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Thursday, June 16, 2016

Can the executor hire himself to do renovations on estate property?

Is it okay if the executor of the estate hires himself to do renovations on the estate property? A reader recently asked me about this. Read on to see his question and my comments.

"I am the Executor of my Fathers estate. There are four beneficiaries including myself. I spent 8 months after my Father passed away to renovate the home. I have documented each and every day of who did work and time. These people include my wife, family, friends and contractors. I now have sold the home, and need to pay these people. Therefore, what kind of receipts do I require from whom? My major dilemma is myself, I am a contractor, I did extensive work inside and outside of the home, which I kept records of. How do I claim my time re: labour for that work, which is not justified as work to be done as an Executor?"

Executors regularly incur the wrath of beneficiaries when they appear to have benefited personally from something they've done on the estate. In your case, they may not like it that you will be paid for doing renovations. They may wonder if you have done unnecessary renovations just to get a bigger piece of the estate. However, it's really not that unusual for the executor of an estate to determine that an estate property would sell for a higher price if it were renovated or modernized. The key to it is whether there is a benefit to the estate.

Let's say the cost of the renovations is $25,000 but it increases the sale price of the house by $50,000. That is surely beneficial to the estate, as you have not just preserved it, but maximized it. Now, on the other hand, if you spent $25,000 on renovations but only managed to get $10,000 more on the selling price, you can expect the beneficiaries to be justifiably upset that you lost estate money.

Assuming that we have jumped the first hurdle - that of justifiably spending estate money - let's move on to the next. Let's talk about you doing the work yourself and paying yourself.

The general rule is that if an executor does work for the estate that he would have had to pay someone else for, the executor can be paid for that work at the rate such work is normally paid. In other words, if you were going to hire a contractor to renovate the house anyway and that happens to be your profession, you can hire yourself to do it and pay yourself your usual rate. You can pay your workers what you would pay them if the work had been done for a stranger. Set everything (work orders, employment records, invoices) the way you would for any customer. You-as-contractor will send the bill to you-as-executor, because the executor is your client. Then pay yourself out of the estate. Show the expenses on the executor's accounting when that time comes.

You'll find that all of those detailed records you kept will be important. The beneficiaries would have every right to look over expenses you paid to any contractor, and this is true even though you are the contractor yourself. You are going to have to be transparent and be prepared to show all invoices and receipts if the beneficiaries want them. Although there is no legal conflict of interest, you should realize that if you over charge, or do shoddy work, or don't actually increase the sale price of the property, you will have created a conflict of interest that didn't exist before.

As a general rule, if you do everything with integrity and transparency, and you always keep the best interests of the estate in mind, you shouldn't run into trouble.

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