Breaking down the duty to inform

This article appears in the February 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Executors need to be transparent with beneficiaries when administering an estate. Not only is an executor obliged to maintain detailed accounts and provide information to beneficiaries under a will, but it’s also in their best interest to communicate throughout the estate administration.

“Frankly, if you’re an executor and you don’t share information, you should expect that there are going to be questions,” said Caroline Kiva, an estate lawyer with Thompson Dorfman Sweatman LLP in Winnipeg. “If a beneficiary feels that things are not happening, they could go to court.”

Executors have a duty to inform beneficiaries of their interest in a will. They also must provide a copy of the will to residual beneficiaries — those who share in the estate once taxes and debts have been paid and gifts distributed. (Non-residual beneficiaries are provided only with the part of the will pertaining to their gift.)

Executors also have a “duty to account” to residual beneficiaries. That means they must determine all of the estate’s assets and liabilities and keep a record of all income or expenses during the estate administration. Executors must be ready to provide that information to beneficiaries.

Tannis Dawson, vice-president of high net worth planning with TD Wealth in Winnipeg, said it’s not uncommon for executors to misplace a receipt or simply not obtain one. But “if you want to get reimbursed, you have to prove that the expense occurred.”

While some beneficiaries might accept an undocumented expense, she said, “you might have that one beneficiary who says, ‘Nope, I want to see that receipt.’”

Before distributing a gift under the will, Dawson said, the executor should ask the beneficiary to sign a release indemnifying the executor should there be a dispute: “As an executor, you’re obligated in terms of liability for any money you’ve distributed.”

Executors also need residual beneficiaries to sign off on the final accounting of the estate. Beneficiaries who think they haven’t been provided proper estate accounts can refuse to sign and instead ask for a formal “passing of accounts” in court. An executor could also voluntarily seek a passing of accounts in order to get the court’s approval before making final distributions.

If an executor is found by a court to have failed to account properly, they could be held personally liable for any losses or perceived losses to the beneficiaries, said Sanjana Bhatia, director of tax and insurance planning with Sun Life Financial in Waterloo, Ont. Executors should consider working with an accountant or a lawyer on the application for probate or the passing of account process, she said.

Another reason to keep good records is so executors can justify their compensation if they’ve chosen to take a fee, Dawson said. Records will show how much time they spent on estate tasks.

Beyond their legal obligations to inform and keep accounts, executors should anticipate if an estate matter will become contentious and be proactive in addressing the issue with beneficiaries.

How much to spend on a funeral is a common source of contention, Dawson said, particularly if the testator didn’t address the issue in their will. One family member could decide to pay for funeral expenses on their own, expecting to be reimbursed from the estate, which can be a problem if other beneficiaries view the expense as excessive.

“It needs a discussion first,” Dawson said. “Keep records of emails of what was agreed to.”

Kiva sends residual beneficiaries the estate inventory on behalf of her executor clients. If a beneficiary has an interest in a personal effect of the testator, it can be accounted for out of their share of the estate, she said.

“If we’re filing a document in court, and it’s a matter of public record, there’s no reason the beneficiaries shouldn’t have access to it,” Kiva said. “We don’t have to make it difficult for them.”