Written by Jack Rotsztain and Benjamin Gal
Upon the death of an individual, his legal personhood continues in the form of his estate. In the will, the decedent appoints an executor or executors to pay the outstanding debts and expenses, to administer the assets of the estate, and to distribute the remaining assets of the estate to the beneficiaries named under the will. An executor has a number of important responsibilities when administering an estate, and this process can sometimes lead to trouble for the unwary. While this memo is in no way exhaustive, below are five errors executors commonly make in their role
1) Over-stepping his role
An executor is involved in numerous important activities, but, at the end of the day, he must remember that his primary responsibility is to execute the will of the deceased in accordance with the wishes of the deceased. An executor is a trustee on behalf of the estate with a legal responsibility to the beneficiaries. As such, an executor is a fiduciary and must maintain his fiduciary duty throughout the process and act in good faith at all times. Although the executor might think that he has a better or fairer way to distribute assets, the provisions of the will must be carried out in accordance with the wishes of the decedent. Ignoring or playing fast and loose with the contents of the will can expose the executor to personal liability by disgruntled beneficiaries.
2) Disregarding the distinction between personal assets and estate assets
This common error flows out of over-stepping by the executor of his role of trustee. Because the executor has control of the estate assets, there are often problems caused by blurring or disregarding the distinction between the executor's personal assets and those of the estate. The role of executor does not give the executor the right to use the assets of the estate for any personal gain, including paying off his own individual debts or advancing loans to friends or family members. Further, accurate records must be kept of all expenses incurred by the estate, as beneficiaries have the right to hold an executor to account for expenses.
Similarly, an executor has a duty to avoid conflicts of interest in his role as fiduciary. This may amount to not entering into any contracts or agreements between the estate and the executor in his personal capacity. A seller always wants to sell at the highest price possible, while a buyer always wants to buy at the lowest price. If the executor enters into a contract with the estate, this may amount to self-dealing and can raise concerns as to whether the executor is truly acting in the best interests of the estate. For example, loaning money to, or receiving a loan from the estate may result in the interest rate being disputed to have been too favourable to the self-interested executor.
3) Failing to locate and secure all estate assets
An executor has the duty to locate all of the estate's assets, and may be required to obtain valuations for these assets for probate purposes. The course of action with respect to the assets differs based on the type of asset. Bank accounts, real estate, securities, and wholly owned companies, for example, all require different and unique 'next-steps'. Banks should be advised of the death and credit cards should be cancelled; real estate must be properly managed and maintained until sold for probate; and companies will need to be properly managed and maintained until sold. Also, the executor must find out if the decedent had registered plans such as RRSPs or TFSAs and distribute the assets according to the terms of the will, after probate has been obtained.
Issues can arise where there is a question as to whether a certain asset belongs to the estate. One such example might be a joint bank account. The surviving joint holder of a bank account may assume that he is now solely entitled to the amount in the account, but this may not be the case. In fact, there is a rebuttable presumption that a jointly held bank account forms part of the estate. Failure to properly locate, secure, and distribute all of the estate's assets may make the executor subject to personal liability.
4) Neglecting to seek the advice of professionals
An executor of course would like to proceed quickly and try to save time, effort, and money in the administration of the estate; however, the nature of the services provided by the executor is such that consulting with a lawyer and accountant is necessary. Firstly, an executor should refrain from taking any action on behalf of the estate without first talking to a lawyer. Does the will need to be probated? Are there any applicable inheritance rights under the Family Law Act? Should the estate advertise for creditors and how should this be done? Are the terms of the will clear on their face? These are all questions that can be answered by a lawyer practicing wills and estates law. Similarly, there are many tax-related matters that an executor must consider. Tax returns must be filed. There may also be deductions and elections for which the estate might be eligible. Missing filing deadlines and failing to take advantage of deductions are common errors, yet easily avoided by consulting an accountant.
Finally, failing to keep assets of the estate productive is another common way that an executor can run afoul of his duties. Making poor investments or no investments at all, selling assets without appraisal, and selling real estate without a realtor can result in insufficient returns which can expose an executor to law suits from beneficiaries. Receiving the help and advice of lawyers, accountants, investment advisors, realtors, and appraisers, among others, goes a long way to prove that an executor has met his duty of diligence, care, and skill.
5) Being ignorant to the legal risks
An executor does not assume responsibility for the debts and obligations of the decedent in a personal capacity unless he distributes assets before payment of the debts of the estate. An executor may also be held personally liable for some expenses he incurs during administration of the estate. This includes, for example, hiring professionals to perform services that the executor is normally expected to do personally. The role of an executor is onerous and care should be taken in carrying out his responsibilities.
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