Everyone knows that you should appoint someone to look after your affairs after your death. You probably also know that person is called an executor and is appointed in your Will. Therefore, making the right choice is an important task and there are certain basic criteria which should be followed in making this choice.
Firstly, you should choose a person who is a Canadian resident and preferably one living in your community and available after your death to do the work of the executor in administering your assets. In the legal world, an executor is also referred to as an estate trustee. The process formerly known as probate is now called a Certificate of Appointment of an Estate Trustee with a Will. In the end, it comes to the same thing, which is the validation of the Will giving the executor the power to carry out the wishes of the deceased (testator).
The legal age to become an executor is 18 years. You should also pick someone who is likely to outlive you. Your executor should not have a criminal record and recently filed for bankruptcy. A solvent person appointed as an executor is less likely to succumb to the temptation of looking after somebody else’s assets. You can have more than one executor. Parents often appoint two or more children as executors to avoid the appearance of favouritism. While this is a worthy goal, you have to ask yourself the question whether they ever got along during your lifetime and if the answer to that question is “no” then do not put them together in charge of your estate. Frankly, it is preferable to pick one of your children who is close to you geographically and has demonstrated some responsible behaviour during his or her lifetime. You can then appoint the others as alternates to save their egos. You can handle this situation better by talking to your children in advance of making your Will. Tell them why you are choosing one child over the other. If there are any serious problems you can then make adjustments to your Will to facilitate harmony within the family. If you have to appoint two children, then appoint a third executor and implement a majority rules clause in your Will.
A corporate executor will do an excellent and impartial job for you. It may be slightly more expensive but the corporate executor will be free of family histories and will be scrupulously honest and keep excellent records. In the event of a family dispute, corporate executors prefer not to get involved and have a tendency to let the problem be decided by a court, which can be costly to the estate, but just one expensive trip to court is usually enough to refrain the complainers in your family. The Will spells out the powers of an executor and usually gives a very wide latitude and discretion to permit the executor to get the job done, but restrictions can be imposed where required.
The executor named in a Will has the legal responsibility and authority to deal with remains as a first priority following death. It is not necessarily a spouse who has this responsibility, unless the spouse is named as executor. While it is commonly done, providing funeral instructions in a Will is only useful if a copy of the will has been given to the executor while you are alive. This also gives you the opportunity to explain your instructions to the executor, especially if you are planning to do something unusual with your remains. You need to have a commitment from your executor to follow through because the executor has the last word on the disposition of your remains. Your body is not property which can be disposed of under a Will and therefore instructions to the executor regarding your remains are not binding.
The best practice is to pre-arrange your funeral and to pre-pay for it. It is very rare for an executor not to follow through with these arrangements because they represent little further effort or expense to the estate. It also helps to make sure that the wishes of the testator will be followed and it allows the executor to defend the choices which have been made when discussing funeral arrangements with the members of the family after the testator has passed on. There is more to this than just the disposition of remains because there are funeral notices, cemetery choices, wakes, receptions and catering. You must talk about all of these things with your executor and with your heirs so that there will be no difficulty caused to your executor after your death in carrying out your wishes during this emotional period.
Finding the Will
One of the first jobs of the executor is to find the original Last Will and Testament. Once you have signed your Will in your lawyer’s office, it is important to give a copy of it to your executor. The original should be kept in a safe place and it is recommended that it be with the lawyer who drafted it. In this way, they will be available for use without difficulty. There is no charge for this kind of service because the lawyer hopes that your family will use the services of his or her law firm to probate the Will. Clients often promise to put the Will in a safe place, such as a safety deposit box, but just as often, after the testator has passed away, safety deposit keys are not readily identifiable or they are lost entirely, resulting in a difficult search for the original Will. In my practice I have found Wills and codicils in vases, shoe boxes, lunch pails, under mattresses and in home safes (but with no keys or combinations, which usually necessitates a call to a locksmith).
A very unfortunate situation arises when the person dies without a Will or no Will can be found. This will add at least $2,000 or more to the lawyer’s fees for an appointment by the court of an administrator for the estate. In legal parlance, this is known as a Certificate of Appointment of an Administrator Without a Will. Despite the fact that the administrator is usually a member of the family, the court will likely require a security bond worth two times the value of the estate to ensure that the full fiduciary responsibilities of administering the estate are carried out properly. This is very costly to the estate and results in unusual delays in processing the Will and thus distributing the assets. There are few insurance companies who are still willing to take on this kind of work and courts are beginning to recognize that this is very problematic and are sympathetic, especially with smaller estates. That is, however, not the worst of it because once the administrator is appointed, the assets are distributed in accordance with a statute called The Succession Law Reform Act. The statutory formula, for example, provides that a widow with two children receives the first $200,000 of the estate as a preferential share. The remainder is divided one-third to her and two-thirds equally between her children. This is not the usual provision where an estate is usually left to a surviving spouse and following the death of that spouse subsequently to the children.
