Dealing with Creditors

A. General Duties Owed to Creditors

The personal representative has the following duties to creditors:

  • to ascertain the liabilities of the estate and retain sufficient assets from the estate to pay those liabilities before distributing the balance of the estate;
  • to perform all contracts made by the deceased that are enforceable against the deceased’s estate; and
  • to pay the liabilities with due diligence in accordance with the terms of the will.

B. Types of Claims

Claims against the estate usually take the following forms:

  • Liabilities incurred by the deceased: the estate is responsible to pay all of the just debts incurred by the deceased. If the creditor commences an action before the debtor’s death, the style of cause can be amended to reflect the name of the personal representative. If an action in debt is commenced after the debtor’s death, the personal representative should be named as the defendant. See Supreme Court Civil Rule 20-3(10).
  • Liabilities arising from death: The most common expense under this heading is the funeral and reception expenses for which personal representatives are personally liable. They are entitled to reimbursement from the estate.
  • Liabilities for administering the estate: These expenses will include professional services of lawyers, accountants and others necessary to assist the personal representatives to fulfill their obligations under the will.

C. Defences to Creditor’s Claims

The personal representative is entitled to deny liability on any grounds that were available to the deceased. And, the personal representative may plead plene administravit in partial or complete defence of a claim, even if the creditor’s claim is valid. This means that the deceased has insufficient assets at the date of death or that the estate has been duly administered and no longer has any or sufficient assets.

D. Creditors and Debtors as Executors and Beneficiaries

(i) Creditor as beneficiary

Under the common law presumption of satisfaction, where there is a debt in existence at the date the will was made, and the debtor bequeaths a legacy to a creditor that is equal to or greater than the debt, it is presumed that the legacy was to satisfy the debt unless a contrary intention can be shown.  If the legacy is less than the debt, there is no such presumption and no partial satisfaction of the debt, unless there is a direction in the will that the legacy to the debtor is to be in full or partial satisfaction of the debt. Accordingly, the estate must pay the legacy and also the debt.

However, subsection 53(3) of WESA now abrogates the common law presumption of satisfaction.  Where a creditor of the will-maker is made a beneficiary, it will no longer be presumed that a debt owed by a will-maker is satisfied by a legacy to that person. Subject to a contrary intention in the will, the personal representative, if satisfied of the validity of the claim, will be required to pay the legacy as well as the debt. 

(ii) Debtor as beneficiary

If a beneficiary is a debtor of the deceased, there is no presumption that the debt was forgiven. But an express provision to that effect in the will may forgive the debt. If not forgiven, the debt may be set off against the gift.

(iii) Creditor as executor

A personal representative who is a creditor of the deceased is entitled to retain full payment from the estate for the debt unless there is a valid defence to the debt that the deceased could have maintained if alive.

(iv) Debtor as executor

If the debt existed before the will-maker’s death, the appointment of the debtor as an executor extinguishes the debt. However, the executor remains liable to account as if the debt had been collected.

E. Compromising Claims

Either by express authority in a will or under the general authority given to personal representatives in s. 142 of WESA,   a personal representative may be given the power to compromise a claim against the estate. Where the Estate Administration Act is applicable, s. 65 of that act gives an executor the express power to compromise a claim. 

At common law an administrator also has authority to compromise a claim (Pennington v. Healy (1883) 149 E.R. 455 (Ex.)). However, there remains the risk that a beneficiary may object to the necessity of compromising a claim afterward when the accounts are being passed. If you anticipate a dispute of this nature you should record your advice and opinion to the personal representative about the projected costs of continuing a claim and the delay in distribution of the estate.

Section 150 of WESA permits proceedings to be commenced or continued whether or not a personal representative has been appointed for the deceased. The personal representative, if any, or the deceased person may be named as defendant or respondent.

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(iv) Debtor as executor

If the debt existed before the will-maker’s death, the appointment of the debtor as an executor extinguishes the debt. However, the executor remains liable to account as if the debt had been collected.