While wanting to do the right thing by your family is natural, that instinct can backfire when it comes to choosing an executor.
“The problem with wanting to treat every family member equitably by giving all three of your children equal control is that one or more may not have the financial acumen to handle the executor's duties," says Carmela Guerriero, regional vice president for RBC Wealth Management, Royal Trust in Montreal.
Worse, those three children may have their own issues with each other and the pressure of working together could create even more tension.
“It is natural to gravitate to your spouse or your children to be your executors because you love and trust them," says Guerriero. “But this is a time to make your decision with your head and not your heart."
When Tracey Woo, director of the professional practice group at RBC Wealth Management’s Royal Trust division in Toronto, talks to clients about choosing an executor for their estate, she often points out the downsides associated with the choice.
“People often want to have all three of their adult children serve as executors so no one is left out," says Woo. “But if one child lives in Canada and one lives in the U.S. and one lives in Germany, you've just created countless administrative and tax challenges that no one needs."
When to reevaluate your choice of executor
While most people choose an executor when they draft their first will, life events typically trigger a reevaluation of who should take on that responsibility for you.
“Sometimes it's the birth of your children or a marriage or a divorce that drives the decision to change your executor, but it can also occur because of a change in your career or your assets," says Woo. “If you started a business that has become more successful, it may be time to reevaluate your estate plan."
Woo says moving out of the country, or even just to a new province in Canada, should also be a time to reconsider your executor.
“It's important to have someone in your province as your executor since there are tax issues if your executor lives somewhere else," says Woo. “Keep track of where your current executor lives, because if that person moves, that could mean you should choose someone else."
One way to manage this issue, suggests Woo, is to hire a professional executor.
“The advantage of a corporate trustee with offices around the country is that there won't be any jurisdictional issues," says Woo. “You have the advantage of continuity with the corporation rather than relying on an individual."
Tips for choosing your executor
When you choose an executor, experts recommend you look for someone with the following characteristics:
It's important to choose someone who can be diplomatic and handle family dynamics, particularly when you're transferring wealth from one generation to another, says Woo.
“This is especially true in blended families, when you don't want a child from your first or second marriage to handle the estate for everyone," says Woo.
Depending on the complexity of your finances, your executor will need to be savvy about personal finance issues, taxes and legal topics or at least know who to hire to get help, says Guerriero.
“You should look for someone who has their own financial affairs in order," she says.
Woo says you want someone who pays a lot of attention to details.
“Depending on your business or your assets, you may want someone with specific types of corporate experience," says Woo.
When you choose an executor, you want someone who will be committed to putting the elements of your will in motion and not be distracted by beneficiaries who could be trying to influence your executor.
“Your executor has to serve as a mediator if there are disputes and navigate the emotions of beneficiaries and relatives," says Guerriero.
Guerriero says an executor may need to explain your thinking behind your will and gently reinforce your instructions at an emotionally difficult time.
Guerriero shares her first-hand experience through a friend living in Montreal who was named an executor for a family member in Halifax. Her friend had to travel several times to Nova Scotia. “She doesn't know the local laws," says Guerriero. “She also had to find a real estate agent there who could sell a house, which was another logistical problem."
It can be difficult for a non-local executor to understand legal and tax issues in other jurisdictions. If your executor lives abroad, there could be tax bills generated in that country, warns Woo.
3. Flexible schedule
Fulfilling the role of an executor takes time, which can be difficult for busy individuals. While it may seem tempting to pick an entrepreneur with financial acumen, for example, Guerriero warns that someone who lacks time might struggle to meet required deadlines such as filing a tax return or an assets and liabilities form without the help of a professional. “Time is a luxury, so don't choose a busy individual who could have the financial acumen needed to be your executor but who lacks the time to handle your affairs."
4. Age and health
“Always ask your executor if they are willing to perform that duty," says Woo.
Most importantly, make sure you either appoint a professional corporate executor or an alternate, to ensure there will be an executor in place when the time comes to act.
Resources are available to help executors understand their duties and determine whether they will need assistance.
When to consider a corporate executor
The potential financial consequences of legal or tax errors by a nonprofessional executor not only hurt the beneficiaries of the estate. The executor could be responsible personally for taxes generated because of his or her mistake.
For executor responsibilities in Quebec, Guerriero explains, “A final tax return is very different from a traditional tax return and you need to get a final tax clearance in writing. You also need to file an assets and liabilities statement as of the date of death." The process in Ontario requires a report to be filed.
Another common problem is when someone chooses a second spouse as executor, putting him or her in charge of a trust for their stepchildren as well as their own children can cause a conflict, says Woo.
“If the second [spouse] is in charge of the purse strings, including deciding at what age to disburse funds from a trust fund, that can create tension," says Woo. “Sometimes that second [spouse] will bring in a professional and delegate some of the responsibility for handling the trust to that person. Another option is to resign as executor and hire a professional."
Guerriero says a benefit of hiring a professional executor from the beginning is that corporate trustees are neutral parties who don't get bogged down in the emotions of the beneficiaries of the will.
“It's fairly common for people to choose both a professional executor and a family member so they have the expertise of the pro as well as the comfort of knowing their family member will be involved," says Woo. “They appreciate the fact that their loved one may need professional support, particularly right after a death."
Having a professional such as a lawyer or an accountant or a corporate trustee work together with a family member can be optimal, says Guerriero.
“The family member can tend to the soft side of the estate such as how to handle the distribution of personal items," says Guerriero. “It's great to have someone know that their mother would want her clothes sent to a particular homeless shelter, for instance. In the meantime, the professional provides the financial acumen to avoid mistakes."
Guerriero says that a professional can also be valuable if a family member seems to be proceeding in a way that goes against the will or that violates tax or legal rules.
“For example, if there's a car to sell and a neighbor offers to buy it for $1,000, a family member might think that's fine," says Guerriero. “But the professional understands that the car must be sold at fair market value, otherwise there would be a loss to the estate."
If you choose to have more than one executor, it's important to specify in your will how you want them to work together. If the will is silent on this topic, the expectation is that they will make decisions jointly, says Woo. If there's a disagreement, the majority would rule.
“There's no limit specified by law, but practically speaking you typically want a maximum of three executors," says Woo. “Administratively it could be complex if you had more than that."
A professional may be your best choice of executor if you:
- Have no family members living close by
- Have complex assets
- Have a blended or non-traditional family
- Have family members with special needs and/or who would benefit from support in managing their inheritance
- Have assets or beneficiaries located out of the country
- Want to ease the burden on loved ones at a difficult time
Woo says most people choose one or two executors.
“Hiring a professional executor could be your last gift to your family," says Guerriero. “You're giving your family members both the financial rewards from your estate and not making them work for it."