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Saturday, November 23, 2019

Overlapping roles of executor, witness, and beneficiary - what's okay and what's not okay?


Have you ever wondered whether it's okay for an executor to be a beneficiary? Or to be a witness? Or whether it's alright for family members to be executors or witnesses? Sometimes it seems that people have multiple roles in estate planning and it can cause people to worry, especially if they have made their documents without the help of a lawyer.

Let's clarify which roles go together and which don't.

Legally, it is alright for an executor to be a beneficiary. In law, this is not a conflict. In real life, it is common for a person to name his or her spouse as the executor and also to receive the entire estate. It's also common that parents will leave their entire estate among the children, then name one or two of those children to be the executor. All of this is perfectly legal. The same goes for a person named as an alternate executor.

My only caution to parents who do this is to give careful consideration to the family dynamics. After all, it's probably not going to work if you appoint two people to work together if they are usually at each other's throats. Parents tell me that their children will "have to learn to get along" but in reality, they usually do the opposite.

It is also legally possible for an executor to be a witness to the will, though that is not the best idea. This is because, as you will see below, witnesses may not receive a gift under the will. If the executor's compensation looks more like a gift than payment, then the executor/witness appears to be a beneficiary and may not receive his or her compensation. If this happened, the will would still be valid. The executor/witness would still be the executor. But the executor could not be paid.

Beneficiaries are not allowed to be witnesses. This makes perfect sense if you think about the potential for abuse if beneficiaries were able to fill this role. If an otherwise valid will was witnessed by a beneficiary, the will would still be valid. Only the gift to the beneficiary/witness would fail, and that person would receive nothing.

It is perfectly legal, and common practice, for family members to be appointed to the role of executor. You may also appoint a friend, a business partner, a trust company, or any person you feel would do the job well. Never appoint anyone without asking first. Some people appoint a lawyer as an executor or co-executor. This is legally acceptable. You cannot, however, name a law firm. It has to be an individual person who just happens to be a lawyer. The only business you can name as an executor is a trust company.

Hopefully this post will lay some of your questions and worries to rest.



2 comments:

  1. What % does a Trust Company normally charge to be a sole or shared Executor? Do they charge per year if there are amounts to be left such as "when a child reaches a certain age"? I'm thinking if they charge i.e. 5% per year of the total estate, after 20 years there'd be nothing left for the beneficiary. Am I off in my math?!? Thanks. margaret.

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    Replies
    1. Hi Margaret,
      Yes, you're a bit off on the math, but no worries, we'll get it straight.

      The bill for a trust company is in two parts, assuming they act as the executor for the estate AND are holding money as you suggested for a time.

      The first part of the fee is the executor fee. It will be somewhere between 4% and 5% of the estate in most cases, but there is a scale in which the percentage goes down if the estate value is higher. This is a one-time-only fee. It is not charged per year. It is charged at some point during the administration of the estate.

      For the money that is held in a trust, there is an annual fee, but it is not 5% and it is not the value of the whole estate. The fee is around 1% (in many cases, it's lower than that) and it is calculated against the amount of money that is held in that trust. For example, if there was an estate worth a million dollars but the amount held in trust for a child is $250,000 the ongoing fee is calculated against the $250,000 only.

      If you are interested in looking at what a trust company can offer, I suggest you set up a meeting with someone from a trust company for a chat. They don't charge for a chat.

      I personally think a trust company is a really great idea for some people. I wish more people would consider it rather than automatically choosing a family member who just isn't up to the job.

      Lynne

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