What if... a client wants you to act as executor

par Lynn Biscott | March 07 2012 09:28PM

One of the many challenges that clients face in drawing up a will is the choice of an executor. While married couples often name one another for this important role, this isn’t always the best choice. In any case, an alternate should be named in the event that both spouses die together in a common disaster.
In general, the executor (known as a liquidator in Quebec and an estate trustee in Ontario) is the person who steps into the shoes of the deceased, winds up his or her affairs and distributes what remains of the estate among the beneficiaries. While this may sound relatively straightforward, many complications can arise.

For example, the first task will likely be to make the funeral arrangements, ensuring the wishes of the deceased are followed. This includes decisions about organ donation, type of service to be provided and disposition of remains. If the deceased clearly outlined his intentions in the will, all should be well. However, it’s not uncommon for family disputes to arise over such decisions where there has been no clear direction from the deceased, and various family members have differing opinions as to how the arrangements should be carried out. Obviously, this will be a very stressful and emotional time for the surviving spouse, who may not be up to the task of carrying out these arrangements.

The executor is also responsible for protecting the estate. This could entail cancelling credit cards, memberships and subscriptions, and ensuring that all valuables are safe and sufficiently insured.

He or she will also have to contact CPP/QPP, OAS, and former employers of the deceased to find out if the estate is entitled to any payouts from pension or benefit plans.

If the deceased had a business, the executor must take steps to ensure its continued operation, arranging for interim management if necessary.

Today, family situations can be very complex. Your clients may have had multiple marriages, been involved in common law relationships, and have children from different relationships. All of these factors increase the odds of some type of conflict or dispute arising among the beneficiaries.

Should you act as executor for your clients?
Financial planners, as well as lawyers, are often asked to take on the role of executor for one of their clients. Lynne Butler, senior will and estate planner at Scotia Private Client Group in Edmonton points out that this often happens when a client has immigrated from another country and has no appropriate close friend or family member nearby. They may not have children, or may not get along well with their children. In other cases, they may want to set up lengthy or complicated trusts and feel that a lawyer or financial planner is better equipped to deal with these issues.

Liability concerns
If a client asks you to act as executor, how should you respond? Harold Geller of Doucet McBride LLP in Ottawa spoke on this issue at the Institute of Advanced Financial Planners (IAFP) Conference last October in Toronto. Mr. Geller pointed out that, although clients often want someone neutral in the role of executor, liability concerns have made it less attractive for professionals to take on this role. Where an appropriate friend or family member is not available, the best choice is often a trust company. Here, those dealing with the estate will be less emotionally involved with the death and may be more objective in dealing with various family interests. In addition, trained and experienced staff will always be available to deal with issues as they arise and to work through the administration of the estate in a timely manner. Although trust companies charge for their services, the charges are set by provincial tariff, and any executor would be entitled to charge according to the same scale.

Mr. Geller points out that, in their office, estate disputes represent the fastest growing area of litigation, for a variety of reasons. “We expect that these disputes are going to become much more frequent, just looking at the demographic wave. Not only is there more money to fight over, not only are there more people (the baby boomers and the prior generation) with money, bigger accounts and bigger numbers, but we also have a more sophisticated or partially sophisticated public out there, by which I mean that everyone who has a grudge will find something on the internet to support their grudge. And a little bit of information’s a dangerous thing. So, with all that in mind, is it any surprise that there’s an expectation of increased litigation in this area?”

In fact, there’s very little reason to accept the executor appointment. Tom Carter, chair of the legal assistant program at Grant MacEwan University in Edmonton, points out that “If anything goes wrong, if there’s any mess-up or negligence, the executor becomes personally liable. So you’re going to get sued yourself.”

What do people fight about? Ian Hull of Hull and Hull LLP in Toronto outlines four areas of conflict that generally occur in the administration of an estate: Preferential treatment of certain beneficiaries over othere. Timing issues relating to the sale of real property or various types of financial instruments. Allegations of conflict of interest on the part of the estate trustee. Failure to value the estate assets properly or at all

According to Mr. Carter, the Law Society of Alberta doesn’t tell its members not to act as executors, but they advise caution. “So, do you do it for your brother, do you do it for your very best friend? You probably do, but you’re also evaluating your risk and saying, `I think it’s pretty risk-free and I’ll just do it because I’m a nice guy.´ But do you do it as a money-maker? I doubt it very much. Do you do it for people that you don’t really know where you could get involved in arguments with people you don’t really know? I would think not.”And, if a lawyer is reluctant to act as an executor, why would a financial planner step into the breach?

Mr. Geller points out that the upside of acting as executor for a client is very limited. “Essentially if they’re going to act as an executor, their role as a financial advisor is going to be potentially in a conflict of interest, right out of the gate. If, for example, products were appropriate which would generate fees, can an executor instruct themselves in their financial advisor role to take action without there being the appearance of a conflict of interest? As an executor, you never want to be anywhere near an appearance of a conflict of interest, whether it’s a real conflict of interest or just an appearance, because this is an area where there are heartfelt emotions, and the chances of people taking umbrage in one way or another are unpredictable but frequent. So don’t stick your neck out.”

In exchange for the compensation you receive, which is limited by provincial statutes, you will either have to live with the risk of being sued or shell out extra money for errors and omissions insurance, as acting as an executor is probably not covered under your standard professional liability insurance plans. You’ll likely end up spending a lot of time on things you aren’t paid to do, such as mediating among family members. And, as Mr. Geller points out, you limit your opportunity to market your financial planning services to the survivors, which could cost you far more in the long run than the executor fees you will collect.

If you find out after the fact that you have been named as an executor, the courts provide a process for you to decline the appointment. But, once you accept the appointment, you’re committed to finish the job. If you die while still acting as executor, your own executor will inherit this task. Many clients are unaware of this possible outcome when they ask to appoint you, and should be advised accordingly.

Executor’s insurance
You’ll be pleased to know that, in the event you do end up acting as an executor, there is a relatively new form of protection for executors on the market. ERAssure offers errors and omissions insurance for executors of estates valued up to $5 million. An ERAssure policy provides coverage for a three-year term, which is the typical time frame required by most executors. While executors can’t purchase policies directly, lawyers can register with ERAssure and then apply for coverage for executor clients. Contact for further information.