Considering the Role of Executor: Factors to Evaluate and Questions to Ask
You have found yourself in the dreaded situation where someone you know has asked… “will be you be the executor of my estate"? Now what..?
The Weight of Responsibility and Considerations
For many, it is typically a parent asking which often times makes the decision much easier, “of course” you say. But what if it isn’t a parent or someone very close to you, maybe it’s a relative of some kind or friend that has chosen you and the decision is not so easy. Your first reaction is usually, what an honour to be chosen, a validation that you are respected and held in high regard by this person to handle such delicate matters at the end of one’s life. Nevertheless, you need to consider whether it's an honour or a burden and decide whether you can devote hours to what is essentially a part-time job for a year or longer. What important factors should you consider and questions you should you be asking before you agree to take on this role.
Understanding the Liabilities of an Executor
Firstly, as an executor it’s very important to understand that you can be personally liable for any mistakes you make managing and distributing the will. This is a huge deterrent for a lot of people especially those who have executed a will before and have firsthand knowledge of how complex estates can be. That alone is a big ask of anyone coming to you with such a request. Let’s understand some of the more common potential risks you face.
- Mistakes with distributing the assets to beneficiaries of the estate.
- Insufficient funds to pay final taxes because you have prematurely distributed all assets to the beneficiaries before final taxes were paid – or didn’t hold enough funds back to cover tax– now what? You have to go back to the beneficiaries to recover funds to pay the taxes, will they cooperate?
- Beneficiaries of the estate feeling there is a conflict of interest in how you are handling the estate matters would open you up to a lot of risks and the potential for litigation.
Another very important thing to consider before saying yes is making sure this person has their affairs in order… or are you going to get a shoebox of stuff or be sent on a scavenger hunt looking for important documents? It’s important that you feel comfortable sitting down with them and they feel comfortable with you asking about all of their assets in detail. Make sure you know the location of all their important documents. Contact information for their lawyers, accountants’, advisors, institutions they might deal with etc. A list of all their digital assets such as passwords and logins needed to access financial accounts. A best practice we tell our clients is to provide your executor with a copy of your most recent will.
If the testator has young children, have they named a guardian and ask whether adequate money has been allocated in the will for raising the children. Is there life insurance in place? Are the named guardians ready, willing and able to look after the kids?
Co-Executor and Beneficiary Dynamics
Is there a co-executor you would be working with – who is it? Often times this provides extra protection against certain liabilities when organizing and managing the estate. However, if you don’t think you could work with the co-executor, now is the time to say no.
Make sure you know who the benefactors of the will are – is there conflict among them? Does the family know you have been named executor? If they tell you they have not mentioned it to avoid hurt feelings all that is happening, is they are pushing that responsibility on to you to deal with. Make sure they know you have been named the executor – especially if they have children they have not chosen.
Complexity and Considerations for Estate Matters
Is the Estate overly complicated? Are there trusts involved, business assets, investment properties, international accounts, out of country beneficiaries etc. You have the right to ask as many questions so you feel comfortable with accepting responsibility. This is where a great deal of complexity might be involved so it’s important that you are up for the job. This might be an appropriate time for someone to bring in a corporate executor or ask that they address in the will that it is their wish the named executor is free to engage a corporate executor if they see fit, at the expense of the estate.
Executor Compensation and Protecting Yourself
You should talk about executor compensation. Again, depending on the complexity and value of the estate it can take a year or many years to settle. Executors are entitled to a fee for executing the estate.
Executor compensation varies by province, in Ontario when the will does not specify an amount it generally falls between 2.5 and 5 per cent of the gross value of the estate. It’s important to ask if they have made directions for this in the will. Keep in mind that executor compensation is taxable income for the executor (many people don’t know this), it’s treated as income because it’s a job you have to look at it that way so don’t feel bad asking if there are provisions in the will for this. Although it’s available regardless of if it’s in the will or not, it’s nice to have their specific wishes in writing to avoid potential conflict among beneficiaries.
Evaluating the Request and Protecting Yourself
Many people agree to what they don’t understand when they are asked simply because it’s the one last final favour, they are doing for someone, and if that person has trusted you with something so important it’s almost impossible to say no. It can be a lot of work to be an executor and a lot of pressure. Make sure you are protecting yourself by asking a lot of questions of the person asking this favour. Evasive, incomplete or indirect answers are all a warning sign you should say no.
To any who might be interested and have not yet completed one, our executor profile is an excellent tool to record all important details for your executor. Contact us for a copy!