When you or your client are selecting an executor (or liquidator in Quebec), or when your client is deciding whether to act as 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 the functions. This decision gets more complicated where the assets in question include business assets or assets in other jurisdictions.
Beyond having the administrative duties that will be discussed below, 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 interests, not comingle estate property with their own, or use estate property personally. An executor is typically expected to complete the administration of the estate within one year (often called the “executor’s year”), but this may not be possible for complex estates or estates subject to litigation.
An executor can be compensated, and the amount may be stated in the will; in the absence of a remuneration clause in the will, executor compensation may still be paid but may be subject to court approval. If a trust company is selected as an executor, fees will typically be charged based on a fee agreement prepared at the time the will is executed. Trust companies are a good option for complex and/or estates that may be ongoing for a period of years.
Duties of an executor
So, what are the main duties of an executor? While not an exhaustive list, some of the key duties include:
- Locating the will
- Arranging the funeral
- Probating the will
- Locating the beneficiaries
- Ascertaining all the estate assets and preserving them until sold or distributed to the beneficiaries
- Determining the deceased’s liabilities (known and potential)
- Filing tax returns and distributing bequests
Let’s take a brief look at some points to consider with respect to each of these:
Locate the will – in many cases, the will is retained by the lawyer who prepared the will but sometimes the client retains the will. If this is the case, hopefully the deceased has informed the executor as to its location – maybe a safe or filing cabinet in the deceased’s home or maybe a safety deposit box (which could cause issues since the financial institution may require a probated will to grant authority to access the safety deposit box).
Funeral – The executor should review the will or any letter of wishes to determine whether funeral arrangements have already been made or whether there are any specific instructions. The funeral is the executor’s responsibility, and they must ensure that the funeral expenses are paid even though, where the executor is not a family member, the family will likely take the lead in the planning. If the executor doesn’t have access to bank accounts of the deceased’s estate yet, they can sometimes get the necessary funds from a beneficiary or pay the amount themselves and get reimbursed later from the estate (or sometimes from the Canada Pension Plan death benefit).
Probate – Most provinces have some version of probate fees. There are provincial forms that must be completed and getting legal advice for obtaining probate is often needed. Probate is necessary to prove that the executor has the authority to deal with the assets of the estate. Probate fees and laws vary by province. In some provinces, multiple wills are used to reduce probate by segregating assets that require probate (such as non-registered investment funds and bank deposits) from those that do not require probate (such as private corporation shares). This strategy is most often used in B.C. and Ontario. There are certain assets that are not subject to probate because they do not pass to the estate. 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. For a summary of probate rules in each province, review question 10 for the relevant province in PPI’s Reference Guide to Provincial Wills and Estate Law in Canada.
Locate and deal with beneficiaries – Locating beneficiaries should generally be simple, especially where one or more family members are acting as executor. It can, however, be difficult in some cases 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. Beneficiaries are owed a fiduciary duty and can therefore challenge an executor’s actions and fees. Disputes among beneficiaries can arise, which can put the executor in a difficult position and, on occasion, in the middle of litigation. Regular ongoing communication with the beneficiaries is recommended to avoid questions and challenges in the future.
Ascertain assets – This task can be the most time consuming. Usually, the largest asset of the estate is the deceased’s house. Unless the house has passed by right of survivorship, the executor’s job is to ensure both the house and its contents are secure. This usually means creating an inventory of the contents, making sure there is adequate property insurance and possibly changing the locks. The executor should 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 may also need to ascertain the deceased’s digital assets, which may require determining passwords! For more information on digital assets and what they are, read this article, Protecting Your Client’s Digital Assets, and watch this short video SMART TALK… about digital assets.
If the deceased had business assets, then the job of executor just got more complex. Hopefully the deceased had a succession plan in place for the business. In this case, the executor should consult the deceased’s professional advisors regarding the plan, and also discuss possible post-mortem tax planning. If not, the executor will have to implement a plan to manage the business interests as soon as possible. Advice of professional advisors will be paramount.
Determine liabilities – The deceased’s old tax returns should be located to determine what has been filed and if there are any outstanding taxes. Canada Revenue Agency has some resources that are helpful including What to Do Following a Death and What to Do When Someone has Died. In addition, the executor should consult tax advisors regarding post-mortem planning, graduated rate estate status and filing additional terminal year returns. The other known liabilities like mortgages, promissory notes, funeral debts, etc. must also be determined. The executor should ascertain if there are any contingent liabilities such as family law claims. If an executor fails to pay known liabilities, they are personally responsible; therefore, it is prudent for executors to advertise to notify potential 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 the trustee for these ongoing trusts or other individuals may be named as trustees.
If there are illiquid and liquid assets, this can lead to beneficiary disputes. The executor may have to liquidate certain assets in order to make distributions to the beneficiaries. With respect to personal assets, hopefully the deceased’s will describes how they are to be distributed. If not, the executor will have to determine a process for beneficiaries to claim personal assets – this is often the most emotional process and disputes between beneficiaries often arise that the executor must be prepared to handle. Before making the final distribution from the estate, the executor should get a tax clearance certificate from the Canada Revenue Agency (and Revenue Quebec). The certificate ensures that the executor is not personally liable for any unpaid taxes or other amounts under the Income Tax Act (or the Taxation Act of Quebec). In addition, the executor should get a written release from the beneficiaries that they have received their full share of the estate. In some cases, it is 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 in fact a privilege and 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, as can be seen from the duties outlined above, can be a significant time commitment for your client. For smaller or simpler estates where family members are the executors and the beneficiaries, the role may not be as complex or time consuming, but even with smaller estates emotions can run high with respect to certain assets. Communication between the proposed executor and the person preparing their will is important so that the testator’s wishes are fully understood. Communication with the beneficiaries during the planning stage is recommended as a means of reducing potential disagreements after death. And of course, professional advice is paramount.
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