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Monday, April 3, 2017

If I've distributed an amount of the estate equal to the date of death value, is the rest of the money still divided among beneficiaries?

The following question from a reader is exactly the kind of question I enjoy receiving. It's from someone who has been working hard as an executor and making good progress. He just needs a little bit more information to finish the job.

The reader's question deals with what is covered by the will and what is not. The estate has changed over time, in large part because of his care of it. Here is the question, followed by my comments:

"I was named as executor to my Father's estate. 10 years later, most of the estate has been wound up. My understanding of the will's jurisdiction is that it applies to the value of the estate on the day our Father passed away. In this instance it involved a large property with a house and shop, a RRSP, an investment portfolio and one or two bank accounts. Over 1000 hours were involved to repair and finish the house, have the shop painted, and fix equipment, which allowed us to have an auction and then use a realtor to sell what was now a decent looking property. Tons of junk were taken off the property. There is a small amount of money ($23,000) left in the estate account. The other 2 beneficiaries, each of whom did about 10% of the work are insisting the will has jurisdiction over these funds and should be split 3 ways. I say the value of the estate on the day my Dad died was distributed long ago and the minimal amount left does not fall under the jurisdiction of the will and should be directed to the person (myself and family who did 80% of the work, brought every resource required to complete the estate, as well as saved well over $10,000 on two issues) & put 20,000 kms on my vehicle as the property was distant from our house. Unfortunately the funds are contained in the estate account and from my perspective actually do not fall under the jurisdiction of the will as these funds did not exist on the day my Dad passed away."

You are completely mistaken about the distribution. All of the assets that exist now are, as you phrase it, under the jurisdiction of the will. They are assets of the estate. The passage of time doesn't change that. It's actually pretty common that executors find assets after filing the original inventory, since they are able to look more closely at records and paperwork. If twenty years from now, you discover a bank account owned by your father that nobody knew about, you'd still have to distribute it according to the will. Let go of the idea that the beneficiaries are only entitled to the value that existed on the date of death, because it is completely incorrect.

I'm not sure where the $23,000 came from since you said they did not exist when your father died. I assume they are the proceeds of sale of some estate assets. This account is an asset of the estate.

I understand that you have increased the value of the property by clearing and repairing it. This is always expected of an executor but it sounds as if you went above and beyond what many executors would bother doing. However, it seems that you believe you are entitled to to claim part of the estate based on the fact that you worked hard and the other beneficiaries did not. Be very clear on the fact that your family is not entitled to a single dollar. Whether they helped you or not, they are not beneficiaries and you're not entitled to include them in the will. The will creates legal rights, but only for the beneficiaries, not your family members.

Keep in mind as well that beneficiaries do not have to work for their inheritance. They are legally entitled to it even if they don't lift a finger. You simply cannot hold that against them, even if it doesn't feel fair. Yes, you did the work, but you're the executor. It's your job to do that work.

You haven't mentioned whether you've taken an executor's fee for your work. Executors are always entitled to request a fee, as long as the will does not disallow it. Since it appears that you've put in a lot of work and had good results, you might consider requesting a fee. Your fee would be calculated over and above repayment for reasonable out-of-pocket expenses you have incurred. Mileage is a legitimate expense. Between expenses and fees, your compensation could well consume the entire amount left in the estate.

You can't simply take the fee. You will have to calculate it and present your proposed fee to the beneficiaries for their approval along with a final accounting of the estate assets. I suggest that you find out more about executor's fees and expenses before you submit a bill to them.


12 comments:

  1. On first read, I assumed the poster is one of the 3 beneficiaries, but since she/he did not clarify who the beneficiaries are, I am only left with an assumption.

    It appears that much of the physical work the Executor performed on the property, was over and above that normally expected of an executor as that work would typically have been hired-out to a contractor. Since contractor services to better the property can be paid from the estate, it would seem the poster could submit an invoice to the estate for contractor services performed. Of course, the amount charged would need to be equal or lower than charged by a contractor to provide the same service and I doubt a mileage claim would be legitimate when acting in the contractor role.

