This blog was written by Maggie Dalke – Estate and Trust Consultant with Scotia Wealth Management
Estate planning can be very complex and there is always a lot of detail to cover with our clients. We look at how to achieve a tax efficient estate, address estate liquidity, beneficiary designations, family dynamics, cross-border considerations and how estate law intersects with other areas of law such as family law, corporate law and property rights.
With all this to consider it is sometimes easy to gloss over a client’s choice of executor. Indeed, it can be a misleadingly easy instruction to take from a client and draft into a will. However, it should be emphasized that an informed choice of executor is of the utmost importance to the success of an estate administration. It is important not only to ask “who” a client wants as their executor – but, also to ask several follow-up questions about their choice of executor.
In interviewing and advising, the Five Ws (who, what, when, where and why) are commonly used to ensure completeness. Using this age-old technique, let’s revisit the question of executor with our clients:
- “Who” do you want to appoint as your executor – a member of the family, friend, business associate or an independent professional trustee? Before choosing an executor, it is important to review with a client any potential conflicts of interest that may arise. For example, when a business is being inherited by an estate, there could be a potential conflict of interest if the executor is a party to a shareholder’s agreement with the deceased. For a neutral third party, an independent professional trustee may be the best option. It is also important to remember an executor is a “job”. Under provincial legislation, executors are broadly entitled to fair and reasonable compensation.
- “What” is your executor’s age, job and relation to the beneficiaries? An executor must be at least 18 years of age and there is no upper age limit. Notwithstanding these limits, an immature executor or an elderly executor is a risky choice. If an executor is around the same age or older than the testator then it is highly recommended to have a younger executor or a trust company as a back-up. In addition to age, it is important to consider other qualities of an individual executor. Asking about an executor’s daily profession or career can give insight into whether they will have the time, temperament and capacity to act. Also, it is important to ask whether the executor and beneficiaries get along as they will need to communicate with each other on a regular basis. It might even be good to know if the executor has a spouse or partner, and whether this significant other gets along with the beneficiaries. Sometimes a combination of individuals and a trust company as co-executors could be the best fit.
- “When” has the executor acted before as executor, if at all? Occasionally there are ‘professional executors’ in the family – a family member who has acted as an executor for their aunts, uncles and parents etc. So much of being an executor is only learned by doing, so these kinds of people are invaluable resources to have in a family. However, if it is an executor’s first time acting, it can be quite overwhelming on top of the emotional components of losing a loved one. It is important for the client to have a conversation ahead of time with their executor to ensure that they feel comfortable acting.
- “Where” does the executor live in relation to the testator and are there any plans to move out-of-country or out-of-province? As is commonly known, an out-of-country executor can make an estate a foreign trust and can create tax issues. A Canadian resident is also required to maintain Canadian-controlled private corporation status. Even an out-of-province executor may create additional expense and nuisance if a bond is required to be made in court. For these reasons, it may be important to have an executor within the correct legal jurisdiction. Today, families are not all necessarily located in the same province or country and it is not uncommon that an executor or testator may move. This may create tax, financial and practical concerns for the administration of an estate.
- “Why” do you think this executor or combination of executors is best for your estate administration? Fundamentally, a client needs to trust their executor. By law an executor is held to a fiduciary duty, which is one of the highest duties in the law. So, the individual and/or trust company named in this role should be worthy of trust, should be able to build trust around them (with family members, beneficiaries and advisors) and should be able to administer the testator’s final affairs and legacy in a manner consistent with their fiduciary duty to the beneficiaries.
As estate professionals we are tasked with asking the right questions to inform a client’s decision making and so that we can give good advice. And it is well-known that client satisfaction increases when we take the time to ask questions and understand our client’s thoughts and feelings before acting for them. Comprehensive interviewing is a standard of service that we should all aim for when we meet with clients. Don’t forget the Five Ws when asking your clients about their choice of executor.