Top five mistakes made by executors

The post below was originally posted in 2010. The platform that hosts this blog only allows 200 comments per thread, and this one was up to 245. This means I couldn't see your questions or respond to them. I hope by re-posting, we can start afresh with a new space for comments and questions.

*********

Being an executor isn't easy. There's plenty of paperwork to be done, lots of interaction with government agencies, registries and lawyers. There are always beneficiaries putting on pressure to do things more quickly. And if all of that weren't tough enough, an executor risks personal liability for any mistakes he or she makes.

It's not surprising that executors make mistakes. In the interest of informing present and future executors, here is a look at the top five mistakes executors make:

1. Ignoring inconvenient or unpopular parts of the Will

Executors frequently feel that they have a better, or "more fair" idea of how an estate should be distributed than is directed by the will. However, it's not their choice. Their job is to distribute the estate according to the will, not to re-write it. An executor might be less tempted to change the distribution if he or she kept in mind that for every person who likes the new distribution, there is at least one person who is outraged by it. If the executor fails to follow the distribution under the will, he or she may be responsible for paying the disappointed beneficiary out of his or her own personal funds.

Executors ignore other parts of the will too. For example, an executor might sell an asset and give the beneficiary the proceeds, even though the will directed that the asset be given in specie. The executor might give trust funds to children at a younger age than that directed in the will. He or she might forgive loans that were to be collected. None of these things are within the authority of an executor and each exposes the executor to potential liability.

2. Keeping secrets and failing to communicate

Executors are often secretive to the point of being furtive. Nothing is going to fuel speculation and suspicion on the part of beneficiaries more than being kept in the dark. An executor must respond to reasonable enquiries from the residuary beneficiaries of an estate. They are entitled to it, and responsible for policing the actions of the executor. They are entitled to see the will and all of the documentation filed with the court. Believe me, if beneficiaries can't get the information they're entitled to, they will suspect the worst. Perhaps executors don't realize that as soon as the frustrated beneficiary hangs up the phone, his or her next call is to a lawyer.

Time and time again I hear stories of family members who are presented with complicated, mysterious documents by an executor and being told to sign them, without being given any information about what's going on. Any executor who treats important legal issues this way should expect push-back from the beneficiaries. This is a textbook example of how to start an estate dispute.

The failure to communicate even reaches to co-executors. Sometimes a person will act for weeks or months as an executor and not reveal that there is a co-executor appointed until he or she is forced to do so because a financial institution or Canada Revenue Agency refuses to go further without both signatures.

3. Treating estate money as their own

Perhaps this is the reason for the secrecy mentioned above, but many executors either don't understand or ignore the limits of their role. Executors have been known to pay off their own debts, make loans to family members and buy into business ventures, all with estate funds. None of this is lawful, and executors may be forced to repay those funds out of their own money.

Even executors who are honest make mistakes with estate money. For example, many executors don't see a problem with using estate funds to fly in family members from all over the world to attend the funeral, and using estate funds to supply those family members with hotels, transportation, meals and sometimes even clothing to wear to the funeral. These are not estate expenses. The executor could end up paying for all of that himself or herself.

4. Failing to deal with debts and taxes before paying beneficiaries

I suppose it's a natural human reaction to ignore unpleasant things, but this can't apply to executors who must prepare tax returns. By law, debts of an estate, including tax liability, must be paid before beneficiaries receive their shares. It isn't easy to resist the pressure from those who want their money now, but an executor who pays beneficiaries without having cleared all debts and liabilities may be personally responsible for paying those debts.

5. Trying to do everything too cheaply

It's certainly not a bad idea to keep estate administration costs low, but unfortunately the way many executors go about that actually ends up costing the estate more money. "Keeping costs low" seems to translate into forgoing professional help in many cases. For example, they try to do tax returns without the help of an accountant, which means they miss eligible deductions and elections. They also miss filing deadlines, and so incur interest. They try to sell real estate without a realtor and settle legal disputes without a lawyer. They sell assets without appraisals and invest money with no guidance. Very few people can do all of these things well, particularly at the same time as keeping their full-time job and family going.

The best way to avoid these five main errors is to stick to the will, take your time and ask for professional help when you need it.