There’s an interesting duality in estates and trusts. The two distinct elements—planning and administration—can be separated by years, sometimes decades.
In fact, mistakes made at the planning stage can adversely affect the administration of the estate (see What not to do in estate planning and Don’t take these shortcuts). And despite an executor’s efforts during the planning stage, errors can still occur. Here are what I consider to be the top five mistakes executors make when it’s time to administer the estate.
1. Failing to follow the terms of the will
The primary duty of an executor is to administer the estate and distribute the deceased’s assets in accordance with the terms of the will. But executors sometimes think it’s okay to ignore provisions they disagree with, and distribute based on what they think they know the deceased would have wanted.
This approach is most frequently seen in the distribution of personal effects. For instance, although Aunt Hazel’s will may say “to distribute my personal effects equally among my nieces and nephews,” executors sometimes think it’s okay to distribute the property in the way they feel Aunt Hazel would have wanted.
This is wrong. If Aunt Hazel really wanted you to get her Tahitian pearl necklace and your cousin to receive a tchotchke from Niagara Falls, the will would have said so.
› Lesson learned: Failing to provide each beneficiary with his or her entitlement as per the terms of the will—not more and not less—may lead to a claim by a disappointed beneficiary.
2. Failing to properly interpret the will
A will is a binding legal document. Despite the efforts of many lawyers to draft it in plain English, most wills still read like legal documents. Terms such as in specie, per stirpes, per capita, issue and devise are commonly seen in wills, yet are beyond the vocabulary of the average executor.
There may even be more esoteric terms, such as hotchpot and en ventre sa mere (see “Glossary of will terms,” this page). Even if he plans on tackling the estate administration alone, without professional assistance, the executor would be well-advised to seek legal advice to interpret the will.
› Lesson learned: Failure to properly interpret the will resulting in a loss to one or more beneficiaries may lead to a claim and personal liability for the executor.
3. Going it alone
While being an executor is an honour, it’s also a demanding and time-consuming responsibility. With today’s increasingly complex family structures, estate and tax legislation, it’s a more challenging task than ever. Yet many neophyte executors, out of a notion of duty or a desire to save money, opt to go it alone.
This sense of obligation can be misplaced. The law has consistently recognized an executor’s right to retain professional assistance and to delegate certain functions to an agent or agents.
For instance, Ontario’s Trustee Act specifically authorizes trustees to obtain investment advice and delegate certain functions to agents. As a general rule, an executor may delegate administrative duties, such as securing estate assets, preparing estate accounting, and income tax preparation and filing.
With the possible exception of investment choices, discretionary decisions—for example, whether to approve a capital encroachment request, or whether to accept an offer for estate-owned property—may not be delegated.
Of course, executors often avoid asking for help in the hopes of saving money. This is misguided.
Inexperience, lack of expertise and unfamiliarity with the rules, including various laws and the applicable standard of care, may end up costing the estate dearly. For example, if an executor attempts to do all the tax work himself, and he misses filing deadlines or fails to take advantage of all applicable elections, exemptions and optional tax returns, it could result in significant additional costs to the estate.
› Lesson learned: If the executor struggles to figure things out on his own, it’ll translate into wasted time and money. The DIY option often proves more costly in the long run.
4. Keeping mum
An executor is responsible for administering an estate, solely or along with one or more co-executors. He has power to control assets, sell estate property, make payments from estate funds and invest trust property. However, he should never lose sight of the fact that he’s acting on behalf of the estate beneficiaries, who have a right to know what’s going on.
The duty to account to beneficiaries includes keeping track and producing evidence of all estate property transactions. This is a legal requirement.
But keeping them informed on the status of the administration is a matter of courtesy. Estates usually take longer to administer than expected.
Whether the expectations are naïve or the administration is delayed, a wise executor will ensure the beneficiaries are kept in the loop. When it comes to estate administration, the old adage “no news is good news” does not apply.
With the assistance of his advisor or agent (e.g., lawyer, trust company), the executor should establish a reasonable timeline and communicate this information to the beneficiaries at the outset.
The timeline should be periodically reviewed and any changes communicated. For instance, a beneficiary may not know that it may take several weeks (sometimes months) to obtain a grant of probate, and that no distributions can be made before the grant is received.
Likewise, inform beneficiaries that final distributions will not be made until clearance is received from CRA. Beneficiaries who are kept in the dark tend to assume the worst.
An executor who fails to set reasonable expectations and communicate regularly could end up having to answer annoying phone calls from beneficiaries or their lawyers.
› Lesson learned: Keep beneficiaries up to date. They have a right to know what’s going on.
5. Adopting a cavalier attitude
An executor is a fiduciary, standing in a special relationship of trust and responsibility to the beneficiaries. The role involves a number of duties and obligations (see “More than an honour,”). Still, executors often fail to live up to the expected standards.
Examples of inappropriate behaviour include: commingling estate money with their own; failing to keep proper documentation in respect of every estate-related expenditure and receipt of funds; failing to collect all debts owed to the estate; selling estate property without first obtaining reliable appraisals; failing to secure and protect all estate assets; failing to actively pursue the administration; and taking compensation in the absence of a fee agreement or beneficiary approval. A beneficiary is justified to complain about any of these acts.
› Lesson learned: Failing to take the job seriously, and properly discharge duties and obligations, may result in personal liability.
Glossary of will terms
Issue: All persons in the line of descent (e.g., a person’s children or grandchildren).
Per stirpes: A term used to describe a method used in dividing an estate. In a per stirpes distribution, a group inherits the proportional share to which a deceased ancestor would have been entitled if living. The will could say the residue goes to “my issue per stirpes.” For example, let’s say the deceased had three children, two of whom are living at the time of his death. The pre-deceased child had two children living at the time of her death. The residue would be divided into three equal parts. Each child would receive one third, and the two grandchildren (children of the deceased child) would each receive one-sixth of the residue.
Per capita: A term used to describe a method used in dividing an estate. In a per capita distribution, an equal share is given to a number of persons.
Devise: A testamentary disposition of real or personal property.
Hotchpot: The blending of property belonging to different persons in order to divide it equally among beneficiaries. It generally involves taking into consideration funds already given to children when dividing up the property of the deceased parent to ensure each child receives an equal share.
En ventre sa mere: Refers to an unborn child. For the purpose of inheritance, a child is treated as having been born if they are “en ventre sa mere” at the time of the testator’s death and are subsequently born alive.
Elaine Blades is a Toronto-based trust and estate professional.