to that general rule and, in addition, an estate may also bear the legal fees of other parties involved in the dispute.
As a starting point, the executor or administrator of an estate will retain a lawyer, not the estate itself. Under the Trustee Act, a “trustee,” which includes executors and administrators, incurs the legal fees personally, but then is indemnified or reimbursed by the trust, which includes an estate.
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Generally, as long as the expenses arise out of any matter done honestly and in good faith related to the exercise of the duties required of the executor/administrator, that person is entitled to reimbursement for the legal fees they incur related to those duties.
An exception may apply in cases where the executor/administrator is not acting in good faith or they incur legal fees solely related to the protection of a personal interest. In those cases, the executor/administrator may not be entitled to reimbursement and be personally responsible for their legal fees.
Disputes over an estate can arise in a variety of circumstances. A beneficiary may believe there is an issue of interpretation of the will’s instructions, or the estate has been depleted by some wrongdoing, or the deceased did not have capacity to change their will or was unduly influenced to do so. It’s not always clear who pays the legal fees for the other parties involved in these disputes.
In a nutshell, courts have a variety of options when it comes to making cost awards in the context of an estate dispute. Sometimes everyone’s legal fees are paid by the estate and sometimes only one party is reimbursed, depending on the outcome of the litigation.
Courts might also determine that a party is responsible to pay the legal fees of the opposing party, either in part or in full. An award of costs against a challenging party in favour of the estate is also possible if the litigation is deemed frivolous in nature. In making this decision, a court will consider who was successful but also who caused the litigation in the first place.
Relevant factors might include whether the deceased appointed an appropriate executor to administer their estate.
For example, if it was known to the deceased that their three children do not get along and have a history of disputes between them, it is probably not a good idea to name those three children as joint executors and require them to act together and in agreement with each other to manage the affairs of the estate. The deceased might be said to have caused the litigation by such an appointment, and the estate might bear everyone’s legal fees in those circumstances.
The nature of the issue in play might also be relevant, such as where there is a question of the capacity of the deceased or the validity or meaning of a will, and no one is really to blame for the trouble arising. In such circumstances, all parties can be entitled to reimbursement of their reasonable legal fees by the estate.
That outcome makes a good deal of common sense, but it is often not so simple to conclude that all parties are innocent. If it is apparent that one party advanced a frivolous claim or took untenable positions or otherwise acted unreasonably in the conduct of litigation, a court may order costs against that party in favour of the estate or another party to the litigation. Like many questions that end up before a court, the answer is often, “well, it depends.”
Matters can get more complicated if one considers that sometimes an estate dispute arises between residual beneficiaries, or between some residual beneficiaries but not others, or between residual beneficiaries and the executor/administrator. As well, residual beneficiaries may not be equal beneficiaries.
If the estate is ordered to pay some or all of the legal fees related to the dispute, the residue is necessarily depleted and has an effect on the ultimate distribution payable to each beneficiary at the end of the day. The ultimate responsibility for legal fees payable by an estate is, of course, the residual beneficiaries.
If you are acting as an executor or you are a beneficiary of an estate, obtaining legal advice and services can provide helpful information and guidance. A lawyer who has experience in estate planning, administration and litigation can be a resourceful advocate in dealing with this issue upfront.
Faith Baron is a lawyer with Stevenson Hood Thornton Beaubier LLP in Saskatoon. She can be contacted at fbaron@shtb-law.com. This article is provided for general informational purposes only and does not constitute legal or other professional advice.