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Executors and Estate Administration – Are Trust Companies a good option?

Choosing an executor is a critical decision. Before choosing who should manage your estate when you die the most important task is to ask if the person contemplated is up to the job. The ideal executor will follow your wishes, know how to administer the estate, be honest and fair, and be prepared to do the job in a timely and proper fashion.

An Estate Trustee’s most basic duty is to carry out the deceased’s testamentary wishes as expressed in his or her will.1 Most people place their trust in their spouse or children, and, out of a sense of fairness, will often treat their children equally and name all of them as estate trustees of their estate. That sometimes proves to be the wrong criteria for choosing an executor. The real criteria should be who will competently and efficiently carry out the testator’s wishes and treat the beneficiaries properly. The appropriate candidate must appreciate the fiduciary nature of the executor’s role.2

Our firm often deals with estate litigation rooted in the testator choosing the wrong person to be the executor. Hundreds of thousands of dollars are wasted on litigation because the person chosen to be the executor did not comply with their fiduciary duties or just did not know how to be an executor. Some executors, who are also beneficiaries, favour their own interests over the other beneficiaries.

There is often a conflict of interest where the executor cannot be expected to act for the benefit of the estate when his or her interests motivates a different course of action. For example, a child who is appointed as an executor who happens to be living in the deceased’s house rent free might not be motivated to sell that house notwithstanding that the executor wanted the house sold and the proceeds shared with all the children.

Appointing more than one person can result in delay, because of the executors’ animus to one another. There may also be a deadlock because even when acting in good faith the executors may have different ideas on how to exercise their discretion in administering the estate. If they have to make unanimous decisions that leads to deadlock. Even if decisions are supposed to be by a majority vote litigation may result if the executors refuse to work together.

It is also not uncommon for executors to be ignorant of the law and feel entitled to do as they please. They ignore their fiduciary responsibility to treat like beneficiaries with an even hand and act contrary to the testator’s wishes and the discretion accorded to the executor under the Will. This creates friction and controversy instead of avoiding it.

The case law is filled with examples of children fighting over the parents’ estates. These cases are often driven by emotion3 and after years of litigation can leave “what had been a warm, loving family unit in tatters”.4

Conventional wisdom seems to be that spouses appoint spouses as their executors. If there is no spouse people often appoint all their children as executors. Why, perhaps the testator wants to treat all of their children equally and name them all as executors. This poses some real problems. For example:

  1. If one of your children lives outside of Ontario, they may have to post security, which adds an unnecessary expense to the administration of the Estate;5
  2. What if one of your children needs more help than the others?
  3. What if your children don’t get along?
  4. What if your Estate is complex and you do not trust your children to administer it effectively?

Some people will therefore only name some of their children as their estate trustees. However, doing so may inadvertently create the perception that you love, or trust, one child more than the other. Moreover, the child named as the estate trustee will either receive a larger portion of the Estate by receiving compensation6 or be forced to fulfill all of the onerous obligations of an Estate Trustee and sacrifice time that would otherwise be spent with his or her family without any compensation.

So what can a testator do to avoid having their loved ones fight over their estate?

One option is to appoint the family lawyer or accountant as an executor. If that professional has the expertise and knowledge of the family that might be a viable option. However, there is no guarantee that the professional chosen won’t predecease the testator or will still be willing to act with the testator passes away. Moreover, depending on the nature of the estate, the expertise of the person chosen may not lend itself to the most effective administration of the estate. A lawyer with expertise in estate planning may not have the skill to manage the testator’s business. An accountant who knows tax like the back of his hand may not have the skill set to stickhandle the difficult personalities of the beneficiaries and exercise the discretion the Will provides to the executor. In these circumstances testators might consider a corporate trustee.

There are a couple of reasons why a corporate trustee may make sense:

  1. Experience: They have the institutional knowledge and experience to administer large and complex estates properly. They know when and what tax returns to file, how to deal with property inside and outside Ontario.
  2. Neutral: If there is a property that has to be sold like a cottage and one child wants to keep it in the family and the other wants to sell it there will be conflict. There is a wealth of experience in dealing with these issues if the will provides discretion to the executor to deal with it. Appointing an institution preempts the argument that the executor does not act with an even hand or breaches their fiduciary duty.
  3. Long Term Investments and administration: Some estate include assets that cannot be immediately liquidated and expertise is required to administer them that the beneficiaries do not have on their own. The experience of the corporate trustees makes it easier to tap into those resources necessary to deal with the business and tax complexities that arise.
  4. Security: Professionals are made up of people. Even honest people with expertise sometimes make mistakes. Sometimes those mistakes cost the estate a lot of money. For larger, more complex estates, it is important to consider what happens if the executor makes a mistake. The beneficiaries can always sue, but the executor may not have enough money to pay. A Trust Company has the infrastructure and assets to ensure that beneficiaries will be able to recover potential losses as a result of a mistake or negligence.

Corporate trustees are not the only good option or the best option for every estate. There are downsides to a corporate trustee as well. They are often more expensive. But, experience shows that often what seems expensive ends up being inexpensive and what starts as inexpensive ends up being expensive.

The bottom line – for some families the best way to insulate the estate from conflict is to appoint a member of the family. For others it’s the family lawyer or accountant. But when there is a complex estate or looming friction on the horizon a corporate trustee may be a good option.

Footnotes
  1.   McDougald Estate v. Gooderham, 2003 CarswellOnt 3013 (Ont. S.C.J.)
     
  2.   Brian A. Schnurr, in his seminal text, Schnurr, Estate Litigation, 2nd Ed.explains, “ A fiduciary is one who stands in a position of trust to another individual. . . . Where one party has placed trust and confidence in another and the other has accepted expressly or by operation of law, a fiduciary is established. The party bound by the relationship, the fiduciary, is called the trustee and the party reposing the trust and confidence is called the beneficiary. Fiduciary duty is an equitable doctrine originating in trust. Generally speaking, a fiduciary is required to act in the best interests of the person on whose behalf he is acting, to avoid all conflicts of interest, and to strictly account for all property held or administered on behalf of that person”.
     
  3.   Geister v. Weiland, 2011 CarswellOnt 12792 (Ont. S.C.J.) at para. 12; Naherny v. Naherny, 2011 CarswellMan 282 (MQBQ) at para. 85; Mayer v. Rubin, 2018 CarswellOnt 4188 (Ont. S.C.J.); Eastbrooks Estate v. Barry, 2016 CarswellNB 415 (NBCA).
     
  4.   Gamble v. McCormick, 2002 CarswellOnt 2189 (Ont. S.C.J.) at para. 13
     
  5.   For a more detailed analysis of this issue, please see: https://www.wagnersidlofsky.com/non-resident-probate-application
     
  6.   Compensation, unlike inheritance, is characterized as taxable income. So, even if you believe that the child appointed should be compensated for their time and efforts, characterizing it as compensation introduces tax inefficiencies.
     

David Wagner

The author of this blog is David Wagner. David is an associate at Wagner Sidlofsky LLP.

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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