Testators writing a will should consider whether the executors they are naming are the right people
The role of an executor can be complicated and involve tax, legal and other financial decisions. Photo by Getty Images/iStockphoto The most important decision when drafting a will is who to name as the executor, the person responsible for ensuring the testator’s wishes are followed. Here, we’ll look at are some of the most important considerations in making that decision and what those chosen need to know about carrying out their obligations.
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A will can have multiple executors. Sometimes, those executors are named jointly, as may be the case when someone has multiple children who are named together. It is also common to name replacement executors, for example when someone names their spouse as the primary executor, failing whom one of their siblings would take on the role.
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The feminine form of executor is executrix. An executor may also be known as an estate trustee. An Ontario executor named in a will is also known as an estate trustee with a will. In Quebec, the executor of an estate, or succession, is known as a liquidator.
The first step for an executor when someone dies is to obtain a copy of the deceased person’s will. The document may be stored at a lawyer’s office, in a safety deposit box, or in a person’s home. It is prudent for both a testator and their executor to be sure the executor knows where the will is located.
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British Columbia and Quebec have official provincial will registries. However, these are voluntary and not mandatory when drafting a will. Toronto-based NoticeConnect has developed the Canada Will Registry to allow people to register a will and its location, both of which will be kept confidential until after someone dies and their family submits a search query.
Once an executor locates the will, they must then make a list of the assets and liabilities of the deceased and apply for a grant of probate from the court. Probate provides authority for them to deal with the estate. Probate may not be necessary but is generally required when the assets include real estate or accounts at financial institutions.
If someone dies without a will, otherwise known as dying intestate, it is a misconception that the government keeps their estate. It is distributed according to the applicable provincial laws of intestacy with a pre-determined distribution schedule to their surviving next of kin. A family member or someone else can apply to be appointed as the administrator of the estate to carry out the typical duties of an executor.
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Once an executor has authority to settle the estate, they can begin notifying financial institutions, selling assets, and paying debts, taxes, and other expenses. An executor’s job is typically complete when they distribute assets to the beneficiaries, which may include themselves, and obtain releases from the beneficiaries.
The role of an executor can be complicated and involve tax, legal and other financial decisions. It may also be contentious depending upon family dynamics. In the case of minor or disabled beneficiaries, it is possible that assets will be held in trust for a certain amount of time, until the beneficiary attains a certain age, or even for the remainder of that beneficiary’s life. As a result, the age of the executor, especially relative to the age of the person writing the will, is important to consider.
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An executor is not required to act. In fact, they can turn down the role or even step down from their role after they have already begun. This is a prime reason a testator should make sure they ask their intended executor if they are willing to be named, but also include at least one replacement executor in their will.
Executors are not liable for the debts of the deceased. However, they may face personal liability for errors or omissions they make when settling an estate. An executor can purchase liability insurance to protect themselves and cover legal fees or orders of restitution from a court. The premiums could be roughly $1,000 to $1,500 for a $1 million estate.
An executor can also seek out assistance from a trust company, lawyer, or other professional. An agent for the executor can assist with the duties related to the estate settlement process. As a result, an executor does not necessarily need to do everything on their own but is responsible for overseeing the estate.
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When a testator writes their will, they often name a family member or friend, but can name a professional executor right from the start, like a trust company, or a trusted professional in their personal capacity. This may be a relief to their family but comes with a cost.
Each province establishes guidelines for executor fees. In Ontario, for example, an executor may be entitled to 2.5 per cent of receipts and 2.5 per cent of disbursements, so, effectively can receive about five per cent of the estate value as executor fees. In British Columbia, an executor is entitled to no more than five per cent of the value of the estate. In Alberta, the rate depends on the size of the estate: three to five per cent of the first $250,000, two to four per cent of the next $250,000, and 0.5 to three per cent of the balance. A testator can also establish the compensation for their executor in their will by setting guidelines. A trust company will typically want to review a will that names them in advance, insert some of their own wording, and have a fee agreement signed as well.
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When an executor is a beneficiary of the estate, they may waive their compensation. Executor fees are considered taxable income, whereas an inheritance is received tax-free by a beneficiary. So, a spouse or children will often waive their executor fees.
Recommended from Editorial Your TFSA investing strategies will need a rethink in 2023 Why it’s time for borrowers to accept the new normal of higher rates and plan accordingly These money-saving strategies can help investors make the most of a very bad year Whether a family member or a professional executor is acting, if the beneficiaries feel the compensation is too much, they can request a passing of accounts. A court will consider the complexity, competency, and time committed by the executor or agent and could decrease the compensation. If the work involved was inordinate, a court could also increase the compensation.
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Article content A typical estate may take anywhere from a few months to a year to settle. Although it may not be common for it to take more than a year, if the estate includes illiquid assets like a business, complexity like foreign assets, or if there is family discord, the process can certainly take longer.
The oldest of Canada’s more than eight million baby boomers, born in 1946, turn 77 this year. Over the next decade, there will be an unprecedented transfer of wealth and an estate boom that will require millions of executors to perform their duties.
Although it may be an honour to be named as someone’s trusted executor, there can be a lot of work involved as well. That work does not need to be done solely by the executor, who has the option to hire assistance from professionals. Testators writing a will should consider whether the executors they are naming are the right person or people.
It can be a big job, but somebody has to do it.
Jason Heath is a fee-only, advice-only certified financial planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever. He can be reached at jheath@objectivecfp.com.