Being appointed executor of a loved one’s Will is an expression of the ultimate trust that person places in you. Although you may emotionally feel the need to honour the wishes of the deceased, there are some practical aspects one should take into consideration before taking any action on behalf of the estate. You may wonder whether you have the necessary skills and time to manage the deceased’s affairs. Are you legally bound to handle the estate once appointed executor in a will? This article reviews your basic responsibilities as an executor and explores avenues open to you.
- When appointed as an executor, what options available to you?
You can either decline or accept to be an executor at the time you are notified of your appointment after the death of the individual. Timing and process are important if you choose not to act as executor. A renunciation should be done in the form required by your provincial estate law (a sample Ontario Form 74.11 courts of justice act is here) and submitted before carrying out any duties related to the estate. If you perform any tasks on behalf of the estate prior to renouncing, the court may reject your application to refuse your appointment as executor.
An estate executor has many estate settlement responsibilities. Those responsibilities include, but are not limited to the following:
Locating wills - In order to reassure third parties and beneficiaries, executors are often required to probate a will. Probate is the legal process through which a will is validated by the court as the last valid will, and gives legal authority to executors of the estate.
Arranging funeral – Although the funeral is usually organized by family members, the executor is legally responsible for the costs associated with funeral arrangements. The executor should negotiate funeral details with family members while focusing on funeral cost control because of his duty to protect estate value for beneficiaries’ interest.
Inventorying, managing and protecting assets – it is the responsibility of the executor to identify, locate, appraise and make a listing of all deceased’s assets and their market value as at the date of death. The executor’s duty to protect assets may involve purchasing liability and damage insurance. Also, the executor must manage estate assets prudently and reasonably until full distribution. If necessary, professional advisers can be hired to provide assistance with estate law, investment management and accounting services.
Paying debts and preparing tax return– The executor can be held personally liable for the deceased debts (including tax) and should make an effort to identify and locate creditors. Also, an executor has the obligation to file a final tax return for the deceased by the later of April 30th of the year following the year of death and 6 months after the date of death. When the deceased is self-employed the deadline is the later of June 15th of the year following the year of death and 6 months after the date of death. Business, trust and “rights or things” returns may be also reported on separate tax returns if it is advantageous to do so. As all deceased’s capital assets and other properties are deemed disposed of at fair market value immediately prior to death, except when they are transferred to the spouse or a spousal trust within 36 months after death, it may be appropriate in some circumstances that the executor elects to transfer assets to the spouse or a spousal trust at market value if permitted in the Will. This strategy will be beneficial to the estate when the deceased has capital losses carried forward from previous years, or has an unused capital gains exemption. An executor should also consider making a final contribution to an RRSP for the year of death when the deceased still has unused contribution room. Furthermore, an executor is responsible for filing annual tax returns for the estate and should also find out if there are any foreign tax issues. An experienced chartered accountant should be hired to ensure proper reporting.
Distributing assets to beneficiaries according to the will – Before any distribution, it is recommended that the executor obtains a clearance certificate from Canada Revenue Agency in order to avoid any personal liability for income tax owed by the estate due to any future adjustment in tax return. A clearance certificate will be provided when estimated taxes are paid, and any tax liability arising on a future date will be shared by beneficiaries.
Preparing an accounting of the estate – One of the executor legal responsibilities is to present an accounting of the estate to the beneficiaries. Any debts, receipts (including insurance proceeds) and disbursements should be properly recorded.
- Are you inclined to accept your appointment in spite of a lack of technical competency and/or time?
Yes, there is still an option for you. You can hire a trust company, whose trust officers will perform all the actual duties for you. The only thing you will be responsible for is to retain the final decision making as you are still bound by the legal duty “not to delegate decisions” about the estate management and affairs. Note that the costs of hiring professional advisers, including a trust company, will be paid by the estate.
- Are you a non-resident executor?
Some provinces require posting a bond if executor is not a Canadian or Commonwealth country resident. In case the majority of executors are not Canadian residents, the estate will be taxed as a non-resident trust and tax will be deducted at source on any income earned in Canada. Also, you have to make yourself readily available for any regulatory audit in Canada.
Being an executor of an estate is an honour and significant responsibility.We have highlighted some of the major considerations.Here is a useful checklist that covers most executor duties should the need arise.
"This information is general in nature and is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.”