Working in the estates administration area we are called upon to advise and guide clients on their duties, obligations and responsibilities in connection with their role as the executor for the estate.  What happens when your client is also a lawyer?  This blog is not meant to provide legal advice but rather, it is meant to provide some suggestions.

Record Keeping

Lawyers acting as executors have the same obligations that other individuals acting as executors do.  That is, they must maintain proper accounts in accordance with Ontario’s Rules of Civil Procedure.

Where a lawyer has signing authority over estate assets, it is prudent and is considered best practice to open a separate bank account to manage the estate’s assets.  It is not prudent to utilize the lawyer’s trust bank account or general account for estate related business.

We often recommend that the lawyer:

• Open a separate file to docket time for acting as an executor. For example:

“Estate of John Doe – Executor’s Work”

• Ensure that the estate account is maintained and up-to-date. This doesn’t necessarily mean preparing the accounts in court passing format but reconciling the accounts monthly is prudent
• Keep organized and have all source documents accessible in the event of an audit (either by the Law Society of Ontario (“LSO”) or by a beneficiary). The source documents readily available should include:
  • bank statements;
  • duplicate deposit slips or evidence of deposit;
  • cancelled cheques (or copies of cheques);
  • receipts or confirmations; and
  • vouchers.

While the LSO would likely prefer that the estate accounts be maintained in court passing format, that may not always be practical and may not be necessary.  Spot auditors expect to see, at a minimum, the same information in records as is required for trust records in section 18 of the LSO’s By-Law 9.

Where a lawyer is acting with a family member or other individual as a co-executor, the lawyer still has a responsibility to review monthly bank statements/investment statements for accuracy and will share in the responsibility for the estate accounts.  The lawyer acting as a co-executor is equally responsible for the estate and should be kept apprised as to how matters relating to the estate.

If acting as the executor, a lawyer should make sure that he or she maintains his or her records and those of the estate until limitation periods expire. If acting with a co-executor, the executors should make a determination in the early stages of the administration as to who will maintain copies of the estates records.  If the co-executor is maintaining records, then he or she will be responsible for ensuring that the lawyer acting as the co-executor receives copies of the monthly statements, etc.

The lawyer should keep track of his or her time acting as an executor. The lawyer should not forget good docketing principles.  Just because a lawyer is acting as an executor doesn’t mean that he or she shouldn’t docket their time.  In fact, it would be prudent to continue docketing like he or she would any other client matter.  This will enable the lawyer to support any claim for compensation that he or she submits.

Compensation

Speaking of compensation, the LSO is very particular with respect to distinguishing the roles as an executor and lawyer for the client.  In an audit, the LSO will review the legal fees to determine whether there is any double billing and will ensure that legal fees for executor’s work is not included for any claim for compensation.

If legal fees includes services which are properly the responsibility of the executor (such as gathering the assets, notifying government agencies of the deceased’s death, preparing trust accounts), then the amount of legal fees which relate to the performance of executor duties must be deducted from the amount of compensation claimed, otherwise the estate is being charged twice for the same service.

We know that pursuant to Ontario’s Trustee Act executors are entitled to receive compensation for their time and trouble expended in connection with the administration of the Estate.  The fees may be stipulated in the Will or a fee agreement, but if they are not stipulated, the fees charged should represent “fair and reasonable compensation” and, for an estate of average complexity, they are usually based on the following tariff guidelines:

• 2 ½% of capital receipts (for example the realization of original Estate assets), plus
• 2 ½% of capital disbursements (for example, payment of liabilities, distributions to beneficiaries), plus
• 2 ½% of annual revenue receipts, plus
• 2 ½% of annual revenue disbursements, plus
• an annual “care and management fee” of 2/5 of 1% of the average fair market value of the assets during the period of administration of the Estate.

Important to remember is that compensation is taxable income to the recipient in the year that it is received.  If the lawyer is in business of acting as an executor, then the compensation payable will also be subject to H.S.T.

Legal related services (for example preparing the probate application) are generally not considered executor’s work.  However, one could argue that as the lawyer was appointed the executor because of his or her legal skill set, the lawyer might be challenged on the ability to be paid his or her professional fees in addition to compensation.  What I mean by this is that it may not be reasonable for a skilled professional executor to hire a person (which includes himself or herself) to perform a service that is within his or her ability to perform, such that the fees may reduce compensation. This goes back to the recommendation to keep separate files 1) for the administration and 2) for executor’s work.

One thing that the LSO may look for during a spot audit, is whether the lawyer received approval from the beneficiaries to pay the legal fees to his or her law firm before paying such fees. It would be prudent to send copies of your legal firm’s invoices to the beneficiaries, and where able (from beneficiaries who are sui juris), seek approval for payment.

It would also be prudent to have a discussion with the beneficiaries as early in the administration process as possible to avoid any confusion or surprise down the road.  Where the lawyer’s compensation arrangement differs from the usual formula calculation, an agreement or memorandum signed by the beneficiaries acknowledging the agreement regarding fees should be prepared and executed.  It is recommended that the lawyer send the beneficiary or beneficiaries to obtain independent legal advice in respect of any agreement surrounding the compensation to be paid.

Annual Reporting Obligations

Part II of the LSO’s By-Law 8 sets out the filing and reporting obligations that all lawyers have.  Previously, the annual report would seek information about the number of estates where a lawyer was acting as an executor or co-executor.  Lawyers would have to set out how many estates he or she was an executor/trustee (for testamentary trusts) of during the year and provide the aggregate value of all of the estates or testamentary trusts as at December 31.  Currently, lawyers acting as an executor or trustee of a testamentary trust are only required to note the number of estates or testamentary trustees where they have control or co-signing control over.  From what I gather, there is no longer a requirement to disclosure the dollar amount of the estates under your direct administration.

You can say No!

Just because a lawyer has been named as the executor does not mean that he or she must accept the appointment.  The lawyer has time to consider the facts and do their own due diligence before accepting his or her appointment or renouncing the appointment.  If the lawyer is planning on renouncing his or her appointment he or she should do so prior to completing any estate related tasks.  If there has been intermeddling prior to the renunciation being signed, the lawyer may need to seek a court order to resign.  The question would then become, who is responsible for these costs – the lawyer, personally or the estate?

When considering whether to accept the appointment, the lawyer should consider:

• the relationship of the deceased to him or her
• would there be a better suited family member that could act in the lawyer’s place
• who are the beneficiaries – will there be issues, do they get along?
• is there potentially any liability that the lawyer could face for acting as the executor – for example, environmental issues relating to the deceased’s assets or is there still an active business to run
• are there outstanding tax matters to address – voluntary disclosure for unfiled tax returns or foreign assets

I hope that this blog has provided some helpful suggestions for lawyers who are acting as executors.  The recommendations about keeping detailed notes and time details is relevant for anyone who is acting as an executor and not just lawyers.

This blog is dedicated to the Fasken LLP associates who requested that I explore this topic to assist lawyers who are acting as executors or those who may be asked to act as an executor in the future.