Earlier this week, O’Sullivan Estate Lawyers participated as one of the gold sponsors of the STEP Canada (the Canadian branch of the Society of Trust and Estate Practitioners) 20th National Conference in Toronto, which annually brings together trust and estate specialists from across Canada and other countries to share knowledge and discuss developments. Among the attendees this year were representatives of law and accounting firms, professional trustees, insurance and investment companies, and even experts for finding missing heirs.
A question that seemed to preoccupy a number of participants we met at the Conference was: what advice do you give to a client when they are unsure about whom to appoint as an executor under their will? This issue is gaining increasing prominence in trust and estate work. A recurring theme is that families are growing smaller or are living in different jurisdictions, which can make appointing a family member as an executor difficult or not advisable. Another modern tendency is that some parents are shying away from burdening their children with the responsibility of having to administer their estates, a duty that often traditionally fell to children. So whom should one appoint?
Before an executor is selected, it is crucial to understand the key responsibilities of an executor, which can include:
1. Arranging the funeral.
2. Securing and caring for the deceased’s assets, including pets, valuables and businesses, before transferring them pursuant to the provisions of the will.
3. Identifying the beneficiaries, assets and liabilities of the deceased, including advertising for heirs and creditors, and keeping records.
4. Engaging a lawyer for a court application to probate the will, where necessary, and for legal advice.
5. Obtaining a valuation of the estate’s assets.
6. Liquidating the assets.
7. Filing tax returns, including in Ontario an Estate Information Return, if the will is probated, and income tax returns.
8. Obtaining a tax clearance certificate from the Canada Revenue Agency, where
advisable.
9. Setting up any trusts under the will.
The executor should be someone who has the appropriate business savvy, dependability, emotional and organizational preparedness, availability and longevity in order to be in a position to carry out the above responsibilities as a fiduciary of the estate within a required timespan at some future date. The will represents the testator’s last wishes, therefore the executor should be someone whom the testator absolutely trusts to carry out those last wishes as instructed in the will.
In addition to the executor’s abilities, there are other important considerations. The executors should ideally be located in the same jurisdiction as the estate, as foreign executors in certain cases may be required to provide a security bond to the court issuing the estate administration certificate (otherwise known as “probate”). Foreign executors may also expose the estate to tax residency issues, including potentially a “departure tax” and income taxation in foreign jurisdictions. However, non-resident executors may be desirable where the estate has assets in multiple jurisdictions. Our clients do appoint non-resident persons to serve as their executors and, with careful planning and professional advice, such arrangements can work.
Sometimes it may be advisable to appoint multiple executors, in which case decisions can be made together by majority. In any case, whether one or multiple initial executors are appointed, it is recommended that the will provide contingent appointment or authorize the replacement or addition of executors. When no suitable family members or other persons are available, a professional trust company can be appointed to act as an executor, which may be well positioned for this role, given its expertise and resources.
Another important consideration in appointing executors is their compensation. Corporate executors act for an agreed fee, however, individual executors are also frequently compensated for acting in this role. The Ontario Trustee Act authorizes executors to be reasonably compensated for carrying out their duties under a will. In practice, such compensation generally amounts to approximately 5% of the value of the estate. Frequently, wills are silent on compensation or may not include any compensation for close family members for acting as executors, especially where they are also beneficiaries of the will, however, compensation can help to motivate executors to stay on top of their responsibilities.
There are many modern-day considerations in selecting an executor of an estate, however, a clear understanding of the executor’s responsibilities and of the practical aspects of carrying out that role is a key step in making an informed and reassuring selection.
The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.