Becoming a client’s executor or trustee is risky. That’s because beneficiaries could accuse you of conflict of interest. Also, as executor, you’re liable for any mistakes you make, and for any losses you cause to the estate, explains Tom Junkin, senior vice-president of Personal Trust Services at Fiduciary Trust Canada in Calgary.
And administering an estate can take about 12 to 18 months, which means you’ll need to take time away from serving other clients.
Further, IIROC has cracked down on advisors accepting such appointments. So, you need to review new regulations and weigh your options.
In 2013, IIROC established Dealer Member Rule 43.2(5) and revised Dealer Member Rule 18.14. Both deal with registered advisors’ outside business activities.
Those rules mean an advisor can’t act as executor or trustee for a former or current client, unless that client is related to the advisor as defined by Canada’s Income Tax Act (see “Definition of related person,” page 11).
But in 2014, IIROC proposed altering the rules, in part because IIROC firms complained the rules “unduly favour[ed] bank-owned Dealer Members, who have affiliated trust divisions to [which] clients can be referred.”
So if an advisor has a client who wants her to be his executor or trustee, the SRO has proposed to allow the advisor to do so, as long as she reassigns that client’s accounts to another advisor. But, she can’t give that account to her manager or someone on her team.
Also, if the rules are approved, that advisor would need to tell her compliance department about her appointment, and compliance must then ensure she’s fully disengaged with the client. Further, if that advisor also handles the accounts of family members who are beneficiaries of the former client, her firm would have to be aware and can still forbid her from becoming executor. If a client is related, advisors are still allowed to act as executor or trustee, as long as the advisor tells the compliance department.
If the proposal is approved, advisors who are currently executors or trustees for non-related clients will have until June 13, 2015 to either:
- transfer the accounts; or
- resign as executor.
Winding up appointments
If you’ve been named as a non-related client’s trustee or executor, but would rather continue as his advisor, explain current regulations.
“You can say, ‘You’ve appointed me in your will but new regulations won’t permit me to accept that appointment and continue as your advisor,’ ” says Junkin.
Instead, you can refer that client to another estate planning professional or a trust company. Or, you can suggest the client pick a family member.
If your client has already passed away, follow the instructions below.
You’re named as executor, but haven’t accepted
You’ll have to renounce the appointment. Also, make sure that you don’t work on the estate (see “Avoid intermeddling,” below).
You’re currently an executor
You’ll have to review the will and get a court order to be removed.
You’re currently a trustee
“The actions required to resign will depend on the trust documents,” says Junkin. “Some are clear about how a trustee can resign and how a new person can be appointed.” If the documents don’t address resignation, you’ll need to get a court order to be removed.
Getting a court order generally takes a few months and involves:
- getting legal advice;
- drafting an application to the court;
- getting the court’s approval of your resignation;
- writing to beneficiaries and having them sign consent forms; and
- possibly compiling a “passing of accounts,” which means formally detailing everything you’ve done while managing a client’s estate or trust.
Junkin also warns it often takes longer to find replacement executors than trustees, given the amount of responsibility involved.
If a client has named you in his will as executor, you don’t have to accept the appointment, says Fiduciary Trust Canada’s Tom Junkin. But if you renounce, you still need to avoid intermeddling in that person’s estate.
He explains, “If you begin to make decisions or act on behalf of that clients’ estate, then you could be said to have intermeddled and to have accepted the role.” As such, you’d need to keep that estate at arm’s length.
Advising a deceased client’s family on how they could handle his estate would be permitted, but taking possession of assets named in his will, or giving directions to banks and institutions on his behalf, may count as intermeddling.
Katie Keir is content editor of Advisor Group.