When can the executor be reimbursed for expenses?

When an executor is compensated for his or her work on an estate, the amount he or she receives is separate from the reimbursement of expenses. Unless a will specifically says otherwise, the fee is over and above being paid back for expenses. In this post I'd like to look at the expenses rather than the fee.

It's always a good idea for an executor to try to limit his or her personal involvement with estate expenses by submitting bills directly to the bank where the deceased had an account. Many know that they can submit the funeral bill to the bank so that the bank pays that bill directly without the funds passing through the executor's hands. However, this arrangement also works for other bills that are clearly the deceased's bills, such as property tax for the deceased's home, or the final heat and electricity bills. It's worth a chat with a banking officer to see what can be done.

Of course, this idea only works when there is cash available in the deceased's account. Realistically there might not be enough funds. There are plenty of estates which consist of a house and a RRIF and not much more. In those cases, submitting bills isn't going to be helpful and the executor just might end up paying for things (funeral, lawyer, accountant, bills, tax) out of his or her own money.

When hiring a lawyer to obtain a Grant of Probate, you will likely find that lawyers who do a lot of estate work won't even bill you until they get the Probate. This is because they know their bill should be paid by the estate and that you likely won't be able to liquidate estate assets unless you have the probate.

I always advise executors not to take their fee until the estate is finished and the fee has been approved either by the residuary beneficiaries or the court (except for very unusual circumstances). However, that's not the case with expenses which the executor pays directly out of pocket. When the executor is out of pocket, of course he or she needs to be reimbursed as quickly as possible. The executor doesn't have to wait for any specific time or event.

Being reimbursed from the estate means that money has become available, either because an asset has been sold or an investment has been collected in by the executor. These funds would have been deposited into the estate bank account set up by the executor around the time he or she applied for probate. This is where any reimbursement should be taken from. Keep the arrangements simple and transparent. Don't take money directly out of accounts or investments owned by the deceased.

I would suggest that the executor reimburse himself or herself once a month out of the estate account. This way ALL money taken by the executor can easily be accounted for in one statement, and the executor never amasses unmanageable debts on behalf of the estate.

The executor should keep a receipt for every expense and know which cheque out of the estate account paid for which expenses. Don't keep track in your head; keep track on paper or computer. If he or she is claiming for mileage, it should be calculated on paper, which would then be used like a receipt (in my Alberta Probate book I provided a form for this that you can either print or download, as well as forms for all of the executor's record-keeping and accounting).

Now let me add the inevitable caveat. Be careful about what kind of thing you're claiming as an expense and don't make the mistake of thinking that everything even remotely connected to the estate is a legitimate expense. For example, flying your family members to the funeral is an individual's expense, not an estate expense. Getting that massage or that expensive champagne to manage your stress is your own expense. Remember that the residuary beneficiaries are going to examine your accounting at the end of the estate and if you have reimbursed yourself for inappropriate items, you will probably have to repay them to the estate.

Here's the second caveat. Don't be a spendthrift with estate money. The courts won't like it at all should you end up there, and that won't go well for you. Also, there might not even be enough estate funds to pay you back if the estate is small and there are debts and taxes to be paid.

What would someone have to pay you for your business for you not to come to work tomorrow?

When I talk to business owners about the future of their businesses, I often hear about vague plans to "sell someday when the time and the price are right". Unfortunately the plans go no further and I suspect that some business owners wonder if they've already missed good opportunities.

The attached article from http://www.capitalmagazine.ca/ suggests a new way to think about that "someday". The author, the well-respected and knowledgeable John Warrillow, asks how much money someone would have to pay you today for you not to come to work tomorrow. Click here to read the article. I bet it gets you business owners thinking.

The attached photo is also from http://www.capitalmagazine.ca/ .

An automatic right to inherit doesn't mean executor has nothing to do

Today I'd like to clear up a common but dangerous misunderstanding of language that causes a lot of trouble for a lot of families when dealing with estates. The problem arises from statements such as "the assets automatically go to the deceased's spouse".

When I and other lawyers say that an asset automatically goes to a certain beneficiary, we mean that the beneficiary has the legal right to inherit that asset. Generally that means that the right to inherit exists even without probate being obtained, and without anyone having to go to court. We do NOT mean that nobody needs to do anything to make it happen.

I hear over and over again from family members, beneficiaries and especially executors, that they think they don't need to take any steps because the inheritance is "automatic". Yes, the legal right arises automatically, but in every case the executor - or someone else - has to take steps to enforce that right.

To illustrate what I mean, let's look at some of the assets that commonly "go automatically" to a surviving spouse, or other surviving beneficiary. One of the most common is a jointly owned home. As you have read here in my blog and in other places, when one joint owner dies, the other joint owner will automatically own the entire house. That means the surviving joint tenant has the right to own the whole house and probate is not required. Think about the logistics of this. Whose name is on the title? There are two names. When one dies, there are STILL two names on the title if nobody gives a death certificate to the Land Titles Office and fills in the paperwork to take one name off. The Land Titles people don't know that someone has passed away, and even if they did, they aren't going to take steps without instructions from the person legally entitled to give them.

Let's look at a joint bank account. Same thing. There are still going to be two names on the account if nobody advises the bank that one of the owners has died.

Another asset that "automatically" transfers legal ownership is a life insurance policy. It is "automatic" because the deceased person named a beneficiary of the policy and probate is not required. But if you just sit and wait for your cheque to arrive, you will be disappointed. Someone has to provide notice and paperwork to the life insurance company to make the claim.

