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Saturday, April 23, 2011

Do you need a corporate executor?

Even though corporate executors have been around for many, many years they don't come to mind quickly for most people doing their estate planning. Corporate executors are trust companies, which in Canada are mostly owned by the major banks. Trust companies are in the business of handling other people's financial affairs, whether as executors, powers of attorney, agents or trustees.

Some of the people who name trust companies as their executors do so because they don't have any family members living near enough to handle the job. Immigrants to Canada, for example, might have no family members here other than their spouses. And someone has to be executor when both husband and wife have passed away. Others have family in the country, but the individuals are scattered, mostly because they go where they can work.

There are others who have family members close by who choose not to name those family members. This happens when the parents think there might be disputes among the children (and I wish more parents were realistic about the fact that siblings fight). Sometimes one child has an addiction or is a spendthrift and the funds are going to be held in trust and the other children don't want to be in charge of doling out their sibling's money.

They have a point, I believe. Parents should consider what they are imposing on one of their children when they make that child an executor and trustee of an estate. What if a child has a handicap and there are going to be funds held in trust for that person's entire life? The parent is asking the sibling to take responsibility for those funds for that whole time.

And it's much worse when the reason for the trust is an addiction. In that case, the child who wants his inheritance is reduced to asking his sibling to please let him have some money. This leaves the executor child in a position of having to say no, whether or not he's comfortable with that role. The disputes and hard feelings are inevitable and if you put your children in this position you might as well admit that you're ruining any chance of them having a normal sibling relationship.

Right now my office is dealing with a case where one of the deceased's adult children won't move out of the deceased's home. The child has no job, no money, and a serious drug addiction. The other children are mighty glad that they aren't the ones who have to deal with getting him out in a compassionate manner and getting that house ready for sale.

Using a neutral third party - a trust company - keeps the whole scenario professional. The siblings can sit around the Thanksgiving table or a summer picnic without the issue of money between them.

More people in blended families should use trust companies, as the potential for disputes is enormous. Many people in second marriages have an overly optimistic view of how the children and step-children will get along once the parents are gone. I've been accused of being cynical more than once, but I'm basing my comments on what I see daily. We all hope that a common crisis like the death of a parent will cause people to come together and support each other, but in truth, it often has just the opposite effect. It's hard on everyone.

This is not to say that only dysfunctional families need professional executors. Far from it. Many people choose a trust company for an executor because their estates are complex. They don't really want their spouses or children to have to deal with selling the condo in Arizona or winding up the business or transferring the farming operation. They want the estate to run smoothly and the children to have someone to help them.

Some high net worth families worry about leaving large sums of money to their children and choose professional executors to manage the money while the children are younger, say to age 25.

Whenever I'm in a discussion about professional executorships, one of the first questions I'm asked is the cost. The fees differ slightly from company to company, but overall it's cheaper than you think. Check it out by calling your local trust company, or asking your banking officer for a referral to the right person.

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