Estate planning: helping families choose the right executor

An advisor working with a client on the decision on whether to use a professional executor or a family member to handle the estate faces a list of pros and cons for either option. And there are potentially hazardous consequences if the advisor accepts the role as a professional favour.

“A man’s dying is more the survivor’s affair than his own,” wrote Thomas Mann in The Magic Mountain, published in 1924. Some executors, especially those accepting the responsibility as an unpaid family favour would no doubt concur, even if they are not familiar with Mann’s work.

The decision has become more complex since Mann’s time and will continue to do so as investment and insurance products proliferate, both in numbers and sophistication, and baby boomers receive larger-than-ever wealth transfers.

Cost tops the list of disadvantages of professional services and cancels out many smaller estates. “The services of a corporate executor are not available to every Canadian,” explains Tom Junkin, senior vice president of Calgary-based Fiduciary Trust Company of Canada, a wholly-owned subsidiary of Toronto-based Franklin Templeton Investments. An estate worth less than $1 million presents a cost-benefit problem since executors often charge minimum fees that become disproportionately expensive for smaller estates.

Expertise in dealing with the increasing range of complexities ranks high on the list of advantages of using a professional executor, Junkin notes. “The average lay person might administer two or three estates in their lifetimes — compare that to the expertise in a trust company where employees typically administer thirty estates in a year and hundreds over the course of a career.”

This calls into play one of the executor’s central responsibilities: to maximize the value of estate assets for beneficiaries. That requirement sensitizes the professional executor to ask questions about fair market value of specialized assets such as antiques and other family heirlooms.

In disposing of several paintings recently, Junkin elected to send a painting to auction even though a relative of the deceased agreed to pay the value set by a professional appraiser. The painting sold for more than the appraised value, so the estate received more than otherwise would have been the case.

Complexities that would trouble the average family member also include disposal of foreign assets. That Florida condo might attract estate taxes even if owned by a Canadian. In addition, the applicability of taxes is not strictly an American calculation since it hinges on total value of assets world-wide, (which then brings currency calculations into play).

For 2006, American law exempts estates where total worldwide value is below $2 million US, up from last year’s threshold of $1.5 million US. Moreover, the process of calculating permitted deductions would leave the family member wondering about resigning from the responsibilities of executor. The legalities involved in disposing of Mexican assets might have a similar effect since that could involve issues such as ownership by foreigners of waterfront land and since Mexican law does not recognize arrangements such as joint property with right of survivorship.

These issues may necessitate two wills, one for Canadian assets and one for Mexican assets. Using a professional means that no family member becomes exposed to personal liability, even if acting in good faith. “If you’re acting as executor and make a mistake that causes financial harm to the estate, you’re personally liable to the full extent of your net worth,” Junkin warns.

That choking point has led some dealer firms to prohibit advisors from acting as executor, especially since acting for several clients increases total potential liability and may also expose the firm to legal claims.

Al Emid is a Toronto-based freelance writer

(02/07/06)

Al Emid

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