The executor is not necessarily the person who has to do all of the paperwork in these situations. However he or she should at the very least make sure that he provides copies of the will and death certificate where appropriate, and lets beneficiaries of joint property know of their right to inherit. The beneficiary can then notify the bank, the Land Titles Office, the pension office, or life insurance company. If an executor isn't sure that he or she has covered all the bases, he or she can consult a lawyer, or find an executor's checklist from a reliable source.

I cover this topic in my book, "Alberta Probate Kit", but the principles discussed here are not limited to Alberta.

Can the lawyer who writes the will be an executor? How much can he charge?

The relationship between lawyers and executors is in theory pretty simple. The executor represents the estate and hires the lawyer to give legal advice and to prepare probate documents. However, in practice there is often confusion among clients, executors and beneficiaries as to the role the lawyer is supposed to play. The following question, which is really a group of separate but related questions, was sent to me some time ago by a reader. Because this reader's questions are those I hear so often in my work, I thought everyone would be interested in the answer.

The question:

Can a lawyer who writes up a will also be an executor of that will? Also, can he claim fees as both a lawyer and as the executor? And who decides how much the executor receives? If there are two executors, do they both get the same amount? Are there any limits to executor fees?

Certainly a lawyer who writes a will can be an executor of the will. There is no conflict there. However, if the lawyer who writes the will is also a beneficiary, that's a problem. Over the years I've met a handful of elderly people who are so grateful for help and attention that they have wanted to leave me something in their wills that I prepared for them. I've never accepted this, and I never will. Even if I knew for sure I hadn't influenced them in any way, the optics of the situation would be terrible.

At the time the lawyer drew up the will, he or she would have billed the client legal fees for that service. If the client later passes away and the lawyer is the executor, the lawyer can only charge executor's fees and not legal fees for the executor work.

Having said that, you must realize that an executor normally hires a lawyer to prepare probate documents, and pays the lawyer legal fees for that. If the executor is a lawyer, it is acceptable if he or she hires himself or herself (or their office, partners etc) to do that. The lawyer can charge legal fees for the probate work. This is not charging legal fees for the whole estate; I am referring to the steps involved in preparing the probate documents, filing them, going to court if necessary and obtaining the Grant of Probate.

The billing and recording of the lawyer's time on the estate might be complicated, as the lawyer is filling two roles. The executor's rate of pay and the lawyer's rate of pay are likely quite different, and will be billed and paid at different times.

As for who decides how much the executor receives, I wish more people addressed this in their wills. If there is an amount or a percentage stated in the will, that is how much the executor will get. The will rules. The majority of wills, though, don't say anything about executor's fees. When nothing is said in the will, the executor calculates how much he or she thinks is appropriate, based on time spent, complications (missing beneficiaries, overseas beneficiaries, missing assets, etc), size of the estate (bigger estate = more responsibility), number of beneficiaries, any losses the executor may have caused to the estate, and similar factors.

The executor asks for this amount by including it in his or her final accounting that is presented to the residuary beneficiaries at the end of the estate. If the beneficiaries agree, they sign off and the executor [ays himself or herself out of the estate.

If the beneficiaries don't agree, and believe me they frequently don't, they can attempt to negotiate the fee with the executor. If that is unsuccessful, the amount of executor fees must be set by a judge. Keep in mind that no beneficiaries can be paid their shares until this question is resolved, because nobody will know what the judge is going to decide.

There are limits on how much an executor can charge (where there is no guidance in the will). Each province and territory has a Trustee Act that says something about fees, but in many areas it only refers to a "fair and reasonable fee", which is certainly open to interpretation. The courts have dealt with this frequently and clearly, and the range of "fair and reasonable" is interpreted as between 1% and 5% of an estate.

The final question is whether two executors split a fee equally. Yes, they split the fee, but the split should only be equal if the amount of work done by them was approximately equal.

Despicable son gets 10 years for ripping off Mom using Power of Attorney

Having just posted a story about how kids pay for the parents' lack of planning, I'm now going to share with you a story about how a parent paid for trusting her own son. Click here to read the story.

You wouldn't think trusting your own kids would be such a devastating mistake, would you?

In my seminars I always talk about true situations in which parents have appointed kids who never should have been allowed anywhere near Mom or Dad's finances. How do these kids get appointed in legal documents anyway? The parents sometimes don't want to hear or believe anything negative about their own children so they go ahead and appoint them anyway. Sometimes it's pressure from the kids. Sometimes parents think it's the law that they must appoint their children. And then there are those - and there are lots of them - who don't really want the kids in charge but are afraid of offending them if they choose someone else under their Power of Attorney.

I certainly don't mean that the poor mother in this story deserved what she got for appointing her son. It's never the parent's fault if a child steals them blind. That responsibility lies squarely on the child, and in this case I'm glad this horrendous man was sentenced to ten years in jail for what he did to his mom.

But do what you can to protect yourself! Any parent who is thinking of making a Power of Attorney and appointing one or more of the kids should think carefully before doing so. Try to assess your child as realistically as possible (I'm a parent too; I know that's hard to do). Try to put the "he'd never take my money; he's my son" thinking aside and assess the situation more like hiring a person for a job. For example, ask yourself some questions about the child you're thinking of appointing. How has the child dealt with money during his or her life? What is his or her current financial status, and how secure is that status? Is the child always asking you for money? Does he or she have a steady income? Has he or she ever been involved in fraud or shady deals? Is he or she a spendthrift?

Asking these questions won't protect every trusting parent, but I certainly hope reading this post will prevent even one person from finding himself or herself penniless at the hands of a greedy child.