Duties of Estate Executors

By Markdale Accounting, Estate, Tax, Wealth #estateplanning, #executor, #succession, #wealthmanagement, #wills 0 Comments

Administering someone’s estate after they die can be a difficult and heavy responsibility. Before you begin that journey, consider the professionals who can help you fulfill your responsibilities such as lawyers, trust companies, accountants, and bankers. Also consider the legal obligations estate trustees must adhere to. If you’ve been charged with administering an estate or if you’re considering this role, this post will describe the duties of estate executors and provide a checklist of tasks executors must complete.

Duty to Account

Every estate trustee must keep complete records of the estate and provide accounts to beneficiaries. Where appropriate, executors must have their actions approved by a court when passing accounts at the final stages of the estate administration process. Sometimes it takes years to settle an estate, so keeping good records is very important.

An estate trustee must always keep complete and accurate records. This means keeping copies of all correspondence, receipts, statements, and other documents relating to estate administration. Detailed and accurate ledgers of all assets, income, and disbursements from the estate are an absolute must.

The executors’ accounts should include, but are not limited to, detailed information about all legal and other professional fees incurred by the executor and paid from the estate, and all executor compensation. Keep the books and records of an estate like you would keep the books and records of a business. Assume you will be audited, not by the CRA necessarily, but by the beneficiaries or other people interested in the outcome including the courts.

Estate executors should communicate with beneficiaries, but they do not have a duty to provide accounts (or detailed expenses and receipts) to beneficiaries at each step of the estate administration. Beneficiaries do not have the right to control the administration of an estate or an estate trustee, and the estate trustee does not have an obligation to provide estate accounts within the first year after the death, nor do they have an obligation to consult with beneficiaries or get their approval or provide beneficiaries with copies of expenses on a real time basis.

Estate trustees should always remember to act in the best interest of the estate’s beneficiaries.

Informal accounts

A trustee should always maintain some record of the estate, but this does not always have to be in the highly specialized and stylized format of accounts that a court may require. Although it may help with complex estates, trustees don’t need to use an accounting program such as Quickbooks. With simple estates, a spreadsheet works well enough.

Informal accounts should be provided in most instances to beneficiaries when an interim or final distribution of the estate is made.

A beneficiary is entitled to ask for accounts prior to signing a release of any kind; most of the time, complete but informal accounts are usually good enough for this purpose.

Formal accounts

Estate accounts for Court purposes (“formal accounts”) have a highly specialized format. Formal accounts are much more than a bundle of receipts – they are a properly organized set of financial statements which detail the assets, income, expenses and disbursements of the estate.

In many ways, formal accounts for Court are quite different from financial statements for a business.

Estate accounts are not the same thing as the income tax return for the deceased (in the last year of their life) or the income tax return for the estate (both of which should be prepared by the estate trustee (or their accountant) and filed with CRA).

When preparing estate accounts for court, use your bookkeeping records to prepare statements of accounts, or ask your accountant to prepare such statements, and then provide that information to a lawyer who will prepare those statements for use in a court.

Content of accounts

Preparing estate accounts is one of the main responsibilities of estate executors. The estate accounts themselves are different from the original receipts, cheques, and bank statements which the individual transactions. These ‘source documents’ are the back up for the estate accounts but are not usually provided to all beneficiaries.

Estate accounts are a summary of bookkeeping accounts usually accompanied by a list of transactions.

Income and Interest

Any income earned by the estate, including investment income or interest on investments should be included in the accounts. As a result, any investment income earned by the estate will ultimately increase the amount paid to beneficiaries. With simple estates, it is quite possible that the estate may not have earned any investment income (or the amount earned may be minimal).

Regardless of income earned, the first obligation of an estate trustee is to avoid losing any principal. Investments should be as low risk as possible. Estate trustees are not obligated to seek investment returns, and they should avoid making any risky investments.

Beneficiaries are not entitled to ‘interest’ on their share of an estate. They are entitled to ‘their share’ of the estate. So, if the estate earned interest, this will affect the overall value of the estate.

Releases

It is very common for estate executors to request that a beneficiary sign a ‘release’ before the estate trustee pays a distribution to the beneficiary. A release is a binding contract, which bars the signer from suing the person that they have released. A beneficiary should not sign a release unless they are satisfied with the estate accounts they have received.

Challenging Accounts

If the estate trustee refuses to provide accounts, a beneficiary should get a court order that compels the estate trustee to pass their accounts. Beneficiaries are not obliged to simply accept accounts which are presented to them. Beneficiaries may challenge virtually every aspect of the accounts.

