An elderly client died just before the late-1990s tech bubble burst, recalls Winnipeg advisor Wayne Townsend, a principal with Lawton Partners Financial Planning Services.
When she passed, she owned $3 million in Nortel stock. The executors were her two children, but they didn’t get along and it took them more than a year to complete probate of the will.
By the time they reached consensus, those shares had dropped 90%. “Instead of the kids splitting $3 million,” Townsend says, “they got $150,000 each.”
Read: Being a good executor
Such incidents are regrettably common, and many involve problems with the choice of executor. Townsend says it’s a job very few people aspire to, and with which few non-professionals have experience.
And for advisors and estate planners with older clients, there’s one more wrinkle: what happens if the named executor didn’t know he’d been nominated or refuses to take up the task?
“It’s more frequent than you’d expect,” says Ann Galvin, a partner at Stern Cohen LLP in Toronto.
Other practitioners see this situation less frequently: “I’ve rarely had an executor be surprised,” says Lori Duffy, an estate and trust partner at WeirFoulds LLP in Toronto.
In most cases, advisors say, the person will fulfill his or her duty.
Yet if a surprised executor backs out and the will names no alternate, beneficiaries and advisors alike face a dilemma: the estate will remain frozen—bills won’t be paid and investment decisions will be deferred—until the family can agree on appointing a new executor (i.e., a lawyer, accountant or trust company).
Experts say the best way to head off problems is to ensure clients meticulously maintain documents so legal glitches don’t explode during estate disposition (see “Pre-empting the problem,” right).
But if advisors encounter problems with executors after the testator dies, there are a variety of strategies and legal remedies they can propose.
Many estate planners have watched siblings declare war on one another once they get down to the grim business of dividing the spoils.
David Wm. Brown, an estate and insurance specialist in Toronto, recalls a case where two estranged brothers found themselves in a familial clash.
Bad feelings ran deep, because one son had previously sued his mother over a financial dispute, prompting his brother to side with her.
Despite that history of discord, the mother’s will split her estate evenly, and named one of the sons as executor. Brown had to be named co-executor to avoid an impasse.
When using an outsider isn’t feasible, tell clients to name an odd number of executors. Townsend knew a couple in their eighties with a net worth of $5 million from a manufacturing company they’d started in the 1960s. They had four children, and the eldest son spent years running the firm and owned all shares.
As the parents drew up their wills, they decided some of the estate should go to the other three siblings, and appointed one sister and the eldest son as executors.
Enter family politics: “The parents were concerned that the eldest son, who is a very poor and procrastinating decision maker, wouldn’t treat the siblings fairly or in a timely manner,” says Townsend. “The daughter would then be caught in a stalemate with her brother.”
His solution: “Add another, independent executor to cast a tie-breaking vote if needed.” The son agreed, and the parents not only added a third executor but also included a new shareholder agreement requiring the son to purchase the parents’ interest in their corporate real estate, thus ensuring liquidity for the other siblings.
Brown points out the will can go even further, with language that specifies a certain member of the family needs to be part of a majority in order to break a tie.
But an odd number of executors may not prevent conflicts from arising.
“If you have three children and they don’t all get along,” adds Galvin, don’t name all three as executors.
Tell clients to inform the proposed executors up front, and ensure they’re willing to take on the responsibility. Initially, experts say, some people will consider it a duty or an honour.
But Marie Richardson, a financial planner and investment advisor in Kingston, Ont., notes that some “step back once they find out what’s involved,” especially if there’s family conflict. “The big thing is to give the executor a will that clearly states what you want to happen.”
When problems arise with an executor
Duffy says she rarely encounters situations where someone’s surprised to discover they’d been named as an executor. Typically, well-drafted wills name alternates, and even second-tier alternates in cases when the testator wants to establish trusts with trustees.
But executors do pull out. Sometimes, says Vancouver estate lawyer Gordon MacRae, the executor’s circumstances shift.
He may want out because he’s in poor health, living abroad or facing his own financial troubles. In such cases, the estate may select a named alternate or hire professional executors with trust companies or law firms.
Under B.C. law, MacRae adds, an executor can renounce the duty, but only if he hasn’t begun divvying up the estate—paying debts or selling assets and presenting himself as the executor.
Once you start, he says, “it is not possible to renounce.” In such cases, the beneficiaries or lawyers for the estate must go to probate court and seek an order to replace the executor.
In cases where the estate’s disposition drags on, lacks proper documentation, or involves some kind of conflict of interest, executors may need to be removed.
MacRae gives the example of one sibling who is the executor, but also lives in the home of the deceased parents and refuses to move out. “The only remedy is to have them removed by a court or possibly mandate a sale.”
To avoid a messy legal fight, tell clients to encourage the beneficiaries and the estate’s representatives to bring in an arbitrator to look for a mediated solution. Other times, advisors need to confront a poorly performing executor directly and push that person to talk to accountants, lawyers and even professional executors.
In such encounters, Townsend says to the executor, “This seems to be beyond you. We’d like to recommend you bring in help.”
The more common problems involve conflicts between beneficiaries and an executor. Duffy says it’s common to hear complaints about an executor taking too long to distribute the estate, or incurring excessive costs.
But the process is time-consuming, especially when there are illiquid holdings or markets dictate it’s a poor time to sell an asset. “It’s hurry up and wait,” as Richardson says.
In other situations, executors make honest mistakes in judgment when attempting to follow the testator’s final wishes.
Richardson recalls three siblings dealing with their parent’s estate. One beneficiary was disabled; the other two had been named co-executors.
Faced with a will containing old and vague language, the co-executors consulted with their lawyer, but misunderstood how to handle the inheritance of the disabled sibling. They’d planned to transfer the assets to their own names and make regular payments to the disabled sibling, but that would have proved problematic.
Following further consultation, they created a trust for their disabled sibling.
Moral of the story, says Richardson, is that the best means of anticipating and ultimately defusing disputes involving beneficiaries and executors is clear and upfront communication. “Sharing information can really de-escalate things.”
And, as both Townsend and Brown observe, downstream conflicts tend to arise when prep work wasn’t done while the parents were still alive and had the ability to hammer out a proper estate plan—including choosing an executor team capable of doing the work.
“The executor is really just the voice of that document [the will], which reflects the wishes of the deceased,” observes Brown.
“You always have that document to fall back on.”
John Lorinc is a Toronto-based financial writer.