Must an executor immediately cash in assets with a maturity date?

When a testator passes away leaving assets that have built-in maturity dates, how should those be dealt with? Must they be cashed in right away? This question was recently asked by a reader, and his question with my answer appear below.

"My father had some money invested in a GIC for one year. The expiry date is September 2013, but my father died February 2013. Can I wait for the expiry date in September to receive the GIC or do I have to dissolve it now since he has already passed away?"

You don't say in this question whether you are the executor of the estate or the beneficiary of the GIC, or possibly both, so let's talk about both of those situations.

Executors have some discretion as to when they cash in or sell assets of the estate. The discretion is there so that executors can carry out their responsibility of making the most of the estate by taking advantage of market conditions, tax losses, or whatever else is available. Each executor must consider each asset individually. In this case, if your father has the funds invested at a wonderful interest rate that you're pretty sure you won't be able to get yourself, you might want to keep it invested to take advantage of that rate.

Ideally, the executor and the beneficiary will have a conversation about the assets to give the executor an idea of what would work best for the beneficiary. However, the beneficiary also needs to realize that the executor may have more on the go than just one asset, and must consider the estate as a whole. For example, if the rest of the estate has been wound up except for this one asset, and the executor just wants to get the tax return done and finish things off, it might not make sense to delay all of that. Remember that as long as the GIC is in your father's name, tax receipts for interest earned will go to the estate.

There is no law that says every executor must cash in every GIC immediately. The executor should first look to the will to see whether there are any specific instructions or timelines to follow (usually there are none, but if there are, the executor must follow them). Usually executors are  under pressure from beneficiaries to get things done quickly and efficiently.

Normally when a GIC is invested for a set period of time, cashing it in before the expiry date will result in a penalty or loss of interest. However, the death of the owner of the GIC is an exception to that general rule. This means that the GIC could be cashed in early without any loss.

You asked whether you can wait for the expiry date to cash the GIC. As is always the case in legal situations, the question isn't whether you can do something; the real question is whether you should do it.

Does a low dollar amount mean that an estate doesn't need to go through probate?

What happens when an estate is small? Is probate waived because of the low dollar amount? Not always! A reader sent me a note about this and I thought many of you would be interested in the answer.

Here's the question:

"My mother's sister recently passed away. My mother is the sole beneficiary and the trustee of the estate. Can she pay outstanding bills prior to probate? Does she need to probate the estate, as it has a value of less than $15,000?"

Yes, an executor can pay bills prior to receiving Letters Probate. In fact, most of the time it's a good idea to do so, as it helps to avoid penalties, late fees, or interest that eventually would have to be paid out of the estate. The authority to do this comes from the will itself, rather than from the probate.

If the bills in question include a funeral bill, your mother can submit the bill directly to the deceased's bank and ask that it be paid from the deceased's account (assuming there is enough money in the account for that). Sometimes a bank will even pay other bills that are clearly the deceased's bills, but that is in the discretion of the bank itself.

If your mother pays the deceased's bills or the estate's bills out of her own money, she can claim them back for reimbursement from the estate once funds become available (again, assuming there is enough money).

If the estate is quite small, as this one apparently is, there may be no need to apply for probate. But keep in mind that dollar amount is not the only factor. The type of asset will also matter. For example, there may be a mines and minerals title in the estate that is practically worthless at present, but you still need probate to transfer it because it's registered at the land titles office.

Assuming that in your case there is nothing unusual but there is, say, a bank account, a vehicle and personal belongings, your mother most likely will not have to apply for probate. The bank that holds the deceased's account does have the right to require your mother to apply for probate, but has the discretion not to insist on the requirement when the dollar amount is small.

Dollar amounts may not be everything, but they do matter. Banks who hold the only asset of the estate in the form of a small account may waive the requirement for probate because they realize that the court fees and lawyer's fees to obtain a probate could more or less wipe out the estate. The risk to themselves is smaller as well. If a bank releases a bank account without a probate document and it's later discovered that there is another will or another beneficiary, the bank could be on the hook for the amount they released. They will often accept that risk as long as your mother signs an indemnity form.

You will not need probate to transfer personal or household goods or a vehicle.

Keep in mind that sometimes there are reasons to probate a will that have nothing to do with dollar amounts, such as questions about the validity of the will, the need to obtain tax information, or claims by third parties.

Mom's in a nursing home; can we sell her house and divide the money?

Do you believe that other people should be allowed to take your money away from you - and I'm talking hundreds of thousands of dollars - because you are old and they think you don't need it? Of course not! So why do so many people think they can help themselves to their parents' estates without permission before the parents even pass away?

Here is a note I recently received from a reader:

"My mother has just been panelled to a Nursing Home. We are 5 children and one is her POA, and executor. Her will says that the house is to be sold and divided between the 5 children. Is it not best to sell the house right away and divide the money between the children, rather than keep it in a seperate account till she passes?"

Would it be best to sell the house and divide the money right away? Best for whom? And why are you following the will of someone who isn't dead?

This is a subject that I've been asked about many times over the years, and I have to confess that it irritates me no end. Your mother's will says that the five of you are to inherit the proceeds of the sale of the house after she passes away.  That's what wills do; they talk about what happens to an estate after a person dies. She hasn't passed away. Therefore, no, you can't have the money.

