In Reznik v. Matty, for the first time, the British Columbia Supreme Court ordered that an executor must make an interim distribution of estate funds (as opposed to gifts of real property). The Court also ordered costs of the proceeding against the executor personally.
Three residuary beneficiaries of the estate of Phillip Matty (the “Estate”) asked the Court to compel the executor (who was also the fourth residuary beneficiary) to make an interim distribution. In reaching his decision to accede to the beneficiaries’ request, Funt J. emphasized the following facts:
- the Estate had significant assets, including liquid assets;
- the Estate had few anticipated future costs;
- the administration of the Estate had been underway for over 10 years; and
- one beneficiary had immediate need for the money to support his family.
These facts were critical to the decision. Of course, persuasive facts are not sufficient for a court to reach a decision. A court must have jurisdiction. In this case, Funt J. relied on the general jurisdiction of the court, which gives the court “all of the powers that are necessary to do justice between the parties”.
In an exercise of the court’s general jurisdiction, Funt J. invoked the concept of assent. He explained assent at para. 37:
An assent has been described as “an acknowledgment by a personal representative that an asset is no longer required for the payment of the debt, funeral expenses or general legacies”….
The court can compel an executor to assent where the executor withholds assent without just cause. After all, an executor has a duty to settle the affairs of the estate and to distribute the estate funds. By compelling assent the court would be, in effect, directing that an interim distribution be made. Put another way, if the funds are no longer required by the estate (which compelled assent forces the executor to acknowledge), it is the executor’s duty to distribute the funds. The key consideration in determining whether to compel assent was stated at para. 43: “is the executor protected from potential liability?” The executor could not be compelled to assent to an interim distribution if the remaining estate funds would be insufficient to satisfy the future liabilities of the estate. If this were the case, the executor could be personally liable.
Funt J. concluded that, in Reznik v. Matty, a distribution of $40,000 ($10,000 to each residuary beneficiary) was a small portion of the residue of the Estate. The executor was not able to demonstrate just cause for not making an interim distribution. As a result, Funt J. ordered the interim distribution and ordered costs of the proceeding against the executor personally.
This case is important to executors and all professionals who practice in the area of wills and estates. While the case was decided on its facts, it is important to be aware that the court may have the jurisdiction to compel an executor to make an interim distribution. If the executor does not demonstrate just cause for not making an interim distribution, he or she may be personally liable for costs of the proceeding to compel a distribution. Nevertheless, the decision to make an interim distribution cannot be made lightly. If an executor makes an interim distribution that leaves the estate short of funds, he or she may be personally responsible for the liabilities of the estate.