It's important to understand what compensation the estate will provide to the executor and whether there will also be resources available to pay for professionals such as lawyers, accountants and trustees.DNY59/iStockPhoto / Getty Images
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Being named as the executor of a will is often seen as an honour, but advisors and legal experts say it’s very important for clients to understand the responsibilities and risks before saying “yes.”
Ambie Edgar-Chana, lawyer at Edgar Chana Law Professional Corp. in Toronto, says that following a death the executor’s immediate responsibilities include locating the will and all assets of the deceased, securing those assets and making sure they’re not losing value. For example, locking up the house and also making sure insurance is kept up to date and pipes don’t burst.
Then there’s a long checklist of duties centered around following the terms of the will to administer the estate for the benefit of the beneficiaries.
“The executor basically has a fiduciary obligation at law to … show [that] any action they took, whether it be selling an asset for a certain price [or] not selling an asset, was in the best interest of the beneficiaries,” Ms. Edgar-Chana says.
“That’s their overarching fiduciary obligation and therefore, liability.”
Once the actions from the will are carried out, all of the assets are converted to cash or distributed, they’ve got a release from all the beneficiaries and a clearance certificate from the Canada Revenue Agency, then the executor’s job is done, says Ms. Edgar-Chana.
“It typically takes, on average, about a year. We call it ‘the executor’s year,’” she says. “Even in a simple estate, it’s a lot of time [and] there’s a lot of liability attached.”
Ask questions to gauge complexity
The time required to deal with a mountain of detail is often the biggest surprise to executors, says Sylvia Azoulay, vice-president, tax and estate planning at Richardson Wealth Ltd. in Toronto. Before accepting the role, it’s important to see the will to get a sense of the complexity of the estate.
Business interests may need to be valued and sold. Foreign assets, such as real estate in another country, and beneficiaries scattered around the world can also add significantly to an executor’s workload. So can any expectation that the executor will serve as an ongoing trustee for any trusts created in the will.
Ms. Azoulay would also probe to find out if there are pre-existing conflicts between beneficiaries that could complicate the job. Any arguments that flare up will be easier to manage if the executor has a good understanding of family dynamics.
An executor does not have to be a family member, and can be a friend or a professional such as a lawyer or an accountant.
“One of the most important things I’m going to want to know is if this person has got their affairs in order … or am I going to get a shoebox of stuff?” she says.
Advisors often help clients with their own estate planning organization by providing tabbed binders. They may want to give those same tools to clients who are executors to share with the people who appointed them.
How to decide if you’re up for the job
Those invited to be an executor should ask themselves some hard questions as well, says Alexandra Horwood, portfolio manager and investment advisor at Richardson Wealth in Toronto. Clients need to consider whether it’s an honour or a burden, and decide whether they can devote hours to what is essentially a part-time job for a year or longer. They also need to think about whether they can handle the role alongside the emotional impact of the death of someone close to them.
If there’s more than one executor, be prepared with a plan for who will be responsible for what and how everyone will work together, she adds. Also, have a plan to maintain open and honest communication with all beneficiaries. It will be critical to listen to them and consult with them about decisions related to the estate.
Finally, understand what compensation the estate will provide to the executor and whether there will also be resources available to pay for professionals such as lawyers, accountants and trustees.
Executor compensation varies by province, but Ms. Edgar-Chana says that in Ontario when the will does not specify an amount it generally falls between 2.5 and 5 per cent of the gross value of the estate, with the exact percentage depending on how complex the estate is to administer. Keep in mind that executor compensation is taxable income for the executor.
The executor also remains responsible for delegated tasks.
“As an executor, you can be personally liable. If you make a mistake, if beneficiaries get upset, if something goes awry, if you are seen in any capacity as doing anything that could benefit yourself, you open yourself up to a lot of risks and the potential for litigation,” Ms. Horwood emphasizes. “So, have a conversation about purchasing executor insurance.”
Executor insurance generally covers errors and omissions made in good faith – not negligence, fraud, willful breach of trust or willful blindness, Ms. Edgar-Chana says. Still, when she meets with clients who have accepted the role of executor, she points to getting it even if the estate won’t cover the cost.
Ms. Edgar-Chana also advises executors to retain good counsel and a good accountant. She notes that estate consultants, who have a lower hourly rate than lawyers, can be helpful to guide the executor through the process.
Meanwhile, trust companies can take care of certain executor duties – from arranging the funeral to preparing an inventory of assets and arranging the sale of property – while the executor retains decision-making authority.
“My parents have named me as the executor of their estate, and I’ve told them very clearly … I will be giving [much of] that work to a trust company,” Ms. Edgar-Chana says.
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