An executor has five broadly defined responsibilities:
1) arranging the funeral;
2) probating the will and locating the beneficiaries;
3) collecting and preserving the estate assets;
4) addressing liabilities and related compliance, including known debts and taxes and potential claims against the estate; and
5) distributing bequests to the beneficiaries and establishing testamentary trusts.
Arranging the Funeral
An executor’s first responsibility when administering an estate is arranging for the deceased’s funeral. Review the will and any letters stating the deceased’s wishes to determine whether funeral arrangements have already been made and whether specific instructions were left by the deceased. Typically, the deceased’s family will assist or take the lead in organizing the funeral; however, funeral arrangements remain the responsibility of the executor.
It may be necessary to pay the funeral expenses well before an executor gains access to the deceased’s accounts. Executors are entitled to borrow money from a beneficiary of the estate (or from themselves) to pay for estate expenses. However, to preserve the estate’s “testamentary trust” status for the purposes of the Income Tax Act, it is imperative that the borrowed amount be repaid within 12 months.
An executor may also need to navigate family disputes regarding the funeral, the disposition of the deceased’s remains, and cross-border transportation.
Probating the Will and Identifying Beneficiaries
When determining whether to obtain letters probate (or, in Ontario, a certificate of appointment of estate trustee), seek legal advice. This is particularly important in those jurisdictions that impose significant probate tax. If the deceased had drafted multiple wills, an executor must determine which assets fall under which will. While this analysis will be straightforward in most cases, some wills may be sufficiently unclear so as to necessitate legal advice.
A review of the will should disclose the identity of the beneficiaries, and locating them is not usually a difficult task. However, there is always the potential for complicating circumstances. For example, a beneficiary who is a child of unmarried parents may be difficult to locate. It may be incumbent on the executor to inform the rest of the family of the child’s existence, which will involve a difficult discussion for the grieving family.
Additional complications arise when beneficiaries are minors or persons who lack legal capacity. Executors will need to contact the provincial Children’s Lawyer (or Official Guardian) or Office of the Public Guardian and Trustee. Non-resident beneficiaries can pose unique problems, including locating and contacting the non-resident and distributing financial assets to a non-resident who lacks a local tax identification number.
Collecting and Preserving Assets
A significant amount of an executor’s time and effort is spent in securing the assets of an estate. As in Estate of Tilden, 2018 QCCS 2971 (CanLII), court proceedings may be necessary.
The most significant estate asset is usually the deceased’s house. An executor must take possession of the house and ensure that both it and its contents are secured. This may include changing the locks, confirming that the property insurance is up to date, cleaning out the house, and securing the deceased’s personal effects. The best practice is for an executor to maintain a detailed inventory of the house’s contents, including photographs. The foregoing applies to any personal use property, including a beach house, cottage, cabin, or chalet, wherever it is located.
When clearing out the house, watch for personal documents and items that will assist with other administrative tasks. Key personal items include old tax returns and T-slips, promissory notes, letters of wishes, passwords, investment statements, keys to automobiles, and keys to safety deposit boxes.
An executor’s job may become more complicated when the estate assets include business interests. For example, if the deceased carried on a sole proprietorship, can an executor step into the shoes of the deceased and carry on the business? What sort of responsibilities are involved in running that business? Regardless of the legal structure of the business, an executor should ensure that adequate management is in place. Ideally, the deceased will have implemented a firm succession plan, thus relieving the executor of the responsibility of managing the day-to-day operations of the business. If there is no succession plan in place, an executor should seek to implement one as soon as possible. This may involve promoting someone from within the business, or retaining external or temporary management until the business is either sold or distributed to a beneficiary.
A review of personal papers located in the home and old tax returns should help an executor to find the deceased’s accounts. It is imperative that an executor notify banks and other financial institutions about the death, which typically requires the production of a death certificate and a probated will.
Digital assets, such as email and social media accounts, should be shut down. Access to these accounts should not be shared with family members or other parties, unless specifically permitted under the will.
An executor must determine the deceased’s liabilities. Known liabilities typically include funeral debts, outstanding taxes, promissory notes, mortgages, amounts owed to caregivers, and employee loans. There may also be contingent liabilities, such as family law claims and dependant relief claims. An executor’s failure to pay known liabilities and to address contingent liabilities could result in personal liability.
To avoid this risk, it is advisable to place advertisements to notify potential creditors in the jurisdictions in which the deceased lived or carried on a business. Obtain legal advice with respect to potential liabilities associated with family law or dependant relief claims early in the administration to determine what action is appropriate. Generally, executors can distribute assets to beneficiaries after the advertisements have been published, provided that provincial laws do not impose restrictions pending the expiration of limitation periods for family law and dependant relief claims.
Executors should seek advice to determine whether any terminal-year tax planning may be implemented. Additional tax factors that need to be considered include the graduated rate estate status, charitable donation strategies, loss carryback and pipeline planning for corporate interests, and potential exposure arising from earlier tax planning. Getting appropriate advice is a prudent step.
Some wills prescribe how personal assets (such as jewellery, clothing, art, and cars) are to be distributed among beneficiaries, either by means of specific bequests or by means of an asset division process. However, often a will is silent, relying on the discretion of the executor to act fairly. Under these circumstances, executors must define a process under which the beneficiaries have an equal opportunity to claim the personal assets, whether by lottery or otherwise. Expect to settle personal disputes at this stage.
Typically, a will provides for an equal distribution of the residue of an estate to certain beneficiaries. Although this may be a straightforward exercise, it sometimes requires deeper analysis and negotiation with and among the beneficiaries, particularly when the residue consists of both liquid and illiquid assets. Although each beneficiary will receive equal distributions by value, the division of illiquid assets may lead to tension and disputes that must be managed carefully.
Before making the final distributions, an executor should obtain a section 159(2) tax clearance certificate from the Canada Revenue Agency to ensure that all the estate’s tax liabilities have been settled. Failure to obtain the certificate could result in an executor’s personal liability for unpaid taxes and other amounts owing under the Income Tax Act.
In addition, before making the final distributions, an executor should obtain a final release, either by obtaining a written release from the beneficiaries or by passing accounts before the court. In the case of a written release, consider whether the beneficiaries should obtain independent legal advice.
Although the core responsibilities of every executor remain constant for every estate, the facts and circumstances of individual estates always differ. As a result, the key to success as an executor is being agile in the face of each estate’s unique and complicated circumstances, getting appropriate advice, cultivating equanimity, and perhaps developing a thick skin.
This is an excerpt from an article that was first published by STEP Canada in STEP Insider, October 2021, Vol. 20 No. 3. Republished with permission.
About the Author
Mark Biderman is the Vice President, Trust and Legal at Cidel. In his role as Vice President, Mark is responsible for the operations of Cidel Trust Company as well as new business initiatives. He also acts as in-house corporate counsel and taxation law specialist at Cidel. Mark is a frequent speaker at tax, and trust & estate planning conferences.
Prior to joining Cidel, Mark was a lawyer in the tax group of Goodmans LLP, a leading Canadian law firm where he advised on numerous public and private transactions for a wide range of clients.
Mark holds a BA (Honours) from Huron University College, University of Western Ontario, an LLB from Osgoode Hall Law School, York University, and is a member of the Law Society of Ontario.