Being asked to serve as executor of someone’s estate is a duty most people accept without question. A copy of the will is shared, possibly read, and tucked away until that fateful day comes. When it does, the task is often time-consuming, complicated and onerous. That’s why many people turn to financial planners for help.
Having financial planners assist in the process can eliminate some of the steep learning curves and provide executors with some protection around their decision-making – particularly as executors are prone to make common mistakes, such as rushing and submitting incomplete information, which can lead to costly delays.
“Most wills have clauses that allow executors to hire professionals and advisors,” says Bryan Delaney, a lawyer in Ottawa who provides wills and estates services. “[And] a financial planner can work with the accountants and lawyers to make sure everything gets done properly and [make life] much easier.”
That’s especially the case when it comes to dealing with the deceased person’s investments as that task can have significant implications.
“If one of your clients is the executor of a loved one’s estate, it’s your duty to help them because the outcome impacts their financial affairs as well,” says Ethan Astaneh, a financial advisor at Nicola Wealth Management Ltd. in Vancouver.
For financial planners who help executors through the process, the first step is to review all of the deceased’s investments and determine if beneficiaries have been named. If so, executors can liquidate these investments immediately and disperse the proceeds directly to the recipients. Everything else must remain in the estate until it winds up.
If there’s no preconceived plan for the remaining investments, then one that meets the expectations and risk profiles of the heirs named in the will – not the deceased – has to be formulated. Some may be conservative, opting for low or risk-free investments while others might expect more aggressive growth. Either way, the investments must not dip below their market value at the time of death.
“The executor has to protect the money and at least keep up with inflation,” Mr. Delaney says. “If they don’t [take that measure] and leave the money in the current investments and then the market tanks, they can be on the hook personally.”
The risks executors assume don’t stop there, either. There also has to be enough money left over to cover both estate administration taxes and any income taxes the deceased owes. If not, the Canada Revenue Agency (CRA) can pursue the executor.
“The CRA goes after executors first because they’re the ones signing off on everything,” says Matthew Ardrey, vice-president and wealth advisor at TriDelta Financial Partners Inc. in Toronto.
To avoid that outcome, financial planners need to work with executors and accountants for the estates to determine how any capital gains or losses on the deceased’s assets will impact the final tax bill. If an amount owing is expected, that amount, plus an additional reserve for any unforeseen taxes, needs to be held back until the CRA issues a clearance certificate.
“[Executors] can certainly make some distributions to the beneficiaries before the estate winds up,” Mr. Ardrey says, “but [if executors] don’t have a hold-back, and the CRA comes back for more taxes after everything has been filed, they’ll go after the heirs if the money isn’t there.”
In turn, the heirs can then sue the executor for mismanaging the estate.
Another obstacle some executors could face is the repatriation of money from other countries. If the deceased had investments in, say, U.S. states like California, New York, and Florida, with no named beneficiaries, financial planners could help executors co-ordinate with the estate’s lawyer to retain attorneys in each of those jurisdictions to assist in the divestiture of those investments according to local laws.
“Repatriating money is always complicated,” Mr. Delaney says. “The biggest risk is a foreign asset no one knew was there. If it’s found after the estate winds up, it creates a lot of problems.”
In those cases, the estate then needs to be reopened, the asset would have to be disposed of, the money repatriated, tax returns would need to be amended and proceeds disbursed.
At the end of the day, there are limits to what financial planners can do to help executors. Namely, executors are legally required to make the phone calls, open and close the estate’s bank accounts, track down documents and submit the paperwork.
But with a financial planner in the mix, executors can receive the coaching they need to see the task through to completion, a second set of eyes on their work and, if caught in the fog of grief, a little emotional support along the way.