Expert Advice: Choosing an executor
Do you have a financial question that's keeping you up at night? Ever wished you could get a second, or third, opinion on what to do with your money? Here's your chance: Bankrate.ca is introducing a new monthly feature whereby you submit a question, and we ask two industry experts to weigh in. The topics are up to you -- you ask the questions, and we'll get the answers.
Here's this month's question: "How do I choose an executor for my estate?"
You've decided what's going to happen to your estate when you die. The next big question is who is going to help make it happen? An executor is the person you name to handle your affairs and carry out the terms of your last will and testament. Think of them as your alter ego, someone you trust to act on your behalf and in the best interest of your beneficiaries. An executor, also called an estate trustee, can be in charge of everything from organizing your funeral to managing your assets, settling outstanding debts, paying taxes and distributing remaining assets to your heirs. It's a detail-oriented and time-consuming job and it's essential to choose wisely.
Toronto estate lawyer Edward Olkovich is the founder of EstateTherapy.com and the author of several books, including "Choosing Executors: Your Formula for Success."
"In some cases it's an obvious choice, in other cases it's an impossible choice," says Olkovich, adding the key factor is to appoint someone trustworthy. "It's an important decision because the whole goal of estate planning is to avoid problems."
Some people choose a family member, close friend, adviser or professional associate, while others will appoint a trust company (financial institutions usually offers such services). "All have pros and cons, it's a highly personal decision," says Olkovich.
The only stipulation is the person has to be of sound mind and over age 18.
"Ideally you want a Canadian resident," says Olkovich, adding that if you have property outside the country you should have a second will there and another executor to take care of details.
Upon appointment, executors aren't required to sign anything, however, you should ask for consent. Sometimes people turn down the role, while others accept it, but when the time comes to act, decline. That's their prerogative. Executors are in no way bound to take on the role and that's why experts recommend appointing a backup or alternate executor.
When your executor steps into the role and gets started, however, they can't back out. "It's a legal obligation because you're put in the position of controlling someone else's pocketbook," says Olkovich.
There are also liability issues. For instance, an executor is personally responsible for all of the deceased's tax arrears. "If the executor distributes the estate without paying taxes first, they could be liable," says Olkovich, adding if you leave a $100,000 RRSP to your children, the estate has to pay taxes on that amount (about $47,000) before it's doled out.
It's on onerous job, so what's the incentive? Executors are entitled to payment (a typical fee is 5 per cent of the estate's value). "Normally family members would opt not to be paid because it's a taxable income and they have to report it," says Olkovich. "Most executors are beneficiaries so they have interest in doing things as economically and efficiently as possible."