My dad died 4 years ago and I already got my inheritance. Now my sister, the executor, wants the money back. Do I have to pay?

Consider the hypothetical case of Jessica from Winnipeg, whose father died four years ago. Under his will, Jessica was entitled to a percentage of the value of her childhood home, which was sold shortly after his death.

During probate, the estate’s lawyer advised that the beneficiaries needed to wait before receiving the proceeds from the sale to allow time for any creditors to come forward once the representative has identified them and submitted a Notice to Creditors. This step is standard in estate administration to ensure any outstanding debts or claims are resolved before assets are distributed to heirs (1).

In Jessica’s case, the estate had no unknown creditors or outstanding debts, so the lawyer instructed the executor — Jessica’s sister — to proceed with distribution. Jessica signed a release and got her share of the proceeds within a few weeks.

Now, four years later, the situation has deteriorated. Jessica’s sister hasn’t completed the terms of the will, has stopped communicating with other beneficiaries and has delayed the transfer of several other properties in the estate. After dismissing the original lawyer and exhausting the estate’s remaining funds, she’s now asking Jessica to return almost half of her earlier inheritance to help cover approximately $60,000 in legal fees during the administration of the other properties.

Implications of mismanaging an estate settlement

Jessica believes her sister mismanaged the estate settlement and doesn’t want to return the money. She argues that her share of the estate was already settled — including legal and probate fees deducted at the time — and since she didn’t benefit from the remainder of the estate, she shouldn’t have to cover additional costs.

Jessica is correct that the process appears to have been mishandled. Distributing funds before the estate’s debts, taxes, fees and creditor claims are resolved is generally not recommended. Executors are legally required to settle the estate properly, and beneficiaries can challenge an executor who fails to carry out their duties (2).

Best practice is to ensure the estate’s obligations, including outstanding debts, taxes, legal fees and executor compensation, are addressed before making distributions to heirs (3).

Typically, inheritances are paid out of the value of the estate after these obligations are settled, a remainder known as the “residuary estate.” In this case, the will included specific bequests of property, but if the estate lacked sufficient funds to cover its costs, those assets could legally be sold to pay outstanding obligations before beneficiaries receive anything.

Finally, an executor can make an interim distribution once debts and expenses are estimated, but they often retain a holdback to cover taxes, legal fees, accounting costs and other expenses. Executors sometimes ask beneficiaries to sign a release or indemnity before receiving funds to protect against unforeseen liabilities, protecting the inheritance from having to be returned (4).

Is it worth the fight?

Jessica technically could afford to return part of the money from her emergency fund, but doing so would set her back financially. Rebuilding that cushion would likely come at the expense of her regular contributions to retirement accounts or other goals. Working with a financial planner could help her rebuild her safety net while keeping long-term objectives on track.

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However, in Canada, beneficiaries aren’t automatically required to repay distributions simply because an estate later runs short of funds. Interim distributions are usually made after the executor estimates expected taxes, fees and debts and retains a holdback to cover those costs. If the executor miscalculates, they may request that beneficiaries return funds — but courts don’t assume beneficiaries are liable for the executor’s errors. In fact, Canadian case law shows courts may hold the executor personally responsible if they prematurely distribute inheritances (5).