Choose your executor wisely

Back when I ran my estate law practice, clients often asked me, “Who do you think should be my executor?” My response was never to name names, but rather to suggest principles that might guide the decision process.

Principle number one: your executor (or estate trustee, as they are called in Ontario) must be someone you trust. After all, the nominee will not only execute your will instructions, but as trustee will become legal owner of everything you own at the point when you graduate to the great beyond.

At the same time, there should be adequate controls in place. In other words, you should not trust your trustee absolutely. Here’s a painful example illustrating why.

A $24-million estate devolves

Unless you are in the mining industry, you may not recognize the name Paul Penna. Born in 1922, he was a bucket-shop mining stock promoter and millionaire by the time he was 24, and went broke shortly thereafter. By 1972 his respectability and fortunes had risen once more, such that he was able to merge two mining companies into Agnico-Eagle Mines.

At the time of his death in 1996, he had an empire and fortune worth about $24 million — more than adequate, one would think, to fund a life estate for his wife Lorraine, and a charitable trust to boot.

The estate executors were two of Mr. Penna’s business colleagues and Lorraine herself. After Lorraine died in 2003, Mr. Penna’s nephew took her place in 2004.

A $24-million estate dissolves

By early 2005, a Mareva injunction had been ordered, freezing the assets of Barry Landen, one of the two business colleagues named as estate executors. A 2006 order replaced all three trustees with a court-ordered trustee.

According to the judge who oversaw the matter for much of the five and a half years it was before the court, “The Estate was neither properly nor honestly administered from the outset. The executors and trustees never probated the deceased’s will. Landen completely controlled all of the administration, including banking and cheque-writing. He never followed the terms of the will.”

Lorraine was entitled to a $1-million specific legacy in addition to payments as part of the life estate. She received neither. Instead, funds were fraudulently converted to Landen’s use, including:

• A $2-million Forest Hill home purchased with estate funds, and registered to his wife.
• Four luxury car leases and season tickets for the Toronto Maple Leafs and Toronto Raptors.
• Over $2 million of itemized misappropriations or misdirections.
• Many millions of dollars more that remain unaccounted for.

While Landen was the principal actor, the judge commented that had the co-trustees properly taken on the role entrusted to them, Landen could not have committed such a massive fraud over so many years. Eventually, the other two executors paid settlements to the estate.

In October 2010, Mr. Landen was found in contempt of court for breaching four court orders, and a sanction/punishment hearing occurred in November 2010.

An executor called to answer

Contempt of court attracts a range of possible sanctions, from orders to act or refrain from acting, to payment of court costs or fines, all the way to the potential for imprisonment.

Owing to Landen’s latent pennilessness, the judge ruled a fine to be pointless, and that there could be no positive act he could perform to purge his contempt. So, it’s prison for Landen – specifically, 14 months.

What’s more, there is no parole provision in civil contempt matters, so it will be a full 14 months. After that, the order requires him to appear before the court once more to account for what he did with the balance of the estate assets. Presumably, a failure to respond to that order could lead to a further finding of contempt, so this may not be over yet. So, who do you think should be your executor?