In the recent Ontario Court decision of Mowry v. Groome, 2016 ONSC 7850 (CanLII), Christopher Mowry, who was appointed the executor of the Estate of Charles William Groome (the "Estate"), was ordered to repay the Estate $357,140.
Beneficiaries of the Estate raised several areas of concern including Mr. Mowry's:
- failure to pay the debts of the Estate;
- failure to diversify the deceased's stock portfolio;
- purchase of shares on margin;
- payment of an alleged inter vivos gift of $70,000 to himself; and
- failure to file income tax returns and pay taxes owing in a timely manner which resulted in additional penalties and interest to the Estate.
After the deceased's death, a margin account was converted into an estate account and securities previously held in the deceased's Life Income Fund (LIF) were transferred into the new estate margin account. Mr. Mowry advised the investment professional that the Estate account's objectives were to be 10% growth and 90% speculative. He further indicated that his risk tolerance was 90% high and 10% medium. As a result, the portfolio was over concentrated in the energy sector, which resulted in a loss of $82,492 to the Estate.
Mr. Mowry argued that he had diversified the Estate's assets by purchasing shares in Yellow Media and renovating the deceased's house for rental purposes. The Court disagreed and determined that Mr. Mowry's decision to renovate the house for rental purposes was not a wise investment and did not excuse the unacceptable investment risk in respect of the Estate's investment portfolio.
Furthermore, Mr. Mowry's $98,335 investment in Yellow Media resulted in a $96,150 loss. The Court concluded that Mr. Mowry "failed to exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investment decisions".
Mr. Mowry gave evidence that he found a cheque for $70,000 drawn by the deceased on his chequing account made out to Mr. Mowry with the notation "early inheritance" on the cheque. There were insufficient funds in the chequing account so Mr. Mowry paid himself $70,000 from the Estate's investment margin account. The Court concluded that the gift was invalid because it was nothing more than an intention to gift; the deceased had not done everything necessary to effect the transfer.
Income Taxes, Penalties and Interest
Upon receiving probate, Mr. Mowry should have filed an income tax return and liquidated some securities to pay the taxes owing. However, he neglected to file the tax return and the Estate was subject to additional tax penalties and interest totaling $89,400. The Court held that Mr. Mowry was personally liable for the penalties and interest.
To Act or Not to Act?
This case highlights the importance of appointing the appropriate executor to be responsible for an estate. The duties of an executor are onerous and can be quite complex depending on the assets and liabilities of the estate. Estates with foreign assets, active businesses and challenging family circumstances will increase an executor's stress and workload. It is important to know that if you are ever appointed as an executor of an estate, you cannot be forced to act and you have the option of renouncing the appointment if you have not intermingled in the affairs of the estate. However, once you start dealing with the estate (for example, paying for funeral costs or speaking with a financial institution), then you are legally bound to complete your duties unless the court relieves you.
A Few of an Executor's Responsibilities
Below are examples of just some of an executor's many responsibilities:
- safeguarding all assets including cash, securities, art, jewelry, real property, valuables, collections, vehicles and water crafts;
- ensuring sufficient security and insurance on all valuables;
- applying for probate;
- managing all business interests;
- selling assets and business interests;
- securing digital assets including passwords for banking, social medial accounts and other online accounts;
- conducting a full and complete search of all papers and effects;
- completing an inventory of all assets and liabilities;
- filing the necessary tax and information returns in Canada and other jurisdictions, as necessary;
- obtaining tax clearance certificates;
- paying for the on-going expenses of an estate; and
- distributing the assets of the estate out to the beneficiaries.
When appointing an executor, consider if the person has other important skills to effectively administer the estate; such as, the ability to communicate with a wide variety of beneficiaries, good judgement, negotiation skills and financial knowledge.
Executor to Obtain Advice
This case shows that an executor can be held personally liable for the mismanagement of an estate and will be held accountable to the beneficiaries and third parties. It is important for an executor to seek out professional advice from a lawyer, tax advisor, accountant, financial specialists and others, as appropriate. A lawyer can assist an executor by preparing the necessary legal documents, completing court filings and advising the executor of his or her legal obligations. The lawyer's fees should be payable out of the estate.
Finally, this case highlights that beneficiaries have the right to ask for proper accounting from the executor. If a beneficiary feels that an estate is mismanaged, then it may be prudent to seek legal advice to force an executor to properly fulfill his or her duties.