For many Canadians, choosing an executor to administer your estate after you’re gone may seem like a simple process, but the decision is one that often comes with unforeseen consequences and complexity.
Our increasingly diverse families and assets, as well as our globalized and mobile careers and lifestyles, make choosing an executor more complicated than in previous decades. For instance, choosing a child who lives in another country as an executor could create cross-border issues, which may delay the estate administration process. Or, picking an executor who’s also a beneficiary could be seen as a conflict of interest and may lead to family disputes, and in the worst-case scenario, estate litigation.
... as estate plans and families become more complex and globalized, it can be easy to walk into traps. It’s no longer a given that your children or siblings should be appointed.
Choosing an attorney—the person(s) who makes your property and personal care decisions if you become incapable—can be equally challenging, says Camille Jordaan, vice-president of Wealth Planning at Gluskin Sheff.
“With an attorney, they’re in charge of your financial and personal care decisions while you’re still alive,” Jordaan says. “They have tremendous power over you and your family, which is why you need to choose carefully.”
Are your executor and powers of attorney up to date?
Of course, not having a will or powers of attorney (POAs) is also a problem. A 2018 Angus Reid poll says 51 per cent of Canadians don’t have a will, while 35 per cent who have one say it’s outdated. Many Canadians have reportedly been creating or updating their wills and POA documents in recent months, given the focus on mortality caused by the COVID-19 pandemic.
“The pandemic has forced a lot of people to focus on what happens if they get sick or worse,” Harding says.
For Canadians who have a will or POA in place, the question is whether the persons you’ve appointed as your executor or attorney are still the best person(s) for the job. Relationships change, and people move or pass away, which is why the documents need to be kept current.
Your estate may have grown significantly in complexity, which could necessitate appointing a corporate executor, such as a trust company. In this capacity, a trust company would provide estate administrative services in order ensure efficiency and continuity in the administration process. Family dynamics, time constraints and geographical challenges could also warrant the use of a professional experienced in the intricacies of estate administration during a highly emotional time for your family. Fees for a corporate executor are typically charged as a percentage of the overall estate value. This is important to note because using the services of a corporate executor will reduce the overall value of the estate assets available for distribution to the beneficiaries.
The importance of life events in estate planning
Jordaan recommends revisiting your estate and incapacity planning when there’s been a major change in your life, the lives of your family members and/or the lives of those you’ve chosen to manage your affairs. For example, suppose you named your brother as your executor when he lived in Toronto five years ago and he has since moved to the U.S. In that case, his new residency could lead to bonding requirements and your estate becoming non-resident for tax purposes, “which can lead to undesirable financial and tax consequences,” Jordaan says.
Even appointing executors or attorneys who reside in Canada, but live in different provinces, can be a challenge due to the distance and potential time zone differences, Jordaan adds. “It may be better to appoint someone who lives close by or a corporate executor,” she says. “You need to keep on top of it as lives and circumstances change.”
Another challenge can arise where, for example, you’ve appointed your two adult children to be your executors and they no longer get along. “When there are two executors and they can’t come to an agreement on an issue arising during the estate administration process, they may have to go to court to settle the dispute, which, in extreme cases, can have a devastating impact on the estate assets available for distribution and family dynamics,” Jordaan says.
Relationship status can also have an impact. For instance, Jordaan says a separation or divorce doesn’t automatically revoke your will or POA. However, in provinces like Ontario, a divorce can revoke a former spouse’s appointment as your executor.
She recommends people who are going through a separation or divorce, or remarrying, review their estate planning documents as soon as possible. People may also want to revisit their plans if a beneficiary is going through a divorce or separation and, for instance, the former in-law is named an executor and no longer part of the family.
Are your executors and POAs up for the challenge?
Canadians should also consider whether the people appointed as their executors and POAs are up to the task.
Ask yourself ‘Do they have the financial acumen, the time and the energy?’
For example, people in the so-called “Sandwich Generation” – who are caring for young kids and elderly parents — may be too overwhelmed with their own obligations to handle administering your estate. As another example, you may not want to choose your only sibling if they have a history of being personally and/or fiscally irresponsible.
“When you don’t have the right person acting for you, mistakes can be made. Your estate can end up paying unnecessary taxes, your beneficiaries can end up with the wrong amounts, and, in the worst-case scenario, your assets could end up in the wrong hands,” says Harding, who recommends people with complex estates and/or families consider hiring a corporate executor to handle their estate administration.
The estate administration process can take several months, or even years, which means the person(s) you’ve appointed as your executor(s) may be looking at a long-term commitment.
“In many cases, being an executor is not something that can be done quickly or simply,” Harding says. “Increasingly, it can take years to ensure that estates are administered as intended.”
Understanding the legal responsibilities of becoming an executor or attorney
The potential legal implications of being an executor and/or attorney can make the role challenging and potentially burdensome. Liability may be another reason to appoint a corporate executor, which is increasingly becoming the choice for those who want to settle an estate without assuming all of the responsibilities.
An executor can be held personally liable if they fail in their duties
Examples include negligent decision-making that leads to lower amounts being available for distribution to the beneficiaries, such as selling a property well below market value if it could have been sold for more, or the late filing of tax returns that results in financial penalties.
“You have a duty to act in the best interest of the beneficiaries,” Jordaan says. “If a beneficiary challenges a bad decision you made … you could potentially be liable.”
“It’s not the honour many people think it is,” Harding says of being chosen to act as an executor.
Attorneys can also be held responsible if they fail to act diligently, in good faith and in the best interests of the incapable person.
Are your executor and attorneys the right fit for you and your beneficiaries?
People also need to consider if the executor or attorney is the right person to work with your family and/or beneficiaries during what is almost always a highly-emotional and stressful time.
For instance, do they have the right personality and emotional skill to work with your grieving family and beneficiaries? The executor may need to have thick skin to manage complex financial matters and any potential conflicts that arise amongst your beneficiaries.
“Executors typically have a lot of power and discretion during the administration process and can really be the difference between whether your beneficiaries come out of it having a positive experience or an extremely negative one,” Jordaan says.
An executor also needs to have some compassion and common sense when distributing sentimental items, such as artwork and jewelry, especially if the distribution has not been provided for in your will or an accompanying memorandum.
“It’s the kind of thing that can tear families apart if inappropriate decisions are made,” Jordaan says. “That’s where it’s critical to ensure you have the right person.”
The attorney making personal and end-of-life care decisions should also be a caring, compassionate person who understands your wishes and can work with your family, adds Harding. They also need to be mentally prepared for the responsibility.
“Making health care decisions can be highly emotional,” Harding says. “To be able to make end-of-life decisions—the burden of that is far reaching.”
“Some think, ‘I’ll no longer be here, or I won’t know what’s happening, so why do I have to worry about it?’” Harding says. “But it’s the family members and other beneficiaries that suffer if you don’t choose wisely.”