Friends Don't Ask Friends to Be Executor

Asking a close loved one or a friend to be your executor may seem like a nice thing to do. Even an honor, that you would trust that person to handle your affairs once you've passed away. Many people agree to be the executor for a family member or friend without thinking twice about it.

But, the job of being an executor is a challenging one.

Workload

- Being an executor is a ton of work.

- In the Book "The Canadian Guide to Will and Estate Planning", by Douglas Gray and John Budd, they include an executor checklist in the appendix

- This list includes 80 different line items

- In the Book "You Can't Take It With You" by Sandra E. Foster, she includes an executor checklist in the appendix with 76 individual line items in it.

- If the estate has any level of complexity in it, it could be a massive and onerous job

- For fun, I scanned the list of items and picked 10 items that, for sure, would take at least 10 hours of time to complete:

○ Locating, reviewing and discussing the will with beneficiaries

○ Creating a full list of all assets (household goods, furnishings, cars, boats, jewelry, etc.)

○ Probating the will - preparing the appropriate forms for the provincial court, submitting them

○ Writing to all financial institutions and notifying them of the death, and verifying information on all accounts

○ Reviewing and cancelling all club memberships, health insurance, subscriptions, credit cards

○ Providing supervision for vacant real estate

○ Arrange for inspection and valuation of real estate

○ Locate and review prior years tax returns, prepare and file final tax returns (not to mention foreign assets which may require you to file taxes in a different jurisdiction)

○ Review portfolio of investments and provide continuous investment management of balance of estate investments

○ Sell estate assets *at fair market value*

○ Report to beneficiaries on progress and answer questions

Complicating factors:

○ Blended family - deceased had children from different marriages

○ Beneficiaries with unique dependency needs

○ Out-of-country beneficiaries or executors

○ Business interests

○ Multiple non-liquid holdings (buildings, real estate)

○ Complicated finances including trusts, holding companies

○ Outstanding tax issues that are not yet resolved

Liability

- Often, not enough attention is paid to the fact that the executor can be held liable by beneficiaries of the estate

- If the executor distributes assets from the estate before getting clearance from the CRA, that executor can be on the hook for any taxes owing

- If the executor doesn't prudently manage the investments of the deceased between death and distribution, there could be a liability there

- If the executor doesn't get fair market value for the assets, again there can be a liability - consider a situation where deceased had a classic car, sold it to the neighbor for $2000. The car was worth $30,000. The executor may be in trouble there.

Compensation

- Executors are entitled to compensation

- Maximum is generally between 4% and 5% of value of the estate

- Beneficiaries or the court have toe approve the accounts prepared for compensation and the amount has to come from the estate

- Executor who is also a beneficiary could be denied a fee unless the will makes it clear that the gift to the executor is in addition to, not instead of, executors fees

Good news! There is an alternative

Corporate Executor

- You can appoint a corporate executor the same way that you appoint an individual

- Basically, you can "outsource" executorship to a professional executor company

- Outside of the will, you would sign an agreement with the trust company which would outline the compensation arrangements and services they will provide

- Most if not all of the major banks in Canada have trust companies

- Typically an estate minimum of $1,000,000 will apply (remember RRSP's, TFSA's, and life insurance go outside of the estate…but if the deceased owned a house, that's part of the estate)

- There is zero up-front cost with naming an executor, fees are charged when estate is settled

- Fees range from about an average of 4.2% of a $1m estate ($42,000) to 1.4% of a $20M estate ($280,000)

- Benefits:

○ Professional management

○ Reduced risk for family members who would-be executors

○ Potential to avoid family conflict

- Negatives:

○ Cost