Before agreeing to becoming the Executor for a friend or family member, it is important for you to obtain an understanding of the duties you would be assuming. As an Executor, you have a fiduciary duty, which means you are obligated to act in the best interests of the estate and its beneficiaries. Being an Executor comes with many responsibilities, ranging anywhere from securing the home the deceased lived in, making financial decisions, filing income tax returns, satisfying creditors, to making funeral arrangements. For the purposes of this article, we will focus on the financial component with respect to the investment accounts and the underlying holdings.
Let’s use Jane Smith (widowed) who named her eldest daughter, Anne, as her Executor. Jane has three children and her Will clearly states that her estate is to be divided equally amongst her children. We receive a phone call from Anne notifying us that her mother has passed away. We can easily verify this information as we have our clients complete a professional checklist which includes their Executor’s name. Because we can verify the Executor so quickly, we can have a meaningful conversation to advise the Executor of the next steps. After the phone call, we notify our back office of the date of death, and the name of Jane Smith’s investment accounts is changed to “Estate of Jane Smith.”
During this initial call, we also schedule an in-person meeting (if possible) with Anne to go through the estate documentation together. Following the call, we provide Anne with an email containing all of the documentation we will require (i.e. original or notarized copy of the death certificate, notarized copy of the Will, beneficiary identification, etc.)
Anne comes in for a meeting to provide the estate documentation to us. One of the first things we look at is the notarized copy of the Will. The Will contains a key section which outlines the powers of the Executor. For example, some Wills state that the Executor is to liquidate the investments immediately. When we see this, it is a relatively quick meeting with the Executor. Other Wills state that only sells are allowed in the account, but they can be maintained. In these situations, we then place a block on the account to restrict all buys and only allow for liquidating trades. Certain Wills allow for the Executor to replace assets, which allows us to assist and carry on our role as the Portfolio Manager. It is important to note that not all Wills use the same terminology.
After reading Jane Smith’s Will, we note that she has granted Anne the power as Executor to replace assets. As a Portfolio Manager, we can continue to invest Jane’s accounts. During this discussion, Anne provides some information on her cash flow needs as the Executor, and we provide some comments on how the market has been. In our meeting with Anne, we go through the general items for her to consider regarding the investments and administration of her mother’s estate. The following are the most common items we will cover:
1) Review the terms of the Will: One of the first things we ask for is a copy of the Will. There are multiple reasons we will look at the will, one of them being to see the section
that lays out the powers of the Trustee(s). It is crucial that you review the terms of the Will carefully to determine what specific powers you have as Executor to retain assets, make the day-to-day investment decisions, and reinvest. In our experience, providing your Executor with more powers enables flexibility.
2) Additional notarized copies of the death certificate and Will: Depending on how many financial institutions you need to contact, it may be best to request several notarized copies of the death certificate and Will. Depending on the size of the investment account, and how the account was set up, you may require letters probate too.
3) Create a contact information list and an asset list: Obtain a list of all investments and which financial institutions they are held at, including the type of investment account (i.e. RRIF, TFSA, non-registered, Joint With Right of Survivorship, etc.). Make a note of all contact names, such as Portfolio Managers, Wealth Advisors and Associates. The name and contact information will be included on some investment statements.
One of your roles as Executor will be to create a consolidated list of all assets at the time of death, with market values as of the market close the day before death. This information, along with the adjusted cost base, will be used to calculate the realized gains (losses) on the deceased’s final tax returns. When you contact the financial institution to inform them of the date of death, we recommend requesting this information at that time as well.
Completeness is always a challenge for Executors. Completeness refers to the risk that the Executor hasn’t identified all of the deceased’s accounts. The more accounts the deceased individual has at different financial institutions, the more difficult it will be for the Executor. When many Executors start, they may not be aware of where all of the deceased’s assets are held. If you are asked to be an Executor, we recommend sitting down with the individual and going through a list of their accounts and where they are held as a starting point. Before agreeing to become their Executor, we would suggest asking them to consolidate their accounts at one financial institution to simplify the future administration of the estate.
4) Notify all financial institutions: Once you have obtained your contact list which contains the relevant contact information, notify the financial institution(s) as soon as possible after the date of death. When you call to notify the financial institution(s) of the date of death, it is also helpful to obtain an understanding of what documents are required by each financial institution.
