This information was published in the CMS Newsletter to Members, May 2023.
Selecting your Personal Representative / executor
Note: the term “personal representative” is the current legal term used in Alberta to refer to an executor/executrix, administrator/administratix, and judicial trustee.) The article below uses the term executor.
does it matter who you choose?
Executor considerations may not be top of mind for most people when they are drafting their wills and estate plans. It is understandable when many are not aware of what is expected of an executor, and even fewer have the practical experience acting in the role. Whether you are selecting an executor or have been named an executor, if you are not aware of what is required, you may be at risk of costly errors, unfulfilled intentions and avoidable liabilities. It is always recommended to get qualified legal advice for your situation.
Before selecting an executor, it is vital to understand what one does. At a very high level, an executor is responsible for administering the entire estate of an individual. In general terms, duties include, but are not limited to:
Before selecting an executor, it is vital to understand what one does. At a very high level, an executor is responsible for administering the entire estate of an individual. In general terms, duties include, but are not limited to:
- Arranging the funeral.
- Obtaining all the required documents, waivers, court approval for administering the estate, including probating the will through the courts when required.
- Dealing with all the assets (tangible/digital/financial/and more), insurance, property, household and investments of the individual.
- Dealing with all the liabilities and contingent liabilities of the individual and/or estate.
- Dealing with all the income, costs and expenses related to administering the estate of the individual.
- Keeping detailed records and accounting.
- Hiring and overseeing necessary professionals and service providers. This might include appraisals, tax preparation, real estate, financial/tax/legal advice and more.
- Dealing with all the tax, legal and regulatory filings and requirements related to the income, assets, interests of the individual and/or their estate as well as the authority to administer the estate.
- Dealing with all the parties involved. This could include notification of death to providing documentation, terminating services/contracts, responding to and settling claims and fulfilling the terms and required strategies of the will.
- Dealing with the beneficiaries of the estate for communication requirements, reporting requirements and distribution of the estate.
With these responsibilities, there is potential for things to go wrong, and executors can be held personally liable.
Some executor errors:
It is acceptable for an executor to charge for their services. A simple, well-planned estate may only take several months to administer but a typical Canadian could easily have a more complex estate requiring years of administration (yes, years). If that Canadian has not adequately prepared their executor and beneficiaries for the estate administration, it could take even longer, lead to conflict, costs and liabilities. In selecting an executor, people have been known to choose a certain family member or friend, thinking they will create hard feelings if they don’t choose a particular person.
Some executor errors:
- Keeping poor records.
- Acting without the authority of a will or the authority of the court.
- Improperly liquidating or distributing assets (especially prior to obtaining CRA clearance).
- Acting with a conflict of interest.
- Failing to advertise for/inform required parties such as creditors, CRA, beneficiaries, and others.
- Co-mingling estate asset/liabilities.
- Improperly protecting, managing, maintaining or transacting estate property.
- Failing to file required tax, legal or other documents.
- Failing to meet certain deadlines for required financial, legal, regulatory or tax matters.
- Failing to account to beneficiaries and obtain the required legal releases.
It is acceptable for an executor to charge for their services. A simple, well-planned estate may only take several months to administer but a typical Canadian could easily have a more complex estate requiring years of administration (yes, years). If that Canadian has not adequately prepared their executor and beneficiaries for the estate administration, it could take even longer, lead to conflict, costs and liabilities. In selecting an executor, people have been known to choose a certain family member or friend, thinking they will create hard feelings if they don’t choose a particular person.
Selecting an executor
There are far more important considerations when selecting an executor:
- Is the executor in the same jurisdiction as the estate? There are added complexities with an out-of-province executor.
- Age is a factor. Is the executor likely to outlive the testator (the individual who makes the will)? Named executors can be too old or too young for the role.
- Does the executor understand and have the ability to fulfill their fiduciary duty in a trustworthy manner? Proficiency and attributes of an executor affect how they do the job.
- Is the executor experienced and knowledgeable with all the financial matters applicable to administering the estate? Is the executor prepared for the correct order of administration and distribution of the estate?
- Does the executor have the required time to administer the estate?
- Is the executor not only a good communicator but also a good record-keeper, good with details and able to manage multiple relationships with interested parties, including all the beneficiaries?
- Is the executor well-prepared by the testator to fulfill the intentions of the testator and administer the estate accordingly, in all its complexities, and has payment for services been discussed?
