This article was originally published by CWB McLean & Partners Wealth Management and has been republished with permission.
Estate planning is an important aspect of your overall wealth management strategy. Yet, while much time and effort goes into the planning and structuring of an ideal estate plan, it seems that the role of the executor, and what their ultimate responsibilities are, gets less attention than it deserves.
We recently hosted a client event on the topic of executorship. Our guest speaker, Danica Doucette-Preville, walked the audience through what she refers to as the "Life Cycle of an Estate" from the perspective of the executor.
In the following blog, Danica offers a summary of the Life Cycle of an Estate and provides guidance on common issues an executor may face in fulfilling their duties in the administration and settlement of an estate.*
Life Cycle of an Estate
1. Pre-planning
In the first stage, pre-planning, there is very little the executor needs to do, as this is the period where the assets and wealth are still being managed and controlled by the testator, who owns the assets. During this period, the estate plan is being finalized, a will is drafted, and an executor elected. In an ideal world, if someone names you as executor in their will, they would speak to you about your interest in taking on this responsibility during the estate pre-planning phase and prior to finalizing their estate documents. If you are named an executor, it is strongly advised that you obtain an advance copy of that person's will and review it with them to ensure you understand their wishes. In addition, ask them where they keep the original copy and request that they establish a folder which sets out key information on their main assets (i.e. property title certificates, bank and investment account statements, online accounts, access to safe deposit boxes).
2. Immediately on passing
The second stage is where the executor's work really begins. Immediately upon passing, the first question you must ask yourself is whether you want to take on this new role. If you choose to accept this role, your first priority is to provide instructions on the disposition of remains and plan a funeral or celebration of life. As executor, you have priority of decision-making over all other family members, though you should discuss with them and take into account their views, especially if you are not the spouse of the deceased. Next, determine what steps need to be taken immediately to preserve key estate assets. For example, you may need to ensure mortgage payments continue to be made from the deceased's bank account and pay bills to prevent interest and penalties from accruing.
3. Probate or administration
The third stage usually occurs within the first month after death and requires a determination by the executor of whether probate is required. Real property held in the deceased's name, as well as large investment portfolios and bank accounts, will require probate. Speak to a lawyer about how they can assist with this process.
4. Payment of debts
Consolidation & liquidation of assets
The fourth stage is often referred to as the "executor's year" - that is, the reasonable period of time that an executor can take to file and receive probate and administer the estate, including identifying the estate's assets and debt and making arrangements to convert certain (or all) assets to cash. Probate is a legal process where a will is reviewed in a court to determine its validity and authenticity. A terminal tax return must be filed within the timeline prescribed by the CRA and the deceased's final taxes must be paid.
5. Distribution and wind up
Finally, once the executor has completed the prior steps, it is now time to distribute the estate to beneficiaries. At this stage, the executor needs to determine how much he or she will claim for their time and efforts, if it hasn't been outlined in the will. The executor must also prepare an accounting for the beneficiaries and obtain a release from them, agreeing with the proposed distributions. It is recommended that the executor obtain a clearance certificate from the CRA prior to making any distributions, otherwise the executor can be personally liable for any outstanding liabilities owing, including taxes.
In summary, being prepared in advance will go a long way toward ensuring the executor can follow through on the wishes of the deceased. In addition, from the executor's point of view, knowing the path and being prepared for the obstacles that may arise should help make the process and experience a smoother one.
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* A note about nomenclature: The person who administers an estate with a will has historically been referred to as an executor or executrix, and the person who administers the estate of a person who died intestate (without a will) was called an "administrator". Now, both executors and administrators are called "personal representatives" in Alberta. While you may see this term a lot in literature regarding estate planning, for ease of reference, we have used the word "executor" in this blog post to refer to personal representatives generally.