By: Mark O’Farrell
A culmination of recent surveys, statistics, and legislative changes indicate a perfect storm for challenges facing executors (known by different names in different provinces), and the winds are already blowing. Of the 14.8 million Canadians aged 45 or older, 99 per cent intend to name a friend or family member as their executor (Statistics Canada, BMO Leger survey). That’s not surprising given the do-it-yourself (DIY) mentality we’ve adapted in this internet era. But are executors, and testators (those for whom executors will act), actually ready?
Not according to ‘Leave A Legacy’ which estimated 70 per cent of Canadians don’t have a current and valid will. Few Canadians understand the simple things that can negate a will.
For example, in most jurisdictions, marriage voids all prior wills, (unless specifically made in anticipation of that marriage). Dying without a will, called dying intestate, leaves a plethora of problems beyond the scope of this article, but it’s worth noting there won’t be an executor; the estate will be distributed by a court-appointed administrator, based solely on the provincial or territorial government’s view of how the assets should be distributed. (Given how well most governments manage our public coffers, the prospect of them managing your private assets may be more than a little scary.)
Even when there is a valid and current will, surveyed executors already report having emotional issues (31 per cent), administrative issues (47 per cent), and legal issues (26 per cent). Legal issues can arise from beneficiaries, creditors, charities, third parties, and/or service providers. There is so much risk that Canadian executors can now purchase insurance to protect themselves. Scot Dalton, president of ERAssure, the company providing executor insurance, summarizes it well. “There are 18 areas with supporting case law where negligence by the executor can result in personal liability to the beneficiaries and creditors of the estate.”
Given that executors have been successfully settling estates for eons, it would be fair to wonder what’s changed. In a word, everything. Financial products have become more complex and on-line accounts, user names, and pass codes have made it far more difficult to even find assets. The internet has also made everyone armchair experts with instant access to information and instant communication devices to voice their opinions. Family dynamics have also vastly changed. While once there was a sister, there now may be a sister, step sister, step sister-in-law, step sister from a different spouse, and the list goes on and on. The more complex the family structure, the greater potential for litigation.
Meanwhile, declining tax bases and increased property values are creating increased scrutiny on probate fees. Ontario is leading the way, with changes other provinces may follow, to the collection of probate fees, called Estate Administration Tax in that province, with the acronym EAT, presumably because it’s the last bite they take. They are moving the responsibility, this year, from Justice Ontario to the Ministry of Revenue. The difference is audit authority, with sharp teeth, including fines and even possible incarceration for executors.
The conveniently beneficial valuations of old are out the window, while meticulous record-keeping and professional valuations will become the new norm. Executors increasingly have skin in the game, but the risk for many is whether they are aware of, and are prepared for, what they’re in for.
Executors need help, but until now, there has been nowhere for the DIY executor to turn. They may need to contact as many as 17 different professions in the course of their duties, few of whom understand the role of the other 16. Then there are all the government agencies, both federal and provincial; pension plans; banks; investment firms; life insurers; P&C insurers; mortgage companies and mortgage insurers’ gas, retail and other credit companies; loyalty cards; phone; cable; internet; eMail accounts; alarm companies; memberships; fraternities; oil, gas and electricity firms; on-line accounts; and social media (ie: how would you close a Facebook account without the password?)
It may be the hardest job anybody never applied for. Fortunately, help is now available.
The Canadian Institute of Certified Executor Advisors (www.cicea.ca) offers an educational program and designation (CEA), available to all of the professions an executor might encounter, providing a practical level of knowledge regarding all of the other professions. It covers a wide range of where and how estates can go wrong, so CEAs can point out the potential potholes before the executor drives through them. Ideally, executors should seek CEAs before a death occurs to identify risk factors, facilitate communication between executors and testators, and plan a route that has no potholes at all. Being proactive is much easier and has far more options than being reactive.
Consider the difference between a regular professional and a professional who is also a CEA. A regular real estate agent may not understand how estate sales are completely different than normal real estate transactions; a lawyer may not understand the ramifications of JLTD insurance options; bank staff may not understand per stirpes distribution and a regular financial adviser may not understand how Henson trusts are unique. Certified Executor Advisors may only be experts in their own field, but they have the broad knowledge the executor and testator need and have a network of CEAs in other professions whom they can call on when the situation warrants.
The DIY executor is certainly here to stay, but as the perfect storm circles overhead, at least they don’t need to push to boat out on their own. Help is now available. Think of CEAs as a crew who can help steer the ship.
Mark O’Farrell (BA, CFP, CLU, CHFC, TEP, CEA)
is president of the Canadian Institute of Certified Executor Advisors (www.cicea.ca).