Where there’s a will, there’s a way. That can-do attitude can get you far in life, but when it comes to estate planning, having a Will is often only a starting point. Without a trusted and reliable executor to distribute your assets in accordance with your wishes, there is a greater risk your beneficiaries may not see the full value of your estate.
Yet, for all the care that goes into crafting a Will, it’s not uncommon for high-net-worth families to give little thought to naming an executor, which is often a family member or friend. There are instances where people even pick someone without informing them in advance. “This is the most common oversight that I see with clients,” says Lydia Potocnik, Head of Estate Planning and Philanthropic Advisory Services at BMO Private Wealth.
Naming an executor is not something to be taken so lightly. Given the legal liabilities and potential upfront out-of-pocket expenses executors face, not to mention the considerable time commitment involved, it’s essential to know if the person you’ve named as your executor can handle the responsibility and is willing to take on this important role, she says.
With the risk of litigation rising and estate administration often taking between 18 months and two years to finalize, the role of executor can be overwhelming and time consuming, which is why professional executors are becoming an attractive option for families.
Growing pressure on individual executors
With people having busier lives and with many executors being older in age, it can be difficult for some individuals to fulfill their responsibilities. If their role drags on for years, the executor may experience health or capacity issues that hinder their ability to complete their duties. Continuity is critical when it comes to estate administration, which is why it is even more important to ensure the person you select as executor is up for the task and can fulfill their duties.
And the demands on the executor can be intense. Between ensuring pets or even livestock are cared for, as well as making sure properties are secured and luxury vehicles are safely stowed away, an executor doesn’t have the leeway to let a holiday or a packed schedule get in the way.
“You’re stepping into the shoes of someone else’s life,” Melanie McDonald, Vice-President and Regional Director, Trust and Estate Services at BMO Trust Company explains. “People might think they can wait until after grieving to begin their role as executor. Unfortunately, pets, property insurance, and tax deadlines can’t wait a few weeks for you to get started. You need to start immediately.”
Being an executor comes with a steep learning curve, and those who agree to the role also assume considerable personal risk. As McDonald notes, there are certain things the average person may not realize they need to do. “Executors can be personally liable for debts and taxes if they distribute the estate too early,” she says. “The Canada Revenue Agency can come after you and after your own assets.”
Before naming your executor, McDonald advises her clients to have a conversation with that person to make sure they’re up to the challenge. “You need someone who can independently manage your affairs,” she says. “Sometimes our clients pick the most responsible and business-minded person they know, but that might also be the busiest person they know.”
The individual executor may also have to foot upfront charges for travel and insurance. While some of those costs may be covered by the fee, which is typically between 2% and 5% of the estate’s assets, it may take time before they are reimbursed. The toll of the job has caused some executors to walk away from the role, says Potocnik. For that reason, it’s imperative to have a backup executor who can carry on the task.
Why you need a professional executor
Just as you rely on your advisors to help manage and optimize your portfolio, a professional or corporate executor can provide you with peace of mind knowing that your estate will be settled efficiently and responsibly by an experienced team of professionals.
In this role, the corporate executor, who is often a professional at a trust company, will ensure every aspect of your Will is respected, from your funeral arrangements to distributing assets to your beneficiaries. They can also move quickly to secure property and all your possessions – both with monetary or sentimental value – to protect your privacy and ensure they are managed in accordance with your wishes.
A professional executor can also help maintain neutrality between family members. “An executor who’s too closely tied to your family from an emotional perspective may not have the objectivity to be neutral when administering the estate,” says Potocnik. If maintaining that personal connection is important, she suggests appointing co-executors, such as a family member and a professional executor to get around that challenge. “That will ensure you’ve still got the personal touch, but you also have the neutrality of objectivity built in through the professional trust company in the event that at there are squabbles between beneficiaries,” she says.
Executors can hire help, too. BMO Private Wealth offers a service called an agent of the executor, says McDonald. “If you are the executor of the estate and you are too busy at work, stressed out by it or worried about being sued, you can hire us as your agent to do the tasks for you.” For example, as an agent of the executor, BMO can help sell off assets and get appraisals quickly and efficiently, potentially saving the estate on some fees.
If you decide to name a family member or friend as your executor, make sure you revisit that decision every few years to verify if that person is still able to take on the responsibility. As part of that process, keep an up-to-date list of assets, tell them where you keep your Will and offer insights on potential family dynamics that could complicate the process, suggests Potocnik.
The more people understand about what’s involved with being an executor, the less they want to ask someone to take on that responsibility, says McDonald. “Sometimes after people have gone through it, they say, I wouldn’t put that on my worst enemy. I’m not choosing my cousin in Saskatchewan anymore. I’m going to pick a professional executor.”
BMO Private Wealth provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Private Wealth cannot guarantee the information is accurate or complete. Individuals should contact their BMO representative for professional advice regarding their personal circumstances and/or financial position. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.
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