Get along with your co-executor or it will cost you

Attention co-executors who are squabbling and fighting with each other. You know who you are.  You are probably siblings. Somebody made the ill-fated decision to ask you two to get along in the best interests of their estate, and it has fallen apart. One of you makes decisions about the estate without the other. One takes the other to court repeatedly on the slightest excuse, asking the court to remove the other, with accusations of lies and duplicity. One executor is bullying the other.

Well, you'd better figure out how to act like adults and get along.

In a new case from Alberta, the court slapped the bullying co-executor with big court costs. The court made it clear that co-executors have an obligation to try to resolve their differences amicably without resorting to the courts if at all possible. The estate suffers when co-executors behave badly and make the estate administration all about their personal issues. The court's message is to get along, or it will cost you. To read more about this case in a story from lawyer Chris Staples, click here.

Can the estate lawyer act against one of the executors?

I received an interesting question today by way of my Facebook page. I think it's interesting because at the core of the question is the role of the lawyer for the estate. This is a very poorly understood role. The beneficiaries think the lawyer works for the beneficiaries. The executors think the lawyer works for the executors. The lawyer may not do a good job in explaining it.

Here's the question:

"There are three executors on an estate. A directive in the will states that one of the executors who lives on an estate property must vacate the property by April 2012. She has stalled and has received a letter about this from the estate lawyer. She is ignoring the directive in the will and the lawyer is dragging his heels. What can the other executors do to get her out?"

My guess is that the letter from the lawyer did not include any demands that she leave the property, or even a request that she do so. It most likely simply reminded her of what's in the will and of her obligation to act on behalf of the estate and suggested that she keep that in mind.

Why?

The estate lawyer works for the executors. The lawyer can't act for the executor on the estate as well as against her on the same estate. Legal ethics and common sense both preclude that. So the estate lawyer isn't in any position to demand that she leave. He/she should have explained that when agreeing to write a letter.

I hope that the first thing that was done was to check the will to see whether it contains a clause saying that the executors can make decisions based on a majority vote. Without that clause, all decisions must be unanimous by all three. This is yet another major drawback of home-made wills (which I assume this was, to appoint three executors. Why on earth did this person appoint three, anyway?). Any lawyer who has been around the estate-planning block knows to include a majority vote clause when there are three executors. If that clause is present, the two executors can simply out-vote her on the question of whether they are going to evict her forcibly.

In the absence of the majority vote, if the executors of this estate want this person forced out of the property, they are going to have to hire a separate lawyer to do that. Other legal issues will come into play, as they are only two of the three people with the legal right to give legal instructions on behalf of the estate. Unfortunately one is being selfish and ignoring the law, and this will probably end up involving an application to remove her as executor based on her detriment to the estate.

Another bit of fall-out is that the estate will likely end up needing a new estate lawyer. The general rule when one lawyer acts for several people is that if those people end up in a fight, everyone has to get a new lawyer. The first lawyer can't represent any of them any more. If the probate has already been granted, this is probably not a big deal.

Of course, communication between the executors is going to deteriorate even further if one is evicted as discussed above. Hopefully she will be removed entirely from her executor role, as otherwise future decision-making between the three is going to be a nightmare. None of this is good for the estate, but this is the kind of thing that happens when people make a poor choice of executor.

Can I be removed as co-executor because I live outside the country?

The rights and duties of an executor continue to be a mystery to most people. I'm still learning new things about estates after 25 years on the job, so I know how tough it is to fully understand what you are supposed to be doing or not doing.

The following is a question received here on my blog that I believe will interest a number of readers, as so many of you are executors yourselves:

Can a family member who you were co-listed as Executor and Power of Attorney remove your name due to the fact that you live out of the country?

Whenever a question about rights under a document arises, the first place to look is the document itself. It's not unusual for a will to state that if an executor or co-executor lives outside of the country, he/she loses the right to act as executor. While this might appear that it's the co-executor who is removing you, it's really a matter of the executor following what's in the will. Ask for a copy of the will and Power of Attorney so that you can check on that.

When you are named in a will as an executor, or named in a Power of Attorney as an attorney, in law this is considered a benefit, in that you've been given a right. The person who named you gave you the right to administer the estate, or to administer his/her finances while he/she is incapacitated. That person had his/her reasons for choosing you. This is not something that a co-executor or co-attorney can decide; the document states who is in charge and if the co-executor or co-attorney doesn't like it, he/she can choose not to act. Having said that, I can tell you that I've seen a huge number of co-executors and co-attorneys try to re-write the testator's wishes by deciding that a different arrangement would be "better". Unfortunately that only means better for them, not necessarily better for the estate. They get away with it simply because nobody challenges them.

