When is it a waste of an executor’s time and money to demand a release for payment of a legacy?
When a will appoints you as executor, there are times when a release makes sense, and times when it doesn't.
The obligation of an executor (also known as an estate trustee) is, on the surface, straightforward: he or she has to administer the estate according to the testator’s wishes. When there is enough money in the estate to cover those wishes, it is not necessary to demand a release from the beneficiary or beneficiaries.
A release of liability is, in essence, a contract. In the context of an estate, it means the beneficiaries agree to relinquish any claim they may have against the executor.
When the estate falls short, however, demanding a release is good practice.
Here is why.
Scenario Number One
In his will, Arnie Wilson left his grandnephew, Larry Low, an $85,000 legacy. The executor, Shirley Trusted, cuts a cheque to the grandnephew for $85,000. Larry provides Ms. Trusted with a signed receipt for the money.
Here the will contained a legacy, a fixed dollar amount. When the executor delivered the full amount of the legacy, she had fulfilled the terms of the will and thus is entitled to a receipt from Larry, the legatee, evidencing that he received the money.
However, Ms. Trusted cannot require Larry to execute a release, releasing her from any liability for negligence or other wrongdoing in administering the estate. This is so for at least two reasons.
First, there is no consideration offered to the legatee in exchange for the release. Again, a release is a contract, and requires the exchange of something of value to be valid. Simply paying out a legacy is not such exchange.
Secondly, having paid the legatee the full amount allotted under the will, there is no wrongdoing for which to pursue the executor.
In this circumstance, insisting on a release by the legatee in favour of the executor is baseless and would only waste legal fees, and time.
Scenario Number Two
Mr. Wilson was almost as fond of his dog groomer as he was his beloved grandnephew. He decided to leave both of them a legacy. Larry, being family, gets a bit more, $85,000. The dog groomer is left $35,000.
The problem: after paying for Mr. Wilson’s funeral, taxes and debts, there is only $100,000 left in the estate. It is $20,000 short of the promised legacies.
In the circumstances where the estate funds are insufficient to satisfy all legacies left in a will, the gifts are deemed to abate. In our example that means each of the legatees, Larry and the dog groomer, will receive a pro-rata, or proportional share of the funds remaining in the estate.
Both of them, then, get less that what Mr. Wilson’s will provided.
The insufficiency of the funds may have been the testator’s fault for gifting more money than he or she had. Or the shortfall may be the result of errors by the executor, or his or her negligence in managing the estate.
Shirley Trusted, as executor, is now in a difficult position. Assume that Mr. Wilson overestimated the value of his estate. Larry may be fine with that explanation; the dog groomer - who is suspicious by nature - may not. He decides Ms. Trusted needs to prove that the shortfall was not the result of error or negligence on her part.
Alternatively she did indeed make an error, or was negligent, and is now personally liable for the shortfall.
In all three cases, Ms. Trusted should demand a release from both Larry and the dog groomer in return for paying out their pro-rata share of the legacy, releasing her from any liability for negligence or other wrongdoing in administering the estate.
That is when demanding a release makes sense.