Last week, I discussed some of the risks for a professional advisor that may arise in the administration of the estate that are associated with the assets of the estate. This week’s blog considers risks which arise from the beneficiaries (or would-be beneficiaries) of the estate, as well as steps the professional advisor can take to mitigate the risks associated with being appointed as executor of an estate. [1]

Interpersonal conflicts

While clients often wish to appoint a professional advisor as an executor because of the advisor’s expertise and financial acumen, a professional advisor may also appear to be a neutral third party where a client’s family is in conflict. However, the advisor should be aware that family members may not have the same loyalty to the advisor as the client, which can lead to a strained relationship between the executor and the family.

An advisor should ensure that he or she has an understanding of the family dynamic before agreeing to act as executor. It can be incredibly challenging for an executor to administer an estate that is mired in a family dispute, particularly as the family members may turn to the executor to air long-standing grievances against other beneficiaries, or may be distrusting of the executor.

Excluded beneficiaries

Perhaps the greatest challenge to an executor is from individuals who are not beneficiaries of the estate, but think that they should be. A spouse, child, or other family member who has not been included in the Will, or has been inadequately provided for in the Will, may choose to bring a claim of some sort against the estate. The type of claim will depend on the provincial jurisdiction governing the Will, as well as the circumstances around its execution, but may include a support claim, a claim for equalization or division of property (in the case of a spouse), or a challenge to the validity of the Will itself. The executor may find him or herself as a party to litigation, which adds a level of complexity, and additional time and effort, to the administration of the estate. Additionally, if an executor distributes the assets of the estate prior to the claim being resolved, he or she will be personally liable if there are insufficient assets in the estate to satisfy  such claim.

As with the issue of interpersonal conflicts, a would-be executor should ask his or her client probing questions about the nature of familial relationships. In addition, reviewing the draft Will before agreeing to act as executor may illuminate potential issues, where certain family members have not been provided for. Finally, the executor should not rush to distribute estate assets before any potential claims are brought forward or resolved.

“Surprise” beneficiaries

Sometimes, determining who is or is not a beneficiary is in itself a challenge for an executor. This challenge can be amplified for an executor who is a professional advisor who does not know all of the details and secrets of a testator’s family.

Consider the following example. A client asks an advisor to act as her executor. The advisor has known her for years, and for the past few years, has also advised her common-law spouse. She once mentioned that she was previously married, but that the marriage ended many years ago. On her death, the Will that is then in effect, which was drafted within the last year, provides a gift for her “spouse”; however, the Will does not specifically name her common-law spouse. How does the advisor administer this estate? Can the advisor be sure that she divorced her former spouse, or might that person have a claim against her estate as a legal spouse? Might the advisor have to make equal distributions to the two individuals who are her “spouse’?

It is possible for this sort of scenario to arise in different circumstances. For example, clients occasionally have biological children who they do not have contact with (or do not even know exist), who would be captured as beneficiaries by the general language in the Will. It can also be a challenge for an executor to locate beneficiaries, particularly where they do not know whether a named beneficiary has survived the testator.

Mitigating risk through the Will

In addition to considering the above factors, before agreeing to act as executor, the advisor should ask to view a draft copy of the Will. The advisor should consider the level of complexity in the dispositive provisions of the Will. The advisor will also want to make sure the Will contains clauses that provide the following:

• Appropriate limits to the liability of the executor, together with indemnity provisions;
• If applicable, provisions which address any potential conflicts of interest which the executor may be in if he or she provides services to the estate; and
• Compensation provisions.

In respect of compensation, it is important to note that in some jurisdictions, an executor cannot be compensated. In other jurisdictions where compensation may be taken by an executor, in the absence of a provision in the Will dealing with compensation, executors may not be compensated until the estate has been fully administered. In addition, compensation will be payable based on a rate that is established by statute or case law. As a result, professional advisors will want to ensure that they may take compensation, that the amount of compensation is fully set out in the Will, and that it may be taken at regular intervals.

Final Thoughts

The professional advisor should give serious thought as to whether or not he or she should accept a client’s appointment as executor, and ask in-depth questions at the outset. While an executor can renounce his or her appointment on a testator’s death, by asking an advisor to act as executor, the client is seeking certainty that the advisor will agree to assume this role on his or her death. An advisor owes his or her client an honest, well-considered answer at the time the question is asked. Finally, any advisor who is acting as an executor will want to ensure an appropriate successor is provided, otherwise the advisor’s own executor will be stepping in to act, should the advisor pass away before the administration of the estate is complete.

 

[1] This article is adapted from an article published in CALU’s infoEXCHANGE.