5) Investments not held at an investment firm: Make a note of all investments that are not held in nominee name. An example of this would be a physical share certificate. Anyone who has had to change the name on a share certificate will know the work involved and the associated costs. Clearly make a note of all old defunct security statements. If in doubt, you may bring the certificates in to your Portfolio Manager or Wealth Advisor to do a search. We encourage everyone holding physical share certificates to deposit them into a financial institution to reduce costs to your estate and avoid passing on unnecessary work to your Executor.
6) Consolidate multiple investment accounts: Provided the Executor has been granted the power/flexibility, they will have the responsibility, not only for making investment decisions relating to all accounts, timing of distributions, and even the financial institution where the investments are held at, but also for ensuring and safeguarding other assets, such as real estate, vehicles, personal effects and caring for animals owned by the deceased. In addition to this, all creditors, including Canada Revenue Agency, must be considered. We recommend an Executor consolidate multiple investment accounts, if not done so already, for simplicity and to be able to work with one Wealth Advisor or Portfolio Manager. It will also be easier to perform distribution calculations.
As an Executor, you can open new investment accounts at a different financial institution. Many Executors are not aware they can consolidate accounts. Consolidation can help simplify things considerably. For example, if you are an Executor and know the estate will be open for quite some time, you may wish to transfer the assets to the same Portfolio Manager or Wealth Advisor you deal with. Alternatively, you may want a Portfolio Manager to handle the investments for the duration the estate is open. If the deceased previously dealt with one Wealth Advisor, you have the ability to open an estate account with a Portfolio Manager and transfer the assets there in the meantime. If you do consolidate, make sure you obtain all the information you require at the previous financial institution before the accounts are closed.
7) Investment asset allocation: Unless you work with a Portfolio Manager, one of the toughest decisions you will have to make is whether to hold, sell, or buy specific investments. If the Executor is a beneficiary, along with others, it is important to both avoid conflicts and act as a fiduciary. It is possible that some of the beneficiaries would rather have the investments in cash equivalents or short-term fixed income, rather than in equity. In some cases, when reviewing the Will and investment objectives of the ultimate beneficiaries, it makes sense to liquidate the investments and move the proceeds into cash equivalents. This may be especially important if one of the beneficiaries objects to taking on any risk. The downside to this is with current interest rates at historic lows, and inflation at 30-year highs, the beneficiaries may lose their purchasing power depending on how long the investment account remains in cash equivalents or fixed income. Some estates remain open well in excess of one year. It is important to have a discussion with your Portfolio Manager or Wealth Advisor and determine what asset allocation is best for the estate given the projected time horizon.
8) Determine accrued interest and dividends owing: Obtain a list of accrued interest and dividends declared but not paid as of the date of death. Depending on the amount, it may make sense to file a rights or things tax return to take advantage of another set of basic exemptions. As an Executor, you are required to file the final tax return. In addition, there are three optional returns which may help you reduce or eliminate taxes payable for the deceased individual. One of these optional returns is a rights or things tax return, noted above. In a rights or things tax return, amounts that the deceased had not yet received at the time of death, but would have been included in their income once received, can be filed under this optional return. The other two optional returns are the return for a partner or proprietor (only applicable if the individual is a partner in, or the sole proprietor of, a business) and a return for income from a graduated rate estate (if applicable).
9) Some investment accounts bypass probate: Some investments may be designated to pass to beneficiaries outside of the estate. This is common for insurance products, registered accounts, and joint with right of survivorship accounts. These investments essentially bypass the estate. In administering the estate, it is important to understand which accounts will and won’t bypass probate. If probate is applicable, then this information is important to note in communications with your lawyer. As the Executor, you will likely set up a meeting with a lawyer to let them know which assets are subject to probate so appropriate filings are made. In Jane Smith’s example, probate was applicable as she was the sole owner of a non-registered account.
10) Fiduciary responsibility of the Executor: If an Executor is negligent in discharging his or her duties, they can be held liable. It is completely allowable, and indeed advisable, for an Executor to seek professional help. You always have the right to decline being an Executor. If you do not want to accept this responsibility, you should renounce as Executor immediately. You may seek the advice of a lawyer, corporate Executor and/or trustee at any time.
Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email [email protected] or visit greenardgroup.com/secondopinion.