What are the most difficult tasks for an executor?

The estate administration process isn’t always so smooth. You may run into some challenges in your role as an executor. Here are some of the more complicated things you’ll deal with.

The probate process in Ontario

As the estate trustee, you may need to apply to the court to get “probate”.

The purpose of probate is to:

Validate the authority of the executor
Confirm the identity of the executor
Review and approve of the Will as the last Will made before death

To apply for probate in Ontario, you’ll need a copy of the original Will, any codicils, proof of death from the funeral director, and court forms that describe assets and beneficiaries.

Locating physical and digital assets

Modern-day executors have an added challenge of considering both physical, nominal, and digital assets. Today’s executors must not only clean up an estate’s financial interests & obligations, but also the deceased online profiles including social media and e-mail accounts.

It’s a good idea for people to include a provision in their Will that gives their executor the authority to deal with their digital assets including social media and e-mail accounts.

Asset Valuation

One of your first duties as executor is to assess the complete value of the estate including all assets (bank accounts, real estate, etc) & liabilities (credit cards, mortgages, etc).

If the person who died owned real estate or other valuable items such as art, jewelry, etc., you’ll need to hire professional appraisers to determine their value.

Creditor Claims

Upon a person’s death, their creditors are entitled to know that probate is in progress, so they may be given an opportunity to file a claim against the estate. As executor, it’s your responsibility to assess the validity of each claim.

Asset Liquidation

Sometimes people leave behind more debt than assets. If that happens, the estate may need to be liquidated to pay off the outstanding debts.

If you’re an executor and need to take care of asset liquidation, you need to sell property, convert investments into cash, and likely forego the distribution of assets to beneficiaries to make sure the debts are paid.

Beneficiary Disputes

One of the most common and challenging responsibilities of an executor is to resolve disputes with beneficiaries.

If a Will is not straightforward, it’s your responsibility to interpret it for beneficiaries—and you do get the final say, within the boundaries of what the Will states.

You may find yourself caught in the middle between two beneficiaries who are unhappy with their entitlements. You’ll be the only thing standing in the way between them and the estate.

If beneficiaries are contesting the Will, you’ll need to provide comprehensive documentation that proves you haven’t mismanaged anything. And if things become especially contentious, you may need to hire an estate administration lawyer to help you resolve the dispute.

How long does an executor have to settle an estate Ontario?

The standard length of time to wrap up someone’s estate is about a year. If it looks like it will take longer than a year to settle an estate, hire professionals to help.

If the estate is straightforward and there is no good reason why an estate hasn’t been fully distributed within a year, an executor may be put in a position to explain why things have taken so long.

After a year has passed, beneficiaries may demand payment (possibly with interest) by taking the executor to court. Complicated estates can certainly take longer than a year (and in some cases, quite a few years). But if the executor is doing their best to move things along there shouldn’t be any liability.

Its an Honour

If you’ve been asked to be an executor for someone’s estate, take some time to feel honoured. Your loved one is not making this decision lightly. But we hope you’re accepting the responsibility with full knowledge of what’s required, and that you have some professional help throughout your journey.

Checklist of Executor’s Duties

The duties of an executor are extensive and can last a long time. The key to successful performance of the task is disciplined, consistent effort.

Within 7 – 10 days of death

The Will

Locate the will(s) and codicil(s). There may be multiple wills. Review the will. Get legal advice if required on what it means. Determine if you want to act. You do not have to act just because you are named in the will – you can renounce the role – but if you want to renounce you must do so before you take any action as executor. Do you have a conflict of interest? Do you want to make a Family Law Act or dependent’s relief claim instead of inheriting under the will? Do you object to any portion of the will or want to challenge it? Can you work with the co-executors (if any)?

The Funeral

The executor has the right and duty to arrange for the funeral and burial of the deceased. The executor is not obliged to follow the wishes of the deceased, the family, or religious law, but the cost must be reasonable. The executor should follow the guidelines provided to them in the deceased will.

Death certificates

Obtain funeral director’s proof of death certificate.

Secure assets

Take control as quickly as possible of any valuable, perishable, or ‘mobile’ assets. Pets? Livestock? Crops?
BEGIN TO KEEP COMPLETE, ACCURATE RECORDS. Executors must keep good records, and this obligation starts immediately.

