What does an executor do?
An executor “executes” your will, carrying out the terms of your will and administering your estate. An executor is responsible for collecting assets; satisfying debts; filing income tax returns and paying all taxes owing; paying legacies (cash amounts provided in your will); carrying out specific bequests of property, such as real estate and personal effects; and distributing the remainder of your estate to those entitled under your will.
Executors and trustees: what’s the difference?
The executor role is confined to “settling” the estate, whereas the trustee role applies if there are continuing trusts under the will (as opposed to an outright distribution). The trustee role includes managing any trusts under the will until they terminate in accordance with the terms provided by the will. The trustee looks after investment management, income and capital distributions, annual tax compliance, and maintaining accounts for each trust. You may appoint one person to act as both executor and trustee, or you may want to choose different people for each role. When choosing an executor, there are specific legal and tax considerations as well as qualitative considerations. Bear in mind that a will only comes into effect on death. So long as you are capable, your will can be changed at any time to reflect your objectives. Throughout your lifetime, your will may change to reflect your changing situation – and your choice of executors.
Legal and tax considerations
AGE:
An executor must be, at a minimum, the age of majority. There is no legal upper age limit unless a will provides one. It’s important to ensure that your executors are sufficiently financially mature, for instance, when considering appointing a younger person to the role. If your potential executor is of advanced age, you will want to consider their ability to carry out the role in the future.
NUMBER OF EXECUTORS:
The number of executors will often depend on who has a financial interest in your estate. You may only need to appoint one executor if that person is your sole beneficiary – and if that person is able to carry out the role. Where there are multiple beneficiaries, having more than one executor is generally advisable, for risk management and financial accountability. Having at least two executors ensures that there is continuity should one executor die or not be able to complete the administration of your estate. Having multiple executors allows you to build a well-rounded executor team: some with technical and financial skills, others with knowledge of, and relationships with, the family and beneficiaries.
DECISION-MAKING:
Where more than one executor is appointed, the legal rule is that all executors must unanimously agree on any decisions. To facilitate decision-making (and avoid deadlocks), your will can include a majority decision clause to allow for majority rule. This provision can also include a requirement for one or more named persons to be in the majority, effectively giving them a veto.
REPLACEMENT AND ADDITIONAL EXECUTORS:
Your will can also provide a mechanism to name replacement executors to ensure there is always a sufficient number to allow appropriate succession of the executorship. Your will can also give a specific person the power to appoint additional executors.
COMPENSATION:
Each Canadian jurisdiction allows for executors to claim compensation, but the amount is often not fixed and is subject to court discretion, and this can result in disputes and legal fees. It is important to consider whether there should be express provisions in your will to deal with compensation. If you wish to compensate your executor, you should state the amount of compensation, whether this is determined through a formula, a fixed amount, an hourly rate based on time spent, or a combination of these approaches.
NON-RESIDENT EXECUTORS:
Complex issues arise under Canadian tax rules if an executor is not a Canadian resident. The tax residence of an estate is considered to be where its “mind and management” is, which is often – but not necessarily – where a majority of executors reside. As well, if an executor is not a Canadian resident, some jurisdictions require a bond or other security to be posted to protect the beneficiaries. This bond can, in some cases, be reduced or dispensed with. It’s important to get legal advice to address these considerations. There are also issues with U.S. resident executors being able to give instructions on investment accounts with certain Canadian financial institutions if they aren’t licensed to provide investment advice to a U.S. resident under U.S. securities rules.
Other considerations
CHARACTER:
In appointing your executors, you are giving them full control over all that you have spent your lifetime building. You want to choose someone who is trustworthy, impartial, and fair.
BUSINESS RELATIONSHIPS:
A business partner may not be an appropriate choice if they have an economic conflict with your estate and its beneficiaries. An executor must act only in the best interests of your estate and its beneficiaries. Business and financial acumen are important, and some or all of your executor team should have these skills. Equally important are willingness, interest, and availability to take on the role of executor.
FAMILY RELATIONSHIPS:
In appointing their children to be executors, many people assume that the siblings will all work together. But realistically, power dynamics often change after parents die, and fractiousness can arise among family members. Having a neutral executor who is not a family member may be a solution. Neutral executors can include a family friend or one or more professional executors, such as a professional adviser or trust company.
In conclusion
There’s no license or qualifying course to become an executor, and yet the role has enormous responsibility, as well as liability. It’s becoming increasingly complex, given changing laws and tax rules. Choosing your executors requires you to keep in mind a number of factors. Making a careful, informed, and thoughtful choice will give you the peace of mind that you have done your best for your family and those who will be your beneficiaries.
Margaret O’Sullivan, Artsci’78, Law’81, is the chair of the Queen’s University Gift Planning Advisory Committee. She is the managing partner of O’Sullivan Estate Lawyers in Toronto.
This story is part of the "Planning makes a difference" section of the Queen's Alumni Review. Other articles in this series include "Building on a family legacy" and "Gifts of cultural property." Readers are cautioned to consult their own professional advisers to determine the applicability of information and opinions in “Planning makes a difference” in any particular circumstances. Tax and legal content included in “Planning makes a difference” has been written for Canadian residents and taxpayers. The Queen’s Gift Planning office produces a separate newsletter with charitable giving information specific to U.S. residents twice annually. If you wish to join this mailing list, please let us know by emailing gift.planning@queensu.ca.