Introduction
You’ve known Glen for a long time, way back to when he and Mary moved down the street from you. Your families got to know each other through school plays and sports outings. Good neighbors became good friends, and eventually clients.
After Glen passed away, Mary depended on you to help settle the estate. In fact, you went above and beyond the job requirements to help relieve the pressure on her. Ever since, Mary has looked to you for support and guidance.
Now, sitting across the desk from you, she has popped “the question.” “Will you be my executor?”
Accepting executorships means more than merely stepping up your degree of commitment to a friend’s client’s affairs. It is fundamentally different than the traditional financial advisory role founded on contractual principles.
An executor is a fiduciary whose interests take a legal backseat to those of the estate and its beneficiaries. Some of the duties of an executor include the following:
- To act in good faith and in the best interests of those represented;
- To exercise the same care and diligence that a reasonable person would in managing his or her own affairs (which may differ from your personal inclinations);
- To act personally – engaging specialized and professional skills as may be necessary – but remaining cognizant that final decision responsibility rests with the executor;
- To be loyal, avoiding conflicts of interest – including not taking benefits for oneself even if the estate is no worse off (except where authorized by the will or all beneficiaries); and
- To be even-handed among estate beneficiaries, including balancing trust investment practices to serve both income and capital beneficiaries. Accepting the role of the executor comes with its share of rewards and risks.
Potential Rewards Of Being An Executor
There are a number of benefits and rewards from being appointed as an executor
Honor: It is an honor to be asked to accept this very important role – to complete the distribution of the deceased’s earthly affairs. That been said, feeling honored is not reason enough to accept the responsibilities of executor. It will only be honorable if the responsibilities can actually be carried out effectively.
Self-satisfaction: It is human nature to want to help people, and to feel satisfied in doing so.
Business goodwill: As a part of your offering to friends and clients, you may see this as a way to offer value and differentiation. Bear in mind that there will be a limit to your ability to serve all friends and clients, so accepting the executor role must be considered within the broader strategic goals of your expertise.
Compensation: Generally, executors are entitled to compensation for their activities. Bear in mind, however, that payment is usually at the end of the administration (a year or two later), occasionally an executor may be compensated in the interim. Also be aware that, pursuant to the fiduciary duty of loyalty, an executor may be precluded from concurrently acting as a compensated financial advisor to the estate.
The Risks Of Being An Executor
There are many pitfalls and risks of being an executor.
Time commitment: There is a reason why an executor is compensated. Consider carefully the personal and business toll your absence from daily routine will have on your family and practice. Know your hourly billing rate to understand what you are exchanging.
Emotional turbulence: Though the main function may appear to be property management, do not be fooled into believing that an estate can be managed on a spread sheet. At a minimum, your sincere compassion and empathy will be required. Estate settlements can result in emotional battles due to pent-up anger, simmering rivalries and hidden – and overt – greed.
Compliance and other oversight: Before you agree to take on the role of executor, first check with your compliance department as some organizations restrict their advisors from fulfilling this role. You carry errors and omissions insurance to cover against perils that may arise under your financial licenses – your executor activities, on the other hand, will not be covered. A poorly managed estate (or disaffected beneficiaries) could bring your character into question, placing you under regulatory scrutiny and possibly exposing you to public embarrassment.
Exposure to deceased’s tax liabilities: Two recent technical letters from the Canada Revenue Agency highlight the hefty compliance burden on an executor as the estate’s legal representative. In the most severe circumstances, an executor can be personally liable for estate taxes, interest and penalties.
While the message here is purposely one of caution, the decision to become a client’s executor is a personal one. It’s not a matter to be taken lightly, so make sure you understand the rewards and the risks.
My Experience
Joseph A. Truscott, Chartered Accountant, has been advising clients in the area of estate planning and related income tax matters for over 30 years. If you would like to engage Joe Truscott’s services with respect to Estate matters or related income tax matters, please contact Joseph A. Truscott, Chartered Accountant at 905-528-0234 ext: 224, or email Joe at [email protected].
October 2012
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