Selling a property owned by an Estate can become complicated when the deceased left unpaid taxes, mortgages or other debts. The situation is particularly difficult when the Estate Trustee has personally paid expenses to maintain the property and believes the property must sell for a certain amount to satisfy the Estate’s obligations.
Two issues should be kept separate:
- reimbursement of expenses and
- estate trustee compensation.
Can the Trustee Recover Money He Has Spent?
Generally, an Estate Trustee can seek reimbursement for reasonable expenses properly incurred in administering the estate.
For example, if the Trustee personally pays for insurance, utilities, necessary repairs, maintenance, cleaning or other expenses required to preserve the property, those amounts may be recoverable from the Estate.
The Trustee should keep detailed records and receipts and include these amounts in the Estate accounting.
Reimbursement is not compensation. If the Trustee spent $10,000 of his own money maintaining the property, repayment of that $10,000 is simply reimbursement of an Estate expense.
Does the Trustee Automatically Get 5%?
No.
There is a long-standing Ontario guideline under which approximately 5% may be considered when determining estate trustee compensation, but this is not an automatic entitlement to 5% of the sale price or 5% of the estate.
Compensation depends on the circumstances, including:
- the size and complexity of the estate;
- the time and effort involved;
- the responsibility assumed;
- the skill demonstrated; and
- the results achieved.
A Trustee who has spent considerable time dealing with a difficult property, arranging repairs, dealing with creditors and completing the sale may have a legitimate claim for compensation. That claim should nevertheless be properly accounted for and distinguished from reimbursable expenses.
Does the Trustee Have to Wait for a Particular Sale Price?
Not necessarily.
This is perhaps the most important issue.
The Trustee may believe the property needs to sell for $800,000 to pay the Estate’s debts. But if the property’s realistic market value is only $725,000, the Trustee cannot create $800,000 of value simply because that is what the estate requires.
Meanwhile, continuing to hold the property may generate additional:
- property taxes and interest;
- insurance;
- utilities;
- maintenance and repairs;
- legal expenses; and
- other carrying costs.
Waiting for a higher price may therefore make the Estate’s position worse, rather than better.
The Trustee should consider the best reasonable outcome for the Estate, supported by market evidence, rather than simply holding the property indefinitely in pursuit of a particular number.
Is the Trustee Personally Responsible for the Deceased’s Debts?
Generally, no.
The deceased’s debts are debts of the Estate. The Estate Trustee does not ordinarily become personally responsible simply because the Estate does not have enough money to pay all of them.
However, the Trustee can potentially face personal liability for improper administration, such as improperly distributing assets, ignoring known creditors, misappropriating funds, acting in bad faith or otherwise breaching fiduciary duties.
The Trustee should therefore document the decision-making process carefully.
An appraisal, comparative market analysis, comparable sales, previous offers and advice from the estate’s lawyer can all help demonstrate that a sale was reasonable.
The Key Distinctions
The Trustee should separate three different numbers:
- What the property is actually worth.
- What the estate owes.
- What the trustee is entitled to receive.
They are not necessarily the same.
If the Estate owes $800,000 but the property can realistically be sold for $725,000, the Trustee’s responsibility is not necessarily to wait indefinitely for an $800,000 offer.
Instead, the Trustee should obtain appropriate professional advice, properly market the property, evaluate bona fide offers and consider whether continuing to hold the property is actually in the Estate’s best interests.
Considerations
An Estate Trustee is generally entitled to seek reimbursement for legitimate expenses personally incurred on behalf of the Estate. The Trustee may also be entitled to compensation for administering the Estate, but there is no automatic right to take 5% of the sale price.
Most importantly, the Trustee is not generally required to personally make up the difference when an Estate’s debts exceed its assets.
Where the property simply is not worth enough to satisfy all of the deceased’s obligations, the issue is not necessarily an unsuccessful sale. It may be an insolvent or underfunded Estate, which requires proper legal advice concerning the payment and priority of creditors.
The Trustee should not leave a property on the market indefinitely simply because the Estate needs a higher price. A properly documented, reasonable sale at market value may be preferable to allowing taxes, interest and carrying costs to continue accumulating.
Brian Madigan LL.B., Broker