Estate planning is a must for anyone, but the stakes are multiplied for high-net-worth individuals, who need to choose the right executor or executors to carry out their final wishes in their wills.
Winding up the estate of someone with at least $1-million in liquid assets – the general definition of someone of high net worth – isn’t necessarily straightforward, and involves careful thought, planning and foresight because there are both emotional and practical factors to consider.
Executor duties can be given to a relative, a close friend, a beneficiary, a professional – such as a lawyer or accountant – or a corporate executor (incorporated trust companies that are typically subsidiaries of banks).
“The decision about whom to pick is a major one, so take the time, [and] look at all the options to see what works best,” says Frank Fazzari, chartered accountant with Fazzari and Partners LLP in Vaughan, Ont., who has been asked by some high-net-worth clients, who are also friends, to accept the role of executor.
An executor is charged with duties such as assembling and valuing the estate assets, filing tax returns, paying all taxes and debts, ensuring beneficiaries get what is willed to them, and ensuring proper records are kept of everything that has been paid and disbursed. He or she should also be someone who is likely to outlive the person who has written the will, is skilled and educated in legal and financial matters, is hopefully familiar with the estate, has no conflict of interest, and is known for his or her honesty and loyalty.
Friends and family members are often considered most likely to be executors, but a person with wealth and often business assets, or people with complex personal situations – such as those involving blended families, divorced or estranged family members – may want to use someone such as a lawyer, accountant or corporate executor to cut down on possible controversy.
Paul Fensom, a Toronto-based director with Scotia Private Client Group, estate and trust services, says people with straightforward assets and family situations may not need to appoint an outside entity as executor. However, although most people are at first honoured to be named executors, they also aren’t aware of the time involved and knowledge required, and would not necessarily take on the role again.
“It can take 18 months or more [to execute a will], and that’s a lot of time for someone to invest, particularly if an executor has another job,” Mr. Fensom says. He gives the example of a client who had to take a leave of absence from her job to deal with her deceased brother’s affairs because he had a small business that made dealing with the will more complicated and time consuming.
As well, individuals who are appointed executors carry all the legal responsibilities of a corporate trustee, notes Leanne Kaufman, vice-president, Professional Practice Group, RBC Wealth Management, and author of The Executor’s Handbook.
“There are all sorts of pitfalls of potential personal liability in the administration of a will, so it’s important for executors to know what they’re doing; if they mess it up, they may be putting all their own assets, as well as those of the beneficiaries, at risk,” she says from her Toronto office.
One of the biggest responsibilities of an executor is to ensure all creditors and the proper taxes are paid before assets are distributed to beneficiaries. If a mistake is made, the executor can be held personally liable – for that reason, a corporate executor, with knowledge and assistance in estate, trust and tax laws, asset gathering and valuation, property management, investing and accounting, can be invaluable, some experts say.