Within 30-60 days of death

Collect information

Begin to collect as much information as possible on income, assets, liabilities and creditors of the deceased (including guarantees).
Are there assets outside of Ontario?
Are there debts owed to the deceased?
Get 3+ years of tax returns.
Collect information on co-executors (if any), trustees (if any) and beneficiaries (including full legal names, relationship to the deceased, and contact information, and as appropriate, marriage certificates, marriage contracts, divorce & support orders, and death certificates).
Any adopted children?
Any children outside marriage?
Any minor or incapable beneficiaries?
Any non-resident beneficiaries?
Any charities as beneficiaries? If so, confirm proper name and location

Retain a lawyer (who will act for you, the executor)

Choose one you are comfortable with.
Get preliminary advice on the will, your role, the lawyer’s role, legal fees, probate, and executor’s compensation.

Determine validity of the will

Properly executed?
Properly witnessed?
No marriage after the will?
Alterations to the document?

Understand the terms of the will. Determine who gets what. Compare to a family tree.

Are there any class gifts, and if so, who is in the class?
Can charitable gifts be carried out?
Any issues of uncertainty or inconsistency?
Will it be necessary to apply to the Court for directions?

Are there issues related to guardianship of children? Will a formal application be required?

If there are co-executors, document an agreement on roles and responsibilities. Who will do what? When?

Basic Administration

Advertise for creditors, if appropriate
Notify CRA
Notify pension(s)
Cancel credit cards
Cancel driver’s license
Cancel SIN card
Cancel Passport
Cancel health insurance
Cancel other services such as phone, cable, and internet
Request Canada Post to re-route mail to the executor

Secure assets

Take control, if possible, protect, insure.
Arrange for safekeeping.
Get valuations of assets or commence process of having them valued.
Did the deceased own a business or professional practice? If so, secure competent management to operate or wind up.

Retain accountant

Ensure the estate’s accountant the appropriate expertise, particularly with respect to the tax returns that will be required.
Will you require US tax advice?
Determine who will be handling bookkeeping for the estate – executor, law firm, accounting firm?

Is Probate Required?

If probate is required, provide notice to beneficiaries, secure funds for Estate Administration Tax, prepare and file the application.

KEEP RECORDS. KEEP DETAILED RECORDS OF TIME AND MONEY.

First 90 days after appointment as Estate Trustee (approximately 60-120 days of death)

Obtain certificate of appointment.
Secure court appointment as Estate Trustee.
File Estate Administration Tax return within 90 days of certificate of appointment.
Open an estate bank account.
Close the deceased’s accounts and transfer funds.
Provide notice of appointment as Estate Trustee, as required to creditors, asset holders, governments, pension, etc.
Gather assets. If appropriate, file claims for life insurance, transfer title to investments, RRSPs.
Arrange for sale of assets.
File for CPP death benefit.

Is the estate insolvent?

If the estate you are administering is insolvent, consider assignment into bankruptcy. If not, begin to resolve outstanding liabilities and a plan for eventual payment of others.
Pay taxes (income, property, other), insurance, pay credit cards, pay all utilities.

Keep Records. Keep good accounts, and records of time and effort, steps taken and decisions made.

Within 6 months of death

Determine if a married spouse of the deceased will be electing to take under the Family Law Act instead of under the will. If there was a spouse who might elect under the FLA, do not distribute any of the estate within 6 months of death.
File the income tax return for the last year of life. Determine if a ‘rights and things’ return will be required.

Within 6-12 months of death (1-6 months after Certificate of Appointment)

Transfer personal belongings to beneficiaries in accordance with the will. Obtain receipts.
Continue process of transfer/sale of assets. Vehicles? Cancel insurance on goods once transferred or sold.
Arrange roll-overs. As appropriate, roll-overs of RRSP and RRIF to spouse.
Prepare and file appropriate returns in all jurisdictions required (US taxes?). Claim GST credit. Child tax benefit?
Interim distribution? Consider, and if appropriate make, interim distribution to beneficiaries.

Keep Records. This obligation continues. Keep good records.

12 months after death

Secure clearance certificate from the CRA.
Finalize estate accounts. Provide a list of estate accounts and transactions to the beneficiaries. Determine if it will be necessary to apply to Court to pass the accounts. If so, prepare and file application.
Distribute the estate to the beneficiaries. Secure receipts and as appropriate releases.
Pay the approved compensation to the executor. Report as taxable income of the executor.

Administering an estate is a complex and lengthy process. Retaining the advice of a lawyer and accountant is usually a good first move.

If you are uncomfortable doing all the work yourself as an estate trustee, you can employ help while still retaining all the legal authority to make decisions. Consider using professionals to help you administer your responsibilities an executor.