Following the rules of intestate, succession may also trigger family law implications, forcing a spouse to elect to receive what they would have been entitled to under the Family Law Act presuming a hypothetical separation the day before the testator died, which may generate a share larger than his or her intestate share. If there is no surviving spouse, the deceased’s children will share equally and if there is no spouse and no children then the parents of the deceased will share equally. If there is no spouse, no children and no parents, then the brothers and sisters share equally, and if there are no brothers and sisters, then nieces and nephews share equally. The statutory formula does not allow for bequests to common-law spouses or to friends or charities because it cannot know what your preferences might be.
Administration of your estate
The funeral is just the beginning of the journey for the executor. Once the last Will and Testament of the deceased is secured, the executor must obtain several proofs of death from the funeral director. Bank and other institutions, including the federal government, pension funds, insurance companies, registry offices and the Ministry of Transport, are usually satisfied with a funeral director’s death certificate but you will need a Coroner’s death certificate if there is some reason such as an insurance claim to know the exact cause of death. A well-prepared executor will get all of the forms and papers that the funeral director can provide. They usually include the application for the CPP death benefit, which is the pittance that the government pays towards the cost of the funeral (the maximum amount payable is $2,500).
The next step is for the executor to obtain a Certificate of Appointment (probate). This will signify to the world that the executor has the authority to represent the estate and dispose of assets and sign necessary documents, including tax returns and title documents. The application process is best left to lawyers because the Surrogate Court is very fussy about the paperwork on such applications and may reject the application several times until it is submitted in proper form. Probate is the point where the executor discloses to the provincial government the value of the estate so that it can determine its estate administration tax (E.A.T.) at the time of the application for probate. In Ontario the estate administration taxes, which used to be called probate fees, are $5 for each $1,000 of estate value up to $50,000 and $15 on each $1,000 of value thereafter. These are among the highest probate fees in the country. The value of the estate for probate purposes must include all land owned by the deceased in Ontario, less the value of any mortgages registered against the title to the land. Unregistered debts are not deductible for probate purposes. The value of all personal property must be included but an exception is made for jointly-owned personal property and also for jointly-owned real property, both of which will pass outside the estate to the surviving owner. Common examples of this would be the family home or the joint bank account. Also excluded from probate are assets which have a named beneficiary, such as life insurance policies to a named spouse. If the insurance is payable to the estate, then it is included in the estate for the purpose of calculating estate administration tax. Registered retirement savings plans naming a designated beneficiary are also excluded from probate. Real estate which is outside the province is not probated in Ontario, but it must be probated in the province in which it is located. In our area, most examples refer to a cottage property in the province of Quebec. The usual process is to obtain probate in Ontario and send the probate documents to a Quebec notary so that the Quebec property can be transferred to the heirs under their process.
Once the application is made to the Surrogate Court for the Certificate of Appointment, the court usually takes six to eight weeks to review the application before it is returned to the lawyer who made the application. Some activity can take place while the lawyer waits for the Certificate of Appointment. These include providing proof of death to the Canada Pension Plan to terminate the deceased’s pension and to initiate the survivor benefit. Old Age Security will also have to be terminated. Superannuation for the deceased will end but the survivor benefit can commence. Life insurance proceeds, whether they are death benefits through the employer or mortgage life insurance or credit card insurance, all have to receive proof of death before the benefits can be paid. If you think that a policy of life insurance exists but you cannot find it, then you can do a search through the Canadian Life and Health Insurance Association. Other places to check for insurance coverage include the CAA, American Express, Blue Cross and various other kinds of travel insurance. The executor is charged with finding the assets of the estate and you will do your executor a big favour by listing each and every bond, GIC, bank account and insurance policy in one place. You can also help by consolidating bank accounts from time to time so that you will only have two or three at the time of your death. If you store cash, keep it in a bank or in a safety deposit box, but not in a coffee tin, cookie jar or a little hole in the stone fence in the back yard (it disintegrates).
If a bank or other financial institution gets wind of the fact that one of the joint owners of the account has died, the account will be frozen until probate is obtained. But for joint accounts with very small amounts in them, it might be prudent for the executor not to tell the bank about the death of the testator so that the other joint owner of the account can take the opportunity to clean out the joint account before it is frozen. In this way there will be a little extra money to pay bills without having to wait for cheques to come into the estate. If the bank account does get frozen, the bank will still write its own cheques on the account for important expenses such as the funeral, rent, mortgage and probate fees. In each case the cheque will be made directly to the payee. It therefore seems prudent for a husband or wife to each have a small bank account containing enough money to cover a few months’ expenses. Once the executor is formally appointed by the court, he or she has all of the authority necessary to take responsibility for decisions made by the estate and to take possession of all the records and documents belonging to the deceased and deal with the assets.