- Is the executor comfortable with and prepared for the personal liability involved?
professional executors
Alternatively, there are professional (corporate) executors with the knowledge and experience to administer an estate of all levels of complexity. These services are typically provided by trust companies, some accountants or lawyers. A reputable professional executor can administer even large and complex estates, providing professional and thoughtful administration of estates and testamentary trusts. In the event a family member or close friend is a preferred executor due to their understanding of the
testator’s intentions and sensitivity to family dynamics, a knowledgeable and experienced professional can be hired to provide executor support, ensuring that the executor is not alone in managing the many responsibilities of the role.
testator’s intentions and sensitivity to family dynamics, a knowledgeable and experienced professional can be hired to provide executor support, ensuring that the executor is not alone in managing the many responsibilities of the role.
Executor Fees
Executors are allowed to charge the estate reasonable executor fees for the time spent fulfilling their duties. There are no set fees for compensating an executor (personal representative); only suggested fee guidelines (see below).
The only ways that executor fees can be formally set is either from directives in the deceased's will or by consent of the beneficiaries of the estate. In the absence of either of these two conditions, the executor must provide a “passing of accounts”. When a will establishes set fees, that is the maximum that can be paid to the executor(s) unless the beneficiaries agree to a higher amount, or the court orders so.
The only ways that executor fees can be formally set is either from directives in the deceased's will or by consent of the beneficiaries of the estate. In the absence of either of these two conditions, the executor must provide a “passing of accounts”. When a will establishes set fees, that is the maximum that can be paid to the executor(s) unless the beneficiaries agree to a higher amount, or the court orders so.
ESTABLISHING EXECUTOR COMPENSATION
The court may consider a number of factors to establish the amount of the executor's compensation. These include the:
In the case of an insolvent estate, executor fees take priority over all other claims against the estate except for reasonable funeral and testamentary expenses, which take first priority.
When there is more than one executor, the allocation of fees can either be approved by the beneficiaries or determined by the court, with consideration of amount and value of each executor's contribution.
Executors may be entitled to additional compensation in certain circumstances, such as managing or directing a business or when unusual difficulties or situations are encountered.
It is advisable that executors keep track of all activities, time spent, and receipts and disbursements made, in the event that any issues arise regarding their compensation. In such cases, the executors must provide this accounting to the beneficiaries.
Executors are allowed to take their compensation before the administration of the estate is complete in certain circumstances: if it's provided for in the will, if the beneficiaries agree, or by court order. In some circumstances, the compensation may be reduced by the courts, in which case the executor must reimburse the excess amount, plus interest, to the estate.
- Value of the estate
- Level of care and responsibility required
- Complexity and extent of the executor's work, time involved, problems encountered, and amount of revenue received and disbursements made
- Executor's skill, ability, and specialized knowledge
In the case of an insolvent estate, executor fees take priority over all other claims against the estate except for reasonable funeral and testamentary expenses, which take first priority.
When there is more than one executor, the allocation of fees can either be approved by the beneficiaries or determined by the court, with consideration of amount and value of each executor's contribution.
Executors may be entitled to additional compensation in certain circumstances, such as managing or directing a business or when unusual difficulties or situations are encountered.
It is advisable that executors keep track of all activities, time spent, and receipts and disbursements made, in the event that any issues arise regarding their compensation. In such cases, the executors must provide this accounting to the beneficiaries.
Executors are allowed to take their compensation before the administration of the estate is complete in certain circumstances: if it's provided for in the will, if the beneficiaries agree, or by court order. In some circumstances, the compensation may be reduced by the courts, in which case the executor must reimburse the excess amount, plus interest, to the estate.
ESTATE ADMINISTRATION SUGGESTED FEE GUIDELINES
The Suggested Fee Guidelines were published in 1995 by the Surrogate Rules Committee for guidance only. The guidelines set out four categories of executor fees:
- Fees charged on the gross capital value of the estate. 3% to 5% is charged on the first $250,000; 2% to 4% on the next $250,000; and 0.5% to 3% on the balance. According to the Fee Guidelines, compensation on revenue receipts is 4% to 6%.
- Fees charged on revenue received by the estate during the administration.
- Care and management fees charged in trust estates. The executor may be compensated for care and management of the estate property if there is no distribution of property at the date of death, and the beneficiaries have agreed not to change the trust.
- Additional compensation. In some cases an executor may provide services that are outside the scope of regular administration duties, such as directing, managing, or winding up a business, or preparing income tax returns. In such cases, additional compensation may be allowed.
EXECUTOR EXPENSES
The executor(s) are allowed to be reimbursed for any out-of-pocket expenses incurred, such as travel expenses, as long as they are considered reasonable. Receipts for these expenses are not normally required, but it is good practice for the executor to keep receipts in the event of a dispute. Note: Any fees received by an executor, other than reimbursement of expenses, are treated as income and therefore subject to income tax. GST does not have to be added to the compensation unless the executor's work is carried out as part of the executor's commercial activity.
More information
Resources from the 2022 Servus Credit Union Wealth Management Series:
|
| ||||