The settlement of an estate can be a magnet for disputes and litigation, especially when the estate is complex, possibly involving ongoing businesses, real estate, and investment properties.
Divorce among family members, including children of the deceased, can also add to the complexity, resulting in will-challenge litigation that goes on for months or years.
The value of the estate can shrink if there is no trusted hand at the helm to maintain the value of those assets. If the estate includes one or more businesses, valued employees and customers may leave; in the case of property, maintenance steps might be postponed.
So, while the heirs dispute over the way the pie gets divided, the pie itself can get smaller.
Estate trustee during litigation
That is where an estate trustee during litigation (ETDL) can help. Appointed by the court to manage the estate while the litigation over its disposition is ongoing, the ETDL works under the relevant legislation (in Ontario, it’s Section 28 of the Ontario Estates Act).
This person takes responsibility for preserving – and, if possible, growing – the value of the estate during estate litigation.
While will-challenge litigation is rarely pleasant for the parties involved, having an effective ETDL watching over the assets means that legal counsel and family members can devote their time and energy to working toward a fair division of the estate.
I asked lawyer Bryan Tannenbaum, of Toronto-based TDB Advisory Ltd., to comment on ETDLs.
“For example, the dispute might involve a sister and brother, both beneficiaries of an estate that includes a residential apartment,” he says. “The brother might want to sell the property but the sister does not.”
An ETDL could go to the court and propose that either the brother and the sister agree for one to buy out the other’s interest through an auction between the two of them, or there be a sales process in which offers for the property are invited.
What background should an ETDL have?
It is important to note that an ETDL is an individual, not a firm.
So the question becomes: What professional background should legal counsel look for in an ETDL?
There are three main choices – a lawyer, a trusted company that contains professionals who can act as ETDLs, or an accountant.
Whichever is chosen, the ETDL must have:
- Sound understanding of estate-settlement procedures, including dealing with beneficiaries who take an interest or active role in the litigation;
- Training in functions such as determining the steps needed to maintain the value of a business or other asset, dealing with sale procedures, establishing a process to maximize the value of the assets if it is appropriate to offer them for sale, and providing the required report(s) to the court;
- Ability to recognize red flags that indicate that one or more of the parties is attempting to conceal or abscond with assets belonging to the estate;
- Access to a cross-functional team with experience in valuations, appraisals, tax strategy and forensics.
As an officer of the court, the ETDL acts as an impartial executor of the estate and is a neutral and independent third party with respect to all parties to the litigation.
In her or his fiduciary capacity, the ETDL takes responsibility for controlling and preserving estate assets and managing the estate transparently.
What can an ETDL do?
Duties can include:
- Ascertaining the value of the assets and liabilities of the estate;
- Safeguarding the estate’s assets;
- Maintaining separate trust accounts;
- Ascertaining and settling any debts of the estate;
- Filing income tax returns and tax planning;
- Investing the estate’s funds to maximize net realizations until the ETDL is discharged from duty, or the funds are otherwise distributed;
- Preparing reports to the court.
What can go wrong?
What gets in the way of an ETDL in protecting the assets of the estate during litigation?
It can be one or more parties failing to disclose information to the ETDL, which may necessitate a forensic investigation. Legal counsel can help avoid this by pointing out the potential for legal penalties for fraud.
If legal counsel or the beneficiaries are displeased with the way the estate is being managed, they can seek the court’s direction. Then, it’s up to the parties in the dispute to present their case to the judge.
A good ETDL provides peace of mind to all parties involved in settling an estate, knowing that it will be managed in order to maintain, or enhance, the estate’s value. This comes from the fact that a neutral third party, appointed by the court with a specific role, will help to preserve the estate for its division once the dispute has been resolved.
Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp., a mid-market intermediary firm that specializes in the sale of privately-owned companies.
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