by Staff Writers, AdvisorAnalyst.com
When selecting an executor or liquidator, it is important to consider the duties and responsibilities that this would entail, and whether you or the person you are considering have the ability and desire to perform these functions. This decision gets more complicated where assets are involved in business operations or assets are located in other jurisdictions.
An executor is a fiduciary who has moral and ethical duties to act honestly, reasonably, and in the best interests of the beneficiaries. The executor holds the estate “in trust” for the beneficiaries and must be impartial, avoid conflict of interest, not comingle estate property with their own, or use estate property personally.
If the estate is complex, it may take longer for an executor to complete the administration.
An executor can be compensated, and the amount may be stated in the will; court approval is typically required for executor compensation to be paid if there is no remuneration clause in the will. If a trust company is selected as an executor, fees are typically charged based on a fee agreement prepared at the time of execution of the will. Trust companies are a good option for complex and/or ongoing estates.
Duties of an executor
The main duties of an executor include overseeing the estate and making sure that all legal documents are followed.
- The executor of a person's estate must locate the will,
- arrange the funeral, probate the will,
- locate the beneficiaries,
- ascertain all estate assets and preserve them until sold or distributed to the beneficiaries.
- Additionally, they may have to file tax returns and distribute bequests.
Let’s take a brief look at some points to consider with respect to each of these:
Locate the will – If the deceased has not provided instructions to the executor, then it is likely that the will is retained by the lawyer who prepared it. If this happens, then hopefully either (1) the deceased has explicitly instructed their lawyer to give or retain custody of their will or (2) if there is no such instruction, then it can be assumed that custody of the will would reside with whoever was closest to them at death - in other words, their spouse or domestic partner.
Funeral - Funeral arrangements should be reviewed by the executor in order to determine whether any have already been made or if there are any specific instructions. The executor is responsible for ensuring that the funeral expenses are paid, even if they're not a family member. If the executor of a deceased person's estate doesn't have access to bank accounts yet, they may be able to get the necessary funds from a beneficiary or pay for the amount themselves and receive reimbursement later from the estate or sometimes from Canada Pension Plan benefits.
Probate fees are a common expense for those who have an estate to manage. In most provinces, there are specific forms that must be completed and legal advice may be necessary in order to obtain probate. Probate is necessary in order to make sure that the executor has the authority to take care of the assets of the deceased person's estate.
Some provinces use multiple wills to reduce the amount of probate required. This is done by separating assets that require probate (such as non-registered investment funds and bank deposits) from those that do not (such as private corporation shares).
In British Columbia and Ontario, certain assets are not subject to probate. These include proceeds from life insurance policies or registered plans paid to a named beneficiary and jointly-owned property that passes by right of survivorship.
Locate and deal with beneficiaries – In order to locate beneficiaries, it is generally simple where one or more family members are acting as executor. However, in some cases it can be difficult if there are minors, those who lack legal capacity, non-residents or children of unmarried parents who may not be known to rest of the family. When an executor is appointed, beneficiaries are generally owed a fiduciary duty. This means that the beneficiaries can challenge executor actions and fees, which can put the executor in a difficult position. Communication with the beneficiaries is recommended to avoid any disputes in the future.
Ascertain assets – The executor of an estate typically has many tasks to complete, one of which is securing the deceased's house. This usually means creating an inventory of the contents, making sure there is adequate property insurance and possibly changing the locks. The executor should also locate banking information and notify banks and other financial institutions about the death, which usually means providing a probated will and death certificate.
The executor of a deceased person's estate may need to ascertain their digital assets, which may require determining passwords. If the deceased had any business assets, then the executor's job just got more complicated. Hopefully, the deceased had a succession plan in place for the business. In this case, the executor should consult with professional advisors regarding the plan and also discuss possible post-mortem tax planning. If not, then an executor will have to implement a plan to manage business interests as soon as possible. Advice from professional advisors will be paramount.
Determine liabilities – One way to find out what taxes have been paid on a deceased person's behalf is to look for their old tax returns. The Canada Revenue Agency (CRA) has some resources that can help, including "What to Do Following a Death" and "What to Do When Someone has Died."
After an individual's death, the executor should consult with tax advisors about estate planning and filing additional terminal year returns. The executor should also determine any known liabilities, such as mortgages, promissory notes, funeral debts, etc. If there are any contingent liabilities (such as family law claims), the executor should ascertain if they have been notified and if not take appropriate steps to notify creditors.
Distribute estate property – The deceased's will sometimes contains bequests to beneficiaries, after which the residue is distributed to the residual beneficiaries. Sometimes assets are left in trusts for beneficiaries and the executor may be one of these trustees or other individuals may be named as trustees.
If there are illiquid and liquid assets, this can lead to disagreements about who will receive distributions from the estate. The executor may have to sell certain assets in order to make payments to the beneficiaries. With respect to personal assets, hopefully the deceased's will describes how they should be distributed.
If personal assets are not claimed by the beneficiaries within a certain timeframe, the executor must determine a process for them to claim those assets – this can often be one of the most emotionally charged processes and disputes between beneficiaries often arise that need to be resolved by the executor. Before making any final distribution from an estate, an executor should get a tax clearance certificate from Canada Revenue Agency (and Revenue Quebec).
The certificate ensures that the executor is not personally liable for any unpaid taxes or other amounts owed to the government. In addition, the executor should get a written release from beneficiaries that they have received their full share of estate. In some cases, it may be necessary to get a court-approved passing of accounts to approve estate distribution and executor’s compensation. Again, legal advice should be obtained.
An executor’s commitment
Being appointed as an executor to someone’s will is a privilege that shows the great respect and faith that person has in your client and their ability to fulfill their final wishes. It also comes with a lot of responsibility, can be emotionally draining, and can be a significant time commitment for your client.
When an estate is smaller or simpler, it may not require as much work from the executors and beneficiaries. However, even with a small estate emotions can run high when it comes to certain assets.
It is important for the executor to communicate with the person preparing their will in order to understand the testator's wishes. Communication with beneficiaries during the planning stage is recommended as a way to reduce potential disagreements after death. And of course, professional advice is always necessary.