Alberta Queen’s Bench finds that an executor had no right of implied indemnity from the beneficiaries for estate taxes that should have been withheld

After litigation as to what, if anything, the separated spouse (Ms. Muth) of the deceased was entitled to receive under his estate, a mediated settlement was reached pursuant to which she applied for probate and distributed the estate 55% to her and 45% to her nieces and nephews. However, she withheld an insufficient amount for estate taxes before distributing without an indemnity, and subsequently sued her nieces and nephews for 45% of the deficiency.

After noting that under ITA s. 159 “Parliament could have chosen to make all beneficiaries of the estate liable as well but chose not to do so,” Little J found that the nieces and nephews were under no obligation to indemnify Ms. Muth for these taxes, stating:

… Ms. Muth had a statutory obligation to obtain a clearance certificate and failed to do so.

.. [I]f the beneficiaries did not instigate or request the breach, they cannot be obligated to indemnify the trustee. In a fiduciary relationship such as that between a trustee and a beneficiary, the logic of that corollary is that as between the two parties, one who had the obligation to perform a duty and failed and one who had neither the obligation nor the means to satisfy it, it is the former who should bear the consequences of the action or inaction.

Little J denied Ms. Muth’s motion for summary judgment and “caution[ed] the Applicant that if she continues the lawsuit, she may face a significant costs award if another judge comes to the same conclusion at the end of the suit.”

Neal Armstrong. Summary of Muth Estate, 2019 ABQB 922 under s. 159(3).