Estate Planning

Estate planning is an important topic that should be explored in more detail. A simple starting point is to complete a checklist, create a will and name an executor.

While many Canadians have already created a will and given a great deal of thought to how they would like their estate handled, the role of the executor can be overlooked. And choosing the wrong executor can have its consequences.

For more details on estate matters, I encourage you to read “Estate Planning Through Family Meetings” by Lynne Butler.

Create a checklist

The first step in developing an estate plan/insurance strategy is to look at your current situation. This checklist can help you identify what you already have in place and what you might want to look at more closely. It can also assist your financial advisor or insurance agent in evaluating your situation and suggesting possible solutions.

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While not all of these questions apply to every situation, they may generate discussion on issues that have been overlooked.

Name an Executor for your Will

Every will names an executor. The executor’s function is to become your personal representative to look after all legal matters concerning the rights and obligations that you leave behind, and to carry out the wishes of your last will and testament.

If you have named an executor in your will make sure that you have informed them that you have done so. They are not forced by law to act as your executor and if they do accept the role, they need to be prepared.

Naming two or more persons as co-executors can lead to problems because it can create confusion and disagreement with respect to responsibilities.

In some cases, the signatures of all co-executors may be required which can lead to frustrating delays with regard to settling estate matters.

Qualities of a Good Executor:

They have to be trustworthy with money. This means that the person has honesty, integrity, and a history of being responsible with financial matters. The person should have a fair chance of surviving you. It could be a close family member (spouse, child, or younger sibling), a good friend, neighbour or business associate.

These qualifications are mandatory for any executor, and any person that does not meet these criteria should not be your executor.

The person should be reasonably diligent and prudent. They do not have to have a high-end professional occupation but they should have the ability to recognize what they don’t know and be willing to seek professional advice when they require it.

You should always name a second person as an alternate executor, in case your first named executor dies before you, is unable to act, or simply doesn’t want to accept the appointment.

It is helpful (but not mandatory) if the person is geographically close to where you reside at your death, and preferably in Canada. When you die, all of your property becomes a trust, and your executor becomes a trustee of your assets.

The location of the trust is the residence of the trustee, which can sometimes have adverse tax implications for your estate if they live in a different tax jurisdiction from you.

The person you name in your will as executor does not become your executor until you die, and the person accepts the appointment.

The Estate of the Deceased

The estate typically consists of any land, house, money, investment assets, personal items and other assets that the deceased owned.

Probate

Probate is the process of getting the courts to rule that the will is legally valid. The person who died and made the will is the testator.

Certain assets can be passed down without requiring probate. These assets by-pass the will and include joint bank accounts, jointly owned vehicles, and some other jointly owned assets. In addition, RRSP accounts, RRIF accounts, TFSA accounts, segregated funds and insurance policies where a beneficiary is named are not subject to probate. In these cases, a notarized copy of the death certificate is usually sufficient.

Duties of an Executor

While laws vary from one province to another, the overall duties of an executor in Canada are fairly consistent. The Canadian Bar Association, British Columbian Branch, has published a list of duties and posted them on their website at www.cba.org/BC/public_media/wills/178.aspx.

Before accepting the role of an executor, you should be aware of these duties. The list is extensive and includes the following:

  • The executor is named in a will and gathers up the estate assets, pays the deceased’s debts and divides what remains among the beneficiaries.
  • You confirm that you are named as the executor by checking the original version of the will.
  • You cannot be made to act as the executor but once you begin dealing with the process you are legally bound. It can be challenging, time consuming and stressful so make your decision carefully.
  • If you accept the role of executor, consider hiring a lawyer to help with the paperwork and advise you of your obligations. The estate is responsible for the lawyer’s fees.
  • You are responsible for making the funeral arrangements but you will want to consider the wishes of the deceased and their family.
  • Confirm that the will is the deceased’s last will by checking with the Vital Statistics Agency. Most lawyers send a wills notice to Vital Statistics for every will they prepare.
  • Cancel all the deceased person’s charge cards and subscriptions. Ensure that the estate is protected and that sufficient insurance is in place. Valuables should be stored safely and unoccupied dwellings should have the locks changed immediately.
  • Immediately notify all potential beneficiaries by giving them written notice and a copy of the will. This is typically done by the estate’s lawyer.
  • Prepare and submit the necessary probate documents to the court. You will have to pay the probate fees assessed by the court registry on behalf of the estate.
  • If the estate includes investment securities such as stocks, bonds and mutual funds, you may have to apply for probate to transfer them.
  • If applicable, notify the Canada Pension Plan and Old Age Security offices of the death. Apply for any survivor and death benefits that may be available. Check for any employer pensions and benefits the deceased may have had.
  • File the necessary income tax returns and pay income tax as required from the assets of the estate. Obtain a tax clearance certificate from the Canada Revenue Agency that confirms all income taxes have been paid.
  • Pay the estate’s debts before you distribute the estate. You could be held personally liable if you fail to do so. Consulting a lawyer is a good idea.
  • Submit a full accounting of the estate’s financial activities and obtain a release from each beneficiary and then distribute the remaining assets as directed in the will.
Executor Compensation

Executors are entitled to compensation for the work that they do for the administration of an estate. This compensation is over and above any costs incurred by the executor.

An expected range of compensation often falls between 1% and 5% of the total value of the estate. The appropriate amount will depend on the complexity of the estate, the amount of responsibility assumed by the executor, the amount of time required and other factors.

Trust companies can be named as the executor of an estate and, in that case, the level of compensation should be outlined in the will. In fact, it is probably a good idea to outline compensation, regardless of who the executor may be.

Being an executor isn’t easy. There’s plenty of paperwork to be done, lots of interaction with government agencies, registries and lawyers. There are always beneficiaries putting on pressure to do things more quickly. And if all of that weren’t tough enough, an executor risks personal liability for any mistakes he or she makes.

Five common mistakes executors can make: 
  • Ignoring inconvenient or unpopular parts of the will.
  • Failing to communicate with the beneficiaries.
  • Ignoring the limits of their role and using estate funds inappropriately.
  • Failing to pay debts and taxes before paying the beneficiaries.
  • Trying to do things cheaply by failing to use professional help.
 Notes:
  • Carefully consider your choice of executor and be sure to inform them that you have chosen them.
  • Life insurance is only one aspect of estate planning. Complete an estate planning checklist to ensure that all is in order.
  • You do not have to accept the role as executor, but if you do, you need to understand your responsibilities.

NEXT: Choosing an Advisor

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