Five mistakes to avoid when appointing an executor for your estate

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Appointing someone as your executor is the last — and potentially the biggest — favour you’ll ever ask of anyone. Your executor will be required to distribute your estate and ensure that the terms of your will are carried out, a process that typically consumes many hours of attention.

To start, it can be a mistake to appoint numerous family trustees, such as all the children, or all the siblings involved in the family business, says Tina Di Vito, Canadian family enterprise leader with EY, based in Waterloo, Ont. “There’s risk of disagreements.”

Here are a few other key mistakes to avoid in making your selection.

1. Choosing with your heart, not your head

The biggest error is “picking someone because you think they’ll feel bad if you don’t,” says Paul W. Taylor, a partner and lawyer in Borden Ladner Gervais LLP’s Private Client group in Ottawa.

“A well-meaning person who’s not aware of how it all works can get into trouble,” says Taylor. “I am surprised at the number of people with fairly significant wealth who say, ‘My kids can figure this out.’” An alternative is to appoint one or two family members along with a hired professional.

“Sometimes people will consider having the trust company act as the agent,” says Di Vito, explaining that an “agent for executor” is someone who “will step in and do some of that administrative work, or you can hire an accounting firm to do some of the tax preparation.”

2. Expecting family disputes to go away

“Often when there’s tension in the family, mom and dad are there to play referee. But when they’re both gone, gloves come off,” says Steve Ivacko, Partner, Family Offices Services, with MNP in Vancouver.

A child or sibling who is chosen to act will face “a lot of scrutiny from other family members,” he says. “That can end up ruining family relationships.”

Don’t pick someone who is too young, and don’t pick someone who is older than you or your age.

Tina Di Vito, EY

Family divisions may even intensify. If a favoured child is chosen for the job, for instance, siblings who have felt unappreciated in the past will feel they’ve been overlooked yet again. If executors are also beneficiaries, they may find themselves in a conflict of interest.

Further, if the will is not updated annually (as it should be), remarriages and blended families can bring further pressures to bear. Ivacko calls these lawsuits waiting to happen.

Appointing a professional firm should be considered in such cases. “People balk at hiring a professional because of the cost,” he says, “but honestly, what price is there on family harmony?”

3. Choosing someone of the wrong age

“Don’t pick someone who is too young, and don’t pick someone who is older than you or your age,” says Di Vito.

In the first case, “don’t appoint your child who’s brilliant and is one day going to be a fantastic person in accounting or finance,” she warns. “They may have to act sooner than you think.”

On the other hand, even if your choice is 10 or 15 years your junior, he or she may be required to act as your trustee for years after the initial distribution of the estate. This is particularly likely in special circumstances, like the setting up of a Henson Trust, which provides for a beneficiary whose disabilities prevent them from being able to administer their own finances, or a so-called “spendthrift trust,” which restricts the beneficiary’s access to trust principal, effectively protecting them from their own poor money-management habits. No one wants to be saddled with these sorts of responsibilities into their 70s or 80s.

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The main reason not to choose a family member or friend, however, “is that they’re personally liable for any mistakes that they make, whereas a corporate trustee will have insurance for that,” Ivacko says.

Such a case could arise if executors mistakenly distribute funds before they receive a clearance certification from the Canada Revenue Agency, and then find themselves in the unenviable position of having to ask beneficiaries to reimburse some of their inheritance to pay taxes owing.

4. Appointing an executor in a foreign country

Imagine a situation in which the child who has been appointed as executor of their parents’ estate suddenly pulls up stakes and moves to another country. Then they’re called upon to settle the estate, and they discover a basket of unexpected complications. Among others, “if they’re not local, there are tax implications,” says Ivacko.

Conversely, since affluent families frequently have real-estate holdings and business dealings in many jurisdictions, the executor may face complicated overlapping estate regulations in every location in question. They may need to retain advisors in several jurisdictions.

5. Failing to discuss payment

Settling an estate can be the equivalent of a full-time job that lasts for months, so it’s unreasonable not to provide for some form of remuneration, even if the executor is a close relative. This should be discussed and formalized so it doesn’t raise objections among the family if, for instance, the executor is also a beneficiary.

Also, each Canadian province regulates payment for executors, so if the fee isn’t agreed upon ahead of time, the executor may choose to claim as much as 5 per cent of the value of the estate by default. By comparison, a third-party firm may charge 2 per cent or less; rates change in inverse proportion to the size of the estate.

Ultimately, good executors don’t need to be lawyers or accountants; they can hire professional help in these areas. What counts is dependability.

“Pick someone that you trust in every way, shape or form,” says Di Vito, “because that individual has a lot of control.”

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