Not just the one who reads your Will and writes cheques
It is often interpreted as an honour, being named Executor of someone’s estate, as well as a sign of trust and respect. But along with it comes huge responsibility and holds the potential to become an overwhelming and stressful job.
I often hear from clients that it is going to either be a collection of their children, the oldest child or even a spouse in a second marriage because it is the “right thing to do”, or “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 the responsibility of the following tasks:
• To locate, collect and have the responsibility of all the estate’s assets (including a home and all of its belongings) until they are distributed to the beneficiaries named
• To identify and raise the cash needs for the estate
• To pay funeral expenses, debts and administration expenses
• Distribute the assets in accordance with the terms of the WILL
• To handle and work with professionals, relating to tax matters including:
o Preparation of deceased final tax return
o Handles the estate’s income and estate taxes
So far it sounds pretty simple right? Well so far we haven’t included any of 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.
Is there a family business? A recreational property? Some foreign investments? It is in situations like this where decisions being made by executors may find a point of challenge. Using their discretion, getting the best prices, and identifying wind down strategies doesn’t come easy. Additionally, right or wrong, an executor is financially liable for any mistakes and is often held to task and forced accountable by beneficiaries and the courts.
It is with all this in mind, that you will want to take some time to ensure that your executor is capable of handling this important role and not just expected to slide into this position by default as your oldest child, or the one that lives the closest, or because you want to be fair to all so you name all of your children.
When selecting an executor you should look for 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 becomes 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
As an alternative, we at Insightful Wealth Group believe there should be some consideration of naming a trust company as your executor (or co-executor). Indeed there are costs associated with utilizing a trust company, however the fee is paid by your estate and you enter into the agreement with a trust company regarding their fees 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 usually 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 your executor can seek the approval of the court to more compensation. This 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.
Should you have any questions regarding the use of a trust company’s services or want more information, 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.