As advisors increasingly embrace the family office and holistic wealth planning, conversations with clients frequently turn to a basic and significant aspect of estate planning: the office of the executor or personal representative (estate trustee in Ontario and liquidator in Quebec).
In its simplest form, the executor is the person or entity appointed to carry out the terms of a will, including estate administration.
In naming an executor, several things must be considered, including the executor’s residency and whether a bond or security is required to be posted for an out-of-jurisdiction (province or country) executor.
An estate bond or security (also known as a probate bond) is essentially an insurance policy that the executor is compelled by law to take out, ensuring that the executor faithfully carries out their fiduciary responsibilities and, at the same time, protects the interests of the estate’s beneficiaries in the event of mismanagement.
Common-law provinces in Canada generally require the administrator of an intestate estate to post an estate bond, irrespective of the administrator’s residency in many cases. In addition, most common-law provinces in Canada require the posting of an estate bond if the executor named in the deceased person’s will resides out of province or country.
Apart from the logistical issues that attend the naming of a non-resident executor, a particularly vexing issue is the time, effort and cost of obtaining the required estate bond.
In many instances, the executor is expected to pay for the bond’s cost. This cost, sometimes paid directly from estate resources, is required to be at least the sworn value of the estate (or in some provinces the value of the deceased’s estate located in the province) or even as high as double the estate’s value.
Once an executor’s appointment is approved by the local probate or surrogate courts, the executor can seek reimbursement from the estate. Reimbursement can occur as soon as the executor receives the order from the court and the estate is in a position to reimburse the executor.
Clients may need to revise their wills if they’ve already named out-of-province/country executors. This isn’t an option for clients who’ve lost testamentary capacity and, subsequently, the ability to revise their wills.
However, the estate administration and surrogate acts of these common-law provinces provide, under certain conditions, an exemption from posting an estate bond, or a reduction or complete dispensation from posting bond.
Exemption from posting bond
Depending on the province, non-resident executors are provided exemptions from posting bond in certain scenarios:
- There are two or more executors, and one resides in the province.
- The public guardian and trustee or other provincial government agency is named executor.
- A trust company is named sole or co-executor.
In Ontario, if the non-resident executor “resides elsewhere in the commonwealth,” no posting of bond is required. For example, an executor in Australia would be exempt from posting bond, but an executor in the United States wouldn’t.
Bond reduction or dispensation
There are also various criteria for the non-resident executor to apply for a reduction of the bond value or a complete dispensation from posting bond:
- The estate has no debts.
- Creditors have been paid.
- Estate value is below a certain threshold.
- The administrator is also the estate’s sole beneficiary.
- All beneficiaries are adults and provide written consent to waive bond.
- Beneficiaries are minors and/or incapacitated, and the public guardian and trustee consents to waive bond.
The bond is typically cancelled when final accounts are passed, the residue of the estate is paid to the beneficiaries, and, in some cases, the executor secures written release from the beneficiaries. This process generally takes several weeks.
Each province/territory in Canada has different rules related to non-resident executors, and advisors should familiarize themselves with the rules in their particular jurisdictions to help ensure more efficient estate administration.
Tim Brisibe, TEP, is Director, Tax & Estate Planning at Mackenzie Investments.