Be Careful When Naming (Or Being Named) An Executor
Imagine this scenario:
Someone in your family passes away with two adult children, and leaves their sister to act as executor. The sister cashes out a $1 million RRSP and gives the proceeds to the surviving son, and transfers ownership of a $1 million condo to the surviving daughter. Sounds fair, right?
Not quite. The son ended up owing about $500,000 in taxes on the money he received. And when his sister refused to share that cost, he sued his aunt. As executor, she was liable for settling the taxes before disbursing the money. On top of that, the aunt failed to obtain an indemnity or a release from both the niece and nephew, leaving her open to personal liability.
This true story shows how a lack of knowledge and understanding and therefore arguably the mismanagement of an estate, can compound the pain of losing a loved one. That’s what made our recent webinar on executorship relevant. It was presented by two of our trusted experts in the field – Hadielia Yassiri, Lead Family Continuity Advisor at Green Marker, and Jandy John, Director at Wyth Trust.
Although the topic of the executor is a very large one with many facets, here are some of the issues that were discussed:
Who to name as your executor. If your situation is fairly straightforward, a spouse can be a good choice. But the more complex your affairs are, the harder the job can become. Complicating factors include having business interests, owning overseas assets, being responsible for a trust that must continue, having a blended family or even the advanced age of the spouse and his or her ability to handle the situation in its entirety.
Combining executors and trustees. You can name one or more executors for your estate and one or more trustees for a trust that holds your assets. For example, you might wish to name your spouse as executor and make her/ him co-trustee with a child so the trust can hold and disperse assets to the child in a controlled manner rather than having them inherit everything immediately. These arrangements can give you some control and flexibility.
Duties of executors. An executor is often responsible for more than 250 different tasks – everything from cancelling the deceased’s health card to enumerating their hockey card collection. The executor must gather all of the assets and see that a value is established for each one, then deal with the legal documents and family, typically file two separate tax returns, and provide detailed accounting to the beneficiaries. And, as we saw in the real life case described above, an executor can be held liable for any missteps. If you have been named as an executor, you might want to weigh the pros and cons of being able to fully follow through on these duties, or perhaps even exercise your right to renounce the position. You may even call in some professional assistance.
Engaging a corporate executor. When you hire a corporate executor, you are putting an experienced professional in charge. They can neutralize some of the most common causes of conflict among beneficiaries by not allowing their decisions to be clouded by emotion or sentiment about mom’s ring for example, and by providing impeccable reporting. They also take the burden of any financial loss if mistakes are made.
Deciding who to name as an executor and how to plan your legacy is a huge topic and the role comes with serious duties and responsibilities. Deciding how to handle given matters if you have been named an executor is another one. Both can have a material impact on your financial and emotional well-being, as well as impact those you care about. At Cumberland, we are here to help our clients navigate these issues and more, and to work with the experts and teams through our comprehensive approach to wealth management.
Contact us to request a replay of the webinar.