In the 25 years that I have been in the investment advice business, I have been involved in more than a few estate settlements. I have witnessed the work of many executors and more than once had executors say to me they wished they had never taken on the job.You do earn a fee, but is it worth it?
Elaine Blades of Scotia Private Client Group noted in a recent article that taking on the executor role is equal to renovating a home. Her point is that like any renovation,it is a tremendous amount of work and something is bound to go wrong, and she is right. A lot can go wrong, and often does.
I thought this was particularly insightful but I would add an extra observation – being an executor is equivalent to renovating a home that is not yours,and when things go wrong – you are held responsible. Further, the final result is subject to public display and review by all of the beneficiaries including the Canada Revenue Agency.
Let me expand on that last point a bit. A probated will and all matters pertaining to it are posted to the various provincial government websites. For a fee of $10 to $25 anyone can go online and see what money and possessions the deceased had and what you, the executor, did with them.
I am personally revolted by this government policy. To me this is equivalent of paying money at the post office to have the right to read someone’s mail; but there is nothing that we can do about that. There is however, a solution to this privacy issue, which I will discuss in my next article. For now, we will focus on the risks of being an executor.
The bottom line is this … as an executor you are personally responsible for all matters related to the estate. This is true despite the clauses that are often included in wills that supposedly discharge the executor from any liabilities. Makes me wonder why they are even there.
As the ultimately responsible person, this includes securing alcohol and firearms in the deceased person’s home. If a teenager breaks into the home and gets drunk, you are liable; if they then shoot someone, you’re even more liable.
The responsibility also includes ensuring that there is proper insurance on the house. There was a case some years ago where the son, who was the executor, missed the fire insurance coverage and the house burnt down. The two sisters were willing to forgive but their husbands wanted to sue, and did.
Being an executor also includes the responsibility of paying the taxes. Another case arose when there was an RRSP at a bank; the wife was the beneficiary, and the executor was a close friend.The wife showed up at the bank with the will, the bank called the executor, and the executor gave permission for the RRSP to be passed over to the wife. She cashed it before it was transferred to her name. Because it was cashed, it should have been included in the deceased person’s final tax return and the resulting tax should have been paid by the estate. The executor missed this, and he ended up being personally responsible to pay the tax.
Those are just three small instances. Expand that to include bank and investment accounts, a condo in the US, other properties and businesses, and throw in a second spouse, and various beneficiaries near and far. Talk about taking on a difficult job.
From sheer frustration, I have seen executors hire a lawyer to do all of the work. This is usually at an hourly rate and is one of the most expensive ways to settle an estate. The lawyer may do the work, but the executor still has the responsibility, and if one of the beneficiaries challenges because they believe the executor diminished the estate through unnecessary fees, the executor may be liable. Executors would have a hard time accepting a fee and passing on the work to a lawyer.
So what are the alternatives? Let’s look at the renovations analogy … you would likely prefer to give the responsibility to an experienced and wise renovator. You should seriously consider the same criteria appointing an executor.
My recommendation is to use a trust company as the executor. These people are often licensed, well trained, and experienced. Of course you will likely want to interview a few to find the best fit for you.
I was hesitant in the past to recommend trust companies because often they insisted on transferring the assets of the client’s estate into their own mutual funds. This placed the trust officers in a conflict of interest because fees were being earned on these funds and such fees factored into how the trust officer got paid. This meant that dragging out the settlement of the estate resulted in higher fees being generated. This was beneficial to the trust company and the trust officer but detrimental to the beneficiaries.
Thankfully, that practice has ended. You can now specify in your will who will manage your assets during the probate period and you can also negotiate the one-time, flat fee that will be charged.Such arrangements give the trust company an incentive to discharge their duties promptly.
Talk with your financial advisor about making such arrangements for your estate, and discuss the concept with anyone who has already named you as executor. You and your family really don’t need the complications.
This article was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed in this article are those of Larry Short alone and not those of HollisWealth®