You will likely act as an estate executor someday. You’ll do that for a partner, parent or family member.
But will you know what to do while administering an estate? You need to follow certain rules for success.
Let me tell you an easy rule I found that works.
Record-keeping is Vital
Do you have trouble balancing your own finances every month? Do you go crazy figuring out your taxes each year? Then you should be prepared for extra challenges in estate work. Being an estate representative is loaded with financial stresses.
As executor you must pay someone else’s credit cards, mortgage and income taxes. You are responsible for investing or earning interest on estate money. I’ve seen estate worries push people to the breaking point when they get into trouble. That can easily happen to you and your good intentions.
As a Certified Specialist in Estates and Trusts law, I help executors with problems. Executors can find out the hard way what they did wrong. Often they receive bad advice or no advice at the start. They may think being an executor is an honour – but it comes with legal duties.
Executors are Legal Representatives
You may come across these terms that can refer to you:
Executors are named in a will. They are also called estate trustees with a will in Ontario.
Estate Administrators are appointed by the court where there is no will. (or when the will does not name an executor). In Ontario the term is estate trustee without a will.
Liquidator is the Quebec term for the person handling the estate.
As an executor, your job is more that an honour. It carries legal responsibilities.
Read my free MrWills.com guides for executors here.
Executors are Entitled to Compensation
Every province and state allows estate representatives to charge a fee. This is for their time, trouble and responsibilities. The amount of payment will vary and usually depends on the size of the estate. There could be more work in small estate and less in larger ones.
In Ontario the rule of thumb for compensation is roughly 5% of the estate. Yes, you have to pay income tax on what you receive. You cannot just take the fee. You have to get permission to take compensation. You get permission from the residual beneficiaries or the estate court.
You have to explain what you did with the estate money. Hopefully you kept it separate from your own money. You need to keep records of the decisions you made.
Problems Surface Years Later
Two or three years after you start the job is when problems can surface. You may be ready to distribute the estate. What happens then when you ask for your compensation? You will need the beneficiaries to approve your work and your financial records.
You could be asked to produce the evidence to show you acted prudently. It can be difficult trying to retrace an incomplete paper trail years later.
Let me tell you about Bob who has been working on his uncle Jack’s estate.
Jack appointed his nephew, Bob, as executor under his will.
Bob hired a lawyer to apply for an estate certificate. He wanted to prove Jack’s will was the last will and comply with all legal requirements.
Bob considered his responsibilities seriously. He took months to probate Jack’s original will and repair Jack’s house to prepare it for sale.
Two years after Jack died, Bob was ready to claim his compensation. Bob had to ask Brenda, his cousin and Jack’s niece, to agree.
Brenda asked Bob for his executor report. She was entitled to one-half of the estate. She wanted Bob to produce his executor accounts.
Executors Must Keep Records
Executors need to produce their accounts for approval by the beneficiaries.
What Bob did not know was that he should have kept better financial records as he went along. Brenda also wants to see breakdown of the estate bank account showing income receipts.
Brenda was also asking Bob for:
- the real estate appraisals used to list and sell Jack’s house
- the contracts for the tradespeople Bob hired to repair Jack’s house
- a detailed inventory of the house contents
- the initial value of Jack’s investments which Bob sold
- copies of all vouchers, receipts and invoices for Bob’s expenses
- details of how the estate money had been invested
- proof that all federal income taxes had been paid on time
Bob’s lawyer should have told him to keep receipts and records. He would need to show the original assets that he discovered with supporting documentation. Now, two years later, Bob would have had less trouble reconstructing these financial records.
Bob wondered where he went wrong. Why did nobody tell him this at the start? Should he have known?
While every estate is different, the recordkeeping steps are the same.
The number one rule for executors is simple: keep records of everything you do.
Executor success starts with getting the right advice from an experienced estate lawyer. You should aim to prevent problems.
Before you go to work, learn what you need to know about your job as executor. Invest in proper legal advice for the estate and yourself.
About Edward Olkovich
Edward Olkovich (BA, LLB, TEP, C.S.) is a Toronto estate lawyer and nationally recognized author. Ed is a Toronto based Certified Specialist in Estates and Trusts. He is contributing editor of Carswell’s Compensation and Duties of Estate Trustees, Guardians and Attorneys and author of Executor Kung Fu: Master Any Estate in Three Easy Steps. Ed can be reached via his website MrWills.com © 2015.