When the executor is also a beneficiary

It seems like a logical choice. Instead of paying a professional to be your executor, why not choose a beneficiary to do the job instead? It can work, but mixing those roles can create complications for an estate.

A structure that can make sense (or not)

Joseph Carpio, associate at Polak McKay & Hawkshaw in Ajax, Ont., says about 80% of the estates he comes across have an executor who’s also a beneficiary. “Most of the wills we do are just for your run-of-the-mill family with children—it’s quite common to see spouses appointing each other, and then their adult children or a child as an alternate.”

As Carpio explains, it’s a structure that can make a lot of sense. “A spouse or children are quite familiar with your assets,” he points out. “They don’t have to do extensive searching. The family knows best as to what you own and what you owe, and is conveniently placed to handle your own end-of-life situation.”

That’s not to say it’s a good choice for everybody. If the family is already having problems getting along, naming one child who’s already an intended beneficiary to be an executor is probably a recipe for further conflict.

“People should recognize, once you pass away, it’s the people left who are handling your affairs,” Carpio says. “You’re no longer there to act as a mediator or to evaluate how the people are going to deal with it. So beneficiaries and executors do have to be in touch, especially when it comes to personal effects.” Appointing an outside party as executor can avoid “qualms among people for executor’s fees, for valuations or for distributions,” Carpio says. “Someone else [will] take care of it.”

For those determined to name a beneficiary as executor, Carpio suggests drawing down the value of the estate prior to death. Such a move can help eliminate tax hassles, speed up estate distribution and potentially minimize conflict with other beneficiaries.

“If you’ve already distributed portions of your estate while alive, then there are fewer beneficiaries to give notice to and, ultimately, give account to when your executor is finally ready to distribute the estate,” he says.

The family dynamic

Jessica Lo, associate at Lindsay Kenney LLP in Vancouver, says appointing a beneficiary as executor can be ideal if testators first assess family relationships. The perception of inequality within the family remains a key source of estate litigation, she explains, and appointing an adult child to be your executor could add to that perception.

“Sometimes there’s a tendency for will makers, and even beneficiaries, to think that being appointed executor means the will maker is favouring them somehow,” she says. “You [are] going to be making things really difficult in the relationship between that beneficiary and the others. You are essentially isolating that beneficiary.”

Some testators think appointing all children as co-executors may solve such problems, but it’s not recommended.

“They think it’s fair to everybody,” Lo says. “But it could very well hinder the efficiency of estate administration, since executors need to act jointly, unless there’s some majority clause; and even then it might be problematic, particularly in cases where it’s hard to even get two co-executors on the same page.”

Lo acknowledges that the problems can be equally difficult for the executor. “Balancing your interests as a beneficiary with your obligations as an executor can be a difficult task,” she says. “But fiduciary obligations as an executor must come first—there are no exceptions.”

Say an executor wishes to purchase an asset from the estate they’re administering. As Lo explains, while this is permitted, the executor could be tempted to lowball a valuation or time the valuation in a way that’s advantageous to him, the buyer. “Executors are obviously going to be more in the know about estate matters,” she says.

But, they should not allow their personal interests to conflict with what’s best for the beneficiaries. “They’re risking personal liability and can be held legally accountable,” Lo says.

When appointing a beneficiary as executor

• Does he have conflict with other beneficiaries? An executor known to have conflict with other beneficiaries can mean further conflict and discord, or even legal challenges.
• Is he a poor communicator? An executor inclined to privacy may cause distrust among beneficiaries looking for updates on the progress of estate distributions.
• Will there be a legal challenge? Appointing a third-party executor in the first place may diffuse accusations of bias or misconduct from other beneficiaries.
• Would the executor be the trustee of his own trust? In most cases, executors are the trustees of any trusts created by a will. An executor in charge of his own trust would likely defeat the purpose of the trust due to tax attribution rules.

James Dolan is a Vancouver-based financial writer.