The executor has zero power to do anything at all while your mother is alive. The will has no effect while your mother is alive. So nobody gets to act as her executor yet. Forget the executor and the will while your mother is still alive. I hope I've made this point clearly enough, not just for you but for all of the other readers who ask me this question repeatedly.

Now let's look at the attorney acting under the Power of Attorney (POA). Has the POA been brought into effect? Don't assume that because your mother is going to a nursing home that the POA is automatically in effect. Going into a home likely has no effect on it at all. The person named in the document should read it carefully to see what has to happen to spring it into effect. In many provinces that means having a doctor sign a declaration of incapacity.

Once the attorney under the POA has properly sprung the document into effect, the attorney has to do what is in the best interest of your mother. Maybe this means selling the house. If your mother is never going to be able to live there again, then perhaps that's the best thing to do financially. However - and this point is NOT to be overlooked - the sale proceeds of the house must be invested for your mother. The attorney under the POA does not have the legal right to distribute the funds to you five. He or she risks financial penalties, removal from the job of POA and perhaps even jail time for that, depending on the circumstances.

Rarely do posts move me to use quite as much underlining as I've used in this one, but this topic is so important. Over and over again, I see children with an over-inflated sense of entitlement taking money that doesn't belong to them on the philosophy that "one day it will be theirs". That day hasn't arrived yet.

Whose fault is it? The executor or his lawyer?

I've known for years that most people don't really understand the role of the lawyer who acts for an estate, but lately I've been reminded of just how unfamiliar people really are with the lawyer's job. I receive many emails a day from readers, and a good number of them ask about (or complain about) what the lawyer is supposed to be doing. Recently I received an email in which a reader said she had laid a complaint with the provincial Law Society because the executor's accounting had not been done.

Apparently that reader, like many others, doesn't see the difference between the executor's duties and the lawyer's duties. Making an official complaint about the lawyer when it's the executor who has dropped the ball isn't going to accomplish anything. As most people are not exposed much to estate matters, this lack of familiarity is only to be expected. I thought it would be a good idea to chat a bit about what to expect from a lawyer working on an estate.

The basic relationship is that the lawyer works for the executor on the law-related aspects of an estate. Usually this means applying for probate. The lawyer should be a source of information and advice for the executor, but at the end of the day it's the executor who decides which steps to take and which to ignore. The lawyer can't force the executor to do anything or not do anything.

It's not the lawyer who changes the locks on the house or gives away Mom's jewelry or prepares an accounting. Those are all done, or not done as the case may be, by the executor. From time to time an executor will ask a lawyer to take on more tasks than simply applying to the court for probate. For example, the executor might ask the lawyer to handle the sale of the house. Keep in mind that the lawyer can't decide to sell the house; he or she can only do this on the instructions of the executor. If the executor decides to hold onto the property for years, there is nothing the lawyer can do about that.

A very common complaint on estates is that the beneficiaries can't get information about the estate from the executor or from the lawyer about what the executor is doing. Some individuals are furious with the lawyer for not telling them anything. Having been in that lawyer's shoes, I can only remind people that if the executor doesn't tell the lawyer what he or she is doing, the lawyer doesn't know and therefore the lawyer doesn't have any information to share.

The lawyer's client is the executor. This means that the lawyer can't and won't take instructions from the beneficiaries who call up and insist that the lawyer do things the way they want them done. The lawyer works for the executor. The executor works for the estate.

To break it down a bit further, let's look at a typical probate application. The lawyer prepares the documents but all of the information in the documents comes from the executor. The inventory of the estate, the value placed on items, information about the beneficiaries - all of this is given by the executor to the lawyer.

The lawyer will read the will and give an opinion on its validity. The lawyer will interpret the will according to law and advise the executor on what the terms of the will (such as trusts, conditions or contingencies) mean.

The lawyer will tell the executor what his or her executor's duties are. For example, the lawyer will advise the executor of the requirement to file income taxes. However, it's up to the executor to follow the advice and file the returns.

I hope this discussion has clarified things somewhat. My best advice to anyone - either executor or beneficiary - who needs to consult a lawyer about an estate is to find a specialist. Find a lawyer who has plenty of experience with estates and things will go a lot more smoothly.

Fee for acting under a Living Will? And can I ignore funeral instructions?

The role of the executor is challenging, there is no question about that. I know that many of you reading this blog are executors looking for practical information about how to deal with the estate you're working on. The following question (which is really two questions) came in from a reader in exactly that situation, so I'm sharing it with you in case you're in a similar spot.

Here's the question:

"Can an executor charge fees before the person passes away if that person is in charge of the living will. Also does the executor have to follow the will to the tee for the funeral arrangements?"

 

First of all, a person whose authority comes from a will can't do anything with that will, including taking a fee, while the testator (the person whose will it is) is alive.

 

When you talk about the Living Will, I am going to assume that you're actually talking about a type of health care directive or advance directive. These directives usually include the kind of end-of-life instructions you see in a Living Will, but they also do much more. They usually appoint someone to make decisions, and as you say you are "in charge