Once the executor knows where the assets are, they have to be safeguarded. Jewellery should be put in a safety deposit box to which only the executor has access. Title documents should be given to a lawyer and you should consider changing the locks on the deceased’s home. The insurance company should be contacted to make sure there is a vacancy rider provision on the insurance policy because it will now be empty for some period of time. The most vulnerable time for break-ins is when the occupants of the home are at the funeral parlour.
Once all of the assets have been gathered and the debts paid, then the executor must plan for distribution. This is an ongoing process during which the executor must find out the addresses and telephone numbers for all of the respective beneficiaries. When you are planning your estate it is important to prepare a list of the next of kin and to keep it up to date and available. If there are any orphaned minor children who survive the testator, then the person who is designated as the guardian for them in the Will must be contacted immediately because steps must be taken for their care. You cannot leave your children in your Will like chattels. You can only ask other people to look after them so it is very important as part of pre-planning to determine who is willing to take your children and on what terms. It is also important to note that a natural parent who survives the deceased has the prima facie right to the custody of their own children. This is not an absolute right as the children’s best interest must always govern. If you have appointed someone who is not a surviving parent to be the guardian of your children, then you should also provide a letter of explanation to your executor setting out the reasons why this choice has been made. Your guardian will need all the help which can be mustered to defeat the interests of a natural parent but some cases are obvious, such as where the surviving parent is a drug addict or in prison. Whether it says so in the Will or not, children of a separated parent who dies may have an established legal right to be supported. The executor is responsible for ensuring that this obligation is met from the estate. Support orders are binding upon the estate and are a debt of the estate which has to be taken care of before distribution.
The executor has to ensure that all of the deceased’s debts are paid from the assets and this includes income taxes. Therefore, it is imperative to gather up and liquidate all of the assets so that there are sufficient monies to cover these contingencies. Filing for income taxes is best left to an accountant. It will go faster and is more likely to be accepted without question by the Canada Revenue Agency (CRA). The purpose in filing the tax returns is to obtain a Tax Clearance Certificate. Terminal returns have to be filed for the deceased for any taxation years for which the deceased failed to file a tax return while alive and the estate will have to file one too for any income on the assets while being administered by the executor. The purpose of obtaining the Tax Clearance Certificate is to relieve the executor from any personal responsibility for the income taxes of the deceased. If the executor distributes the estate without providing for the income taxes, the executor is personally responsible for those taxes to the CRA. This is why the distribution of the estate is usually left until the Tax Clearance Certificate is obtained because the executor must protect himself or herself by holding the assets to pay the taxes. It is very important to note that it takes at least six months from the time the actual terminal returns are filed until the Tax Clearance Certificate is delivered. This outrageous delay, which is quite predictable, is a frustration to many beneficiaries. In a simple estate, sometimes the executor can predict that there will be no taxes, especially where there is only pension income and a house. In this situation the executors will get partial distribution releases signed by the various beneficiaries in order to make interim distributions from the estate. These releases usually include an indemnity for the executor in case he or she was wrong about the income taxes. Any beneficiary can request a passing of accounts, which is the executor’s obligation to prepare if requested, in order to ensure that the estate has been properly administered. Having received approval from the courts for the accounts, the executor is then protected from any claims in relation to these accounts, however this is an expensive and time-consuming process and often the only issue seems to be the amount of the executor’s fees, which can usually be resolved with the help of a lawyer.
There are no fixed fees by any statute but there is a rule of thumb established through practice and that is two and a half percent of the receipts (e.g., the capital and income receipts brought into the estate) and two and a half per cent of the disbursements, (e.g., the capital and income payments out of the estate.) While the estate is under administration, there can be an annual ongoing fee of two-fifths of one per cent of the annual average value of the estate assets under management. This is by no means a rule of law and it can and should be varied in estates that are less complicated or more complicated. A corporate executor will always get a fee arrangement signed by you when they accept their appointment. For family members, sometimes five percent can seem excessive. If the executor hires a lawyer and an accountant, normally the fees of those professionals are deducted from the executor’s five per cent. To deal with this problem, clarity is very important in defining what the fees will be for the executors. If the testator tells me that the executor fees might be a problem within a family, then I will suggest a specific clause limiting or eliminating the compensation to an executor who is a family member. Often family members will act without fees whether there is anything specified in the Will or not. Since executor fees are taxable as income, Wills are often drafted so as to provide as specific bequest to the member of the family acting as executor in lieu of any executor fees.
Being an executor is often an onerous, thankless task but there is a reward in doing the job well and fulfilling the trust undertaken on behalf of a loved one.
John Johnson is a partner with the law firm Nelligan O’Brien Payne (www.nelliganlaw.ca), with offices in Ottawa, Kingston, Vankleek Hill and Alexandria.
[This article was originally published in the September 2010 issue of Fifty-Five Plus Magazine.]