Assuming the will and Power of Attorney that appoint you are valid, you have a choice not to accept the appointment if you think it will be too difficult from your location. You would sign a Renunciation form that would remove you. However, this is something you choose to do, not something that others choose for you.

Naming all your children as executors? Bad idea.

Whenever clients tell me they want all of their children to work together as executors, I cringe. I have to tell them that I strongly disapprove of their choice, and explain why. It's not a message that everyone wants to hear.

Recently I spoke to a group of people about protecting their estates from known trouble spots - one of which is expecting children to work together as executors. As I talked, one woman in the group scowled at me, then began muttering under her breath to her husband. She crossed her arms, then her legs. She turned her head and refused to look at me. You don't have to be a body language expert to realize that she was telling me to shut up and stop saying negative things about her children.

I wasn't specifically talking about her children of course, as I've never met them. But I have worked on enough estates, and talked to enough families and seen enough litigation to know that appointing multiple children as executors rarely works out.

Why is that? Part of the reason is that all of the people involved in the estate are grieving, shocked and upset. This isn't a setting for ideal communications. They aren't functioning at their best. Emotions are close to the surface. Small things set people off. Big things seem insurmountable.

Another factor is that most people haven't been executors before. They may move too slowly, or make mistakes, or appear to be heavy-handed. This makes other people impatient or suspicious.

One of the biggest monkey wrenches in the estate is simply that the people are related. They have a history, not all of which is friendly. Old resentments take on new importance. Old rivalries flare up. And let's face it, the parents usually don't know the half of what has transpired between the kids over the years (I have four siblings - I speak from experience). Any suspicion of favour by the parent who just passed away is resisted, examined and challenged. And have you ever noticed that relatives will say things to each other that they'd never be rude enough to say to a stranger?

Another important problem is the fact that the parent may have taken estate planning a little too casually and not left extensive enough legal documents. Was that joint account with all of Mom's GICs really meant to be given to Betsy? Didn't Mom say once that she just set up that account so Betsy could help her? And what about that loan to John? Joey paid back his loan so doesn't that mean that John has to pay his back too? Sandy has been living in the house to help Mom, but now she is saying that Mom said she could have the house! And Mom didn't say anything about funeral wishes. Betsy and John want cremation for their Mom, while Joey and Sandy want a traditional burial. Each of the four children believes they honestly know what Mom wanted. And on and on. With nobody in charge, the questions never seem to get answered.

When I ask parents why they insist on such a foolish idea as appointing all of the children as joint executors, the answer is usually something about not offending anyone or not wanting to choose between them. This is just silly. If you're a parent, you have the moral right to decide which of your children best suits any given role, task, or situation.

Failing to exercise your decision-making ability while you're alive just means that you're leaving them to fight it out among themselves once you've passed away. Is that how you deal with your children now? Would you deliberately turn your back on a huge dispute between them if you had the power to resolve it?  Most parents would prefer to help them settle it, so do that by picking an executor from among them, or if you absolutely cannot choose, name a trust company.

Executor's fees, lawyer's fees or both?

Today I'd like to answer another excellent question from a reader that I think will be of interest to many of you. The question is:

"Can a lawyer who writes up a will also be an executor of that will? Also, can he claim fees as both a lawyer and as the executor? And who decides how much the executor receives? If there are two executors, do they both get the same amount? Are there any limits to executor fees? Thanks."

Yes, a lawyer who writes up a will can be the executor, though he should not witness the will if he is named as executor.

At the time the will is drawn, the lawyer will claim his usual fee for writing the will. Later, when the testator passes away and the lawyer acts as executor, he will claim an executor's fee, which would be the same as a non-lawyer would claim. The lawyer would only be able to claim a lawyer's fee on top of that if he did legal work for the estate that would have needed a lawyer in any event. For example, if a lawyer would have been hired to file for probate anyway, then the lawyer/executor (or his firm) can do that work and charge the usual lawyer's rate for that work.

When a lawyer or accountant is named as an executor, it's a good idea to include a clause in the will that specifically addresses the fact that they can be paid professional rates for professional work and not for their entire executorship. The lawyer and the accountant should already know what they can charge, but the other people involved in the will might not know.