    Although not required, as 2 of the beneficiaries had also provided some contractor services, they too could be compensated an appropriate amount for their time and efforts as this would compensate (make fair) the efforts put forth by each.

    Payments received by each beneficiary as contractors, would be taxable income and would further reduce the estate value received by them as beneficiaries.

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  2. I understand that you have increased the value of the property by clearing and repairing it. This is always expected of an executor but it sounds as if you went above and beyond what many executors would bother doing[LB]

    Not sure I understand. Is it mandatory that he clears and repairs the property? I believe I understand what he has done or tried to do. The problem it seems, is that he did not have co-operation from the other beneficiaries, and in writing. Perhaps he should have resolved the estate right away. From my experience, do not rely on beneficiaries to be on your side in resolving an estate. I speak from 11 years of experience involving a 'very' simple Estate. There are a lot of dishonest and greedy people out there.

    ReplyDelete
    Replies
    1. No, it isn't mandatory that an executor clear and repair the property. The executor has the discretion to sell, repair, improve, etc as he sees fit, as long as it's in the best interest of the estate. A general rule for executors is that they are supposed to maximize the estate. Most executors will do some cleaning, repairing and even renovating if it means that a property can be sold for significantly more money. Then on the other hand you have the kind of executors who simply sell things off and don't really care, or who want to wrap things up quickly even if it means there is much less to be divided among the beneficiaries.

      I have to agree with your statement that you should not expect beneficiaries to be on your side. It's nice if they are, but in real life it doesn't often happen.

      Lynne

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    2. "The problem it seems, is that he did not have co-operation from the other beneficiaries, and in writing." webeye

      As mentioned, the executor has an obligation to maximize the estate. He/she does not require the approval or co-operation of beneficiaries in order to carry-out that obligation.

      While beneficiaries will eventually be required to sign-off on the executors handling of the administration and approve the executor fees claimed, there should be less cause for complaint if the executor's actions resulted in the estate being worth significantly more than on the date-of-death.

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    3. Yes, you are right that beneficiaries tend to complain less when they are going to receive more from the estate. If things go wrong and the money put into the property did not result in an increase in property value (say, because of a market drop) then the beneficiaries will likely complain about it.

      It's a tough one for the executor. Many tell me that they feel "damned if they do and damned if they don't" when it comes to cleaning and fixing up estate properties.

      Lynne

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  3. I think the longer an estate is open, the more an executor is prone to a sense of entitlement to the assets.
    Lynne makes a good point. Your executor work and the assets are two different things.
    For executor fee explanation find a good article here: http://www.advisor.ca/tax/estate-planning/understand-executor-compensation-rules-202637

    ReplyDelete
    Replies
    1. Thanks for that link. That's a really good article and I'm going to add the link to my blog for future readers.

      Lynne

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  4. From the cited article:

    "2. Fees paid to an agent (lawyer, accountant, trust company) retained to perform duties on behalf of the executor must be deducted from any fees otherwise payable to the executor."

    I am assuming there is a distinction between fees paid to an agent on behalf of the estate vs. on behalf of the executor. e.g. If, as executor, I hired an accountant to prepare the final tax return, or hired a lawyer to pursue promissory notes payable to the estate, or hired an auction firm to sell the remaining furniture and collectibles, that those expenses would be rightly payable by the estate rather than by the executor.

    Thank you.

    ReplyDelete
    Replies
    1. Yes, I agree that the examples you gave are things that are of benefit to the estate and should be paid by the estate.

      Lynne

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  5. Lynne: You said: " If twenty years from now, you discover a bank account owned by your father that nobody knew about, you'd still have to distribute it according to the will."

    I assume then an executor would also need to refile to submit the Estate Fees (Probate) applicable on the additional estate value? Please clarify.

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    Replies
    1. Yes, Mark, that would likely be required. If the account only had a couple of thousand dollars in it, there is a question about whether or not the estate inventory needed to be redone and resubmitted to the court. However, if the account is large enough to affect the court fee, updating the court record is essential.

      There is no rule that I know of that says you don't have to update if the account is worth $x, but you do if it's worth $x+1. It's always a judgment call, though in my view it's not a great idea to try to pull anything over the eyes of the courts.

      Lynne

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