Not just reading the Will and writing the cheques
Being named the Executor of someone’s estate is often interpreted as an honour and a sign of trust and respect, but the reality is the role comes with serious responsibility, and is often times an overwhelming and stressful job during what can be an emotional time.
I often hear from clients that they have named either a collection of their children, the oldest child or even a spouse in a second marriage as their Executor because of the mistaken assumption that this is the “right thing to do” or, even worse, “why spend money on a professional?”
Even with what would be considered a simple estate, the job of being an executor is not an easy one and comes with a legal responsibility to ensure the execution of the following duties:
- To locate, collect and manage all the estate’s assets (including a home and all of its belongings) until they are distributed to the beneficiaries
- To identify and raise any cash needed for the distribution of the estate
- To pay the funeral expenses, any debts and any administration expenses for the deceased
- To distribute the assets in accordance with the terms of the WILL
- To handle and work with professionals relating to tax matters including:
- The preparation and filing of the deceased’s final tax return
- Any additional income and costs accrued by the estate prior to distribution
While so far being an Executor sounds pretty simple, once you included the emotional effects of dealing with the death of a friend or loved one, the potential conflicts amongst beneficiaries, or the challenges of a potentially more complicated estate, the responsibilities and amount of work involved can become overwhelming.
Is there a family business? Any recreational property or second homes? Foreign investments Difficult family dynamics? It is in situations like these where decisions made by an Executor may be challenged by the beneficiaries. Using discretion, getting the best prices or identifying wind down of distribution strategies are not always easy , especially if these decisions are outside of the understanding or ability of the person acting on behalf of the estate. Most importantly, right or wrong, an Executor can be held financially liable for any mistakes and is accountable to both the beneficiaries and the courts.
It is therefore of critical importance to consider your options and ensure that your chosen executor is capable of handling the details and difficulties that can be involved with this critical role. It is not always the best choice to put someone in place by default because they are your oldest child, or the one that lives the closest, or because, in the name of fairness, you feel you should list all of your children. In fact, by setting up your Executor without due care and consideration, you can potentially create more resentment and difficulties than intended simply by trying to be “fair”.
When considering an executor, think about the following qualities:
- Lives in the same area as you. It can be hard (but not impossible) to deal with assets and issues from a distance
- Has experience managing money and dealing with financial institutions
- Can deal with your relatives and beneficiaries objectively
- Is comfortable dealing with lawyers and accountants
- Has the time to spend settling your estate - for some it can become a part-time job for 1½ to 2 years
- Has the patience to deal with government agencies (especially tax departments)
- Is organized and willing to complete large amounts of paperwork
- Is not afraid to ask for professional help when needed
- Has experience settling estates or is willing to read, research and learn
Alternatively, we at Insightful Wealth Group believe there should be some consideration given to naming a trust company as your executor (or co-executor), especially if your legacy is large or complex. While there are costs associated with having a Trust company named, the fee would be paid by your estate and the agreement regarding any fees is established in advance of naming them. Trust company fees are usually a percentage of your estate on a sliding scale (the larger the estate, the smaller the percentage fee) and normally start around 4.5% on the first $1 million in your estate. Trust companies, like any Executor, are also entitled to repayment of expenses incurred on the estate’s behalf (for example, legal fees, accounting fees and realtor fees).
It is important to note that anyone who settles your estate (e.g. spouse, child, sibling or friend) is entitled to be paid for their services. You can state how much your executor should be paid in your Will, however be aware that an individual Executor can seek the approval of the court for additional compensation. This increased payment could eventually amount to more or less what a trust company would charge. Trust companies normally do not seek such approval to increase compensation as they have entered into a legal agreement with you prior to being included as your Executor.
Should you have any questions regarding the use of a Trust company’s services, or would like more information, please don’t hesitate to contact us at Insightful Wealth Group or mention it at your next review meeting. Together we can discuss this important decision and put you in touch with one of our experienced Trust partners if required.