If the will states how much an executor is to be paid, then that is how much the executor will receive. Occasionally the amount is set out in dollars, but usually it's expressed as a percentage of the estate. Unfortunately, plenty of wills don't address executor's fees.

If the will doesn't address executor's fees, the executor must fall back on the statute law and case law for guidance. Executor fees vary from province to province, though there are usually only general guidelines to follow. Estates vary widely, depending on the kind of assets, the value of assets, the number and location of beneficiaries, whether there are claims or difficulties, the expertise of the executor and a hundred other things. As a general rule, an executor is able to claim between 1% and 5% of an estate, with only the more complicated estates reaching the top of that range.

The amount the executor receives - within the range mentioned - is normally determined by the residuary beneficiaries of the estate. During the final accounting for the estate, when the executor is ready to cut the cheques to the beneficiaries, the executor should put forth in writing a proposal of the fees he or she wants to claim. The beneficiaries are asked to approve the estate accounting including the proposed executor's fee.

If the residuary beneficiaries think the fee is too high (and quite often that's the case) then the executor and the beneficiaries may be able to negotiate a sum that's satisfactory to everyone.

If they can't agree, the executor's fee must be set by the court. This involves a hearing in courtroom. The estate can't be distributed to the beneficiaries until that has happened because the fee may be set higher or lower than the executor had requested.

If there is more than one executor named, the fee is expected to be split among them. It's not always an equal split. Sometimes one executor has taken on more of the work because of geography, time or skill. The executors should work out between themselves how they are going to split the fee, and if they simply can't agree, it has to be decided by a judge.

When attorney under PofA becomes a co-executor

Recently a reader asked me a question that I think would be of interest to many of you, so I'm posting it, and my reply, here:

Q: "My father passed away recently and I am one of three executors in his will. However, a few weeks prior to his death, I became the attorney (is this now called trustee?)when my father's enduring power of attorney was put into effect due to mental incapacity. I realize the EPOA ceases to exist upon death, however, I am wondering if I have "special" responsibilities because of the "attorney role"? "

A: "I'm sorry to hear about your dad. The three executors have equal responsibility and decision-making duties, but you are right that you are in a slightly different situation because you acted as attorney. An attorney's responsibility to the executors is to account for what he did while he was the attorney. So in your case, you must show your fellow executors the bank statements etc that show what you did. There doesn't necessarily have to be a formal set of financial reporting documents if you only acted for a few weeks and basically kept things running as your dad had run them. If you made any purchases with your dad's money or changed any banking arrangements, you have to show this to the other executors.

Other than the reporting requirement, there really isn't any other difference between the roles of the three executors.

As for the question about the wording - a trustee is anyone who is looking after money or property for someone else, so both executors and attorneys are types of trustees. Attorneys are sort of a blend of agents and trustees, but because they look after someone elses's money when there is incapacity, they are considered trustees. However, you're correct to refer to yourself (before your dad's passing) as an attorney because that specifically identifies you as someone acting under a Power of Attorney, as opposed to someone acting under a will or trust deed.

It sounds like you're on top of things and I hope it goes as smoothly as possible."

Arriving at a co-executor's fee

You and the co-executor are just about ready to finish winding up the estate, and it's time to think about taking your fee. It sounds simple, but as with most things to do with estates, the rules are unfamiliar. Here are some ideas for getting it right, compensating both executors fairly and keeping the beneficiaries happy.

The will may contain instructions about the amount to be paid in executor's fees. It could say that the executor gets a stated dollar amount as a fee, or that the executor gets a percentage of the estate.  Both are acceptable approaches. If the will includes a clause like this but contains no other instructions, this means that the fee stated has to be divided between the executors. It does not mean that each executor gets the amount stated; they must share it.

This leads to an assumption among most people that the executor's fee must be divided equally. But if you've worked on an estate, you know that the work is rarely evenly divided between the two. Sometimes one lives further away than  the other, or one has more expertise than the other, or simply has more spare time to devote to the estate. Any or all of these factors should be taken into consideration. If one executor has done more than the other, the fee should reflect the division of labour.

However, don't forget that the fee is also intended to compensate for the risk of the personal liability of the executor, so even if you feel that you've done all the work, that doesn't remove the other co-executor from his or her liability and you'll still have to share.

Many wills don't say anything about the fee that is payable to executors. In that case, the co-executors would fall back on the amounts normally awarded in their province or territory, and would share that amount.

In addition to carrying out executor's duties, an executor might provide professional services to an estate. For example, an executor might be a realtor who sells the deceased's home, or might be an accountant who prepares tax returns for the estate. These services are over and above executor's fees. These are things that the executors would have to pay for anyway, and should pay the executor his or her normal rate for those services. The payment comes out of the estate, but not out of the executor's fees. Therefore an executor or co-executor should be paid for their professional services and receive an executor's fee.

Can I hire a co-executor?

A question I received recently from a reader was "how do I hire a co-executor?" I took this to mean that the reader is acting as the executor on an estate and wants to hire someone to help him. The short answer to the question is that you can't hire a co-executor, but that doesn't mean that the executor can't hire some help.

The reason that an executor can't hire a "co-executor" is that the executor was chosen by the testator when the Will was made. Only those named in the Will can act as executors. An exception to this (there's always an exception, isn't there?) exists where a Will states that there always has to be a certain number of executors and if one dies or can't be an executor any more, the executors can name a replacement. This is relatively rare though.

If the reader who asked this question wants some help dealing with the estate, his best bet is to hire a trust company to act as his agent. This means that he is still the only executor and retains the rights and responsibilities of the executor, but there is someone else to do the leg work. In a situation like this, the trust company would take care of the sale of property, notifications, hiring a lawyer to apply for probate, pay the bills, arrange for tax returns to be done, etc. In other words, the trust company does everything that an executor would do, but the executor retains final say.

See my list of executor's duties here.

I've met a number of executors who want this kind of help because they are overwhelmed with the work it takes when they've already got a job and a family to take care of. Some executors want to delegate the work simply because the family situation is volatile and they want a neutral third party to take care of things.

Canada's major banks (Scotia, Royal, TD, BMO, CIBC, HSBC) have trust companies attached to them. You can get access to them either by finding their web page or by asking the staff in the branch where you bank to put you in touch with someone. You don't have to be a customer of a bank to use its trust company.

If the executor only wants help with certain tasks, he is entitled to hire professionals to help him. For example, he can hire a lawyer to apply for probate, a realtor to sell a house and an accountant to prepare tax returns. He might also hire a cleaning company to clean out a house, an auctioneer to sell household assets or a business broker to sell  a company. These days, most Wills specifically state that an executor can hire agents like this and pay them out of the estate, but this is permissible in any event.

When should the court approve a sale transaction by an executor?

This article by Megan Connolly reviews a recent case from Ontario which sets out some guidelines for a sale by an executor. In this case, the transaction involved a sale of shares of a private company to one of the executors. Click here to read the article.

How to cause a trainwreck

Today I had a conversation with a woman who is acting as a joint attorney, along with her brother, under their father's Enduring Power of Attorney. Things appear to be unravelling, as she and her brother are not able to agree on many of the decisions they have to make. The woman called me to confirm that the loophole she thought she'd found in the document was in fact going to allow her to just go ahead on her own when agreement was impossible.

The clause in question was one that is found in most Powers of Attorney of the enduring or continuing type. It says that two people are appointed as attorneys, but if one of them is not able or available to act as attorney, then the other one may carry on alone.

The woman who called me wondered whether "not available to act as attorney" meant that if her brother was sick, at work, busy with the kids or just didn't feel like taking care of attorney business that day, she could carry on without him on that particular day. Unfortunately, this is not what the clause means.

I ran into a similar issue a couple of years ago with a man who was trying to buy a house from an estate. His offer had not been accepted by the deceased's wife, who was acting as executor. However, the man told me, the deceased's son who was appointed as alternate executor was willing to accept the offer. The question was whether he could deal with the alternate executor instead. The answer was "of course not".

I know it's human nature to try to get your own way, but twisting the words of someone who left clear instructions is not going to work. Saying that the brother and sister must work together as attorneys doesn't mean that if one is busy the other can make unilateral decisions. Saying that a wife is in charge of the estate doesn't mean that if you don't get the answer you want you can ask someone else for a different one.

In both of these cases, the people making the documents left a back-up plan in place in case the first plan didn't work out. The person making the joint Enduring Power of Attorney wanted both of his children to work together, but left the option that one could work alone if the other had passed away, was seriously ill or had moved out of the country. The person making the Will wanted his wife to be his executor, but his back-up plan was that if his wife died first or had lost mental capacity, his son would be his executor.

When an attorney or an executor is "unable or unavailable" to take on the job, it refers to a permanent situation. It means the first choice person has died or turned down the job. A joint arrangement can't be joint one day, then unilateral one day, then back to joint. An executor is either in or out; you can't deal with the wife one day and the son the next. The potential for chaotic administration, acrimony and taking the fall for something another person did without your concurrence, is huge. Accountability and liability are compromised.

What did please me about both of these clients is that they called a lawyer and asked before taking any steps. They each probably avoided a trainwreck by finding out the facts before going ahead.

The Trials and Tribulations of Choosing an Executor

In this article from All About Estates, Justin de Vries gives what he calls "a litigator's perspective" on having multiple executors or choosing your executor carelessly. It's a very good article, in my view, so click here to read it. Sounds like the voice of experience to me.

Can my spouse be my executor?

I'm often asked whether having your spouse act as the executor of your Will as well as being the beneficiary of your Will is a conflict. Just the fact that someone is your spouse is not a conflict. In fact, it's very common that husbands and wives appoint each other as their executors.

It works because the finances of the husband and wife are already intertwined, such as when they take out life insurance policies that name each other, or open RRSPs and designate each other as beneficiaries. In most cases, they leave their estates to each other. In addition, it is usually safe to say that they have similar plans when it comes to looking after their children once both of them are gone.

This is not to say that it can't get complicated. For example, where there is a trust set up for a spouse, it might not be ideal for that spouse to be the trustee in charge of deciding whether they want to pay money to themselves. A trust for a spouse might be set up if, for example, a man and woman get married, and it's a second marriage for one of them. Let's say it's the husband who is marrying for the second time. He sets up his Will so that his second spouse can live comfortably for the rest of her life, but when she passes away, the remainder of the estate goes to the man's children from the first marriage.

Maybe it wouldn't make sense for the second wife to be in charge of her own trust. Even if she were completely honest, there is always the appearance of conflict of interest that might cause the children of the first marriage to speculate about how much she is taking for herself and how much she is leaving for them.

Even this doesn't mean that the spouse can't be the executor. A man like the one in our example can say that his spouse is to be his executor, but if there is a trust set up for his spouse, it is to be managed by another trustee. We do this a lot in the trust company where I work. We either act alone as the trustee, or we handle it together with the wife. This doesn't mean that the man doesn't trust his wife. It just means that he is aware of the optics of the situation and wants to avoid problems with the children if possible.

When it comes to choosing an executor, I often advise clients to decide first what they want to have happen with their estates. Once they know what the job is going to involve, they can think about who is best suited to do it. The spouse may or may not be the best choice.

As with all legal issues, the question is not whether you can do something; it is whether you should do it.

Are co-executors liable for each others' actions?

Many people like to appoint co-executors of their estates. There are a number of reasons for having more than one executor, ranging from wanting to share the workload to wanting the executors to keep an eye on each other. When co-executors are appointed, they are told that they must work together and that decisions about the estate must be made jointly. But what if they aren't made jointly? What happens when one executor takes matters into his or her own hands and ends up causing a loss to the estate? Are they both responsible for the loss?

The answer to this depends on the specific facts of the case, but generally speaking if one executor acts alone without the knowledge or consent of the other executor, and makes a mess of it, the executor who caused the problem is the only one responsible.

If they are both at fault, then usually both will be equally responsible for the loss. However, one fact that can make a big difference is the identity of the co-executor. For example, if one of the co-executors is a lawyer, he or she might end up being held the only one responsible, even though both co-executors participated in the actions. This is because the lawyer has specialized knowledge and training that should have an impact on how that lawyer behaves as an executor.

Trust companies are, just like lawyers, held to a higher standard than individual executors because of the experience and training of the trust company's staff. This can mean that if a trust company is a co-executor with an individual and both executors participate in a transaction that causes a loss to the estate, the trust company might be held solely responsible.

Executors and co-executors can be held liable for the actions of others if they hire people to help them with an estate. Frequently executors will hire lawyers, accountants, realtors, appraisers, investment advisors and others to carry out specific jobs within the estate administration. Sometimes the person hired may make a mistake that leads to a preventable loss on the estate. Is the executor responsible for that?

As long as the person hired does ONLY the work that is within his or her specialty, any loss due to an error is not the executor's responsibility; it's the hired person's responsibility. But if that executor asks the hired person to do anything that is not their specialty (for example, a lawyer completing a tax return or a realtor giving investment advice) and there's a mistake, that is considered the fault of the executor.

The rules are somewhat complicated when it comes to figuring out who is to blame for something. This is why executors and co-executors are told the rules of how they are expected to act when they take on the job.