BY MURRAY BECOTTE
A SURVEY put together by U.S. Trust found that three quarters of high net worth individuals name their family or friends as executors of their will. The reality is that people want to give this last important task to someone they feel understands their priorities.
People feel uncomfortable with having a person they don’t know in charge of their estate. But as the U.S. Trust Survey uncovered, those who did serve as executors, had a long list of complaints: not having enough time, insufficient knowledge, and not having easy access to important information needed to carry out the functions of an executor.
When appointed executor many people think it’s going to be easy, it’s only when they start to experience the conflicts or face the potential for a lawsuit that they realize it may not be so easy after all.
So, if a friend or family member has asked you to be their executor, there are some compelling reasons why you may wish to say “thanks, but no thanks.”
Generally speaking, it will be more difficult and time consuming to execute a larger estate. But even smaller estates can have complications. Any estate may have multiple properties, numerous possessions, extensive wealth or many beneficiaries. There may be numerous steps to get through before you can divvy up the assets to the beneficiaries, including being responsible for taxes.
You’ll want to ensure that the maker of the will is keeping an up-to-date list of assets and debts, including accounts, insurance policies, real estate, and all contacts — because once that person dies, you’ll have a relatively short amount of time to notify the government of all the assets in the estate, down to VIN numbers on cars and assessment roll numbers on property.
Once someone has died, it likely takes about a year to settle the estate. If you are being asked to be an executor by a non-relative, you might want to consider why. As an outsider, you may have been chosen to mediate the potentially explosive conflicts about who gets what. And, it’s not just about money or expensive property. Part of the job of executor is to dole out the heirlooms of the deceased, and often there’s nothing in writing.
When beneficiaries don’t like the decisions you’ve made, you might find yourself the subject of lawsuits. If it is shown that you haven’t used estate funds the way they were intended, you could be forced to repay those funds out of your own pocket. “Intended” is a subjective term, especially if the intentions are not clearly stated in the will.
People often don’t realize that if you are the executor, you are the estate; that means that if you forgot to pay taxes or creditors before you settled the estate, you are financially on the hook.
If a friend or a relative has chosen you, one of the reasons might be that it’s cheaper than hiring a corporate executor. After all the money’s been given out, the house sold, and taxes paid, you are entitled to receive fair compensation for your time. But unless that amount has been worked into the will, you and the beneficiaries will have to work it out — another potential conflict that could very well end up in court.
There are no rules about how much an executor should be paid — although a rule of-thumb is around five per cent of the estate. Once the estate pays you, normally after all is settled, it is considered income by the Canada Revenue Agency, and will be subject to taxation.
Being an executor could be time consuming, legally risky, and fraught with conflict; at the end, you could even be out-of-pocket. You might want to suggest to the maker of the will to hire a professional to deal with his or her estate.
Murray Becotte is a chartered professional accountant, chartered accountant and CFP working as an investment advisor with TD Wealth Private Investment Advice in Thunder Bay. Opinions expressed in this column are his, are for information purposes only and not to be considered investment or tax advice. Your Money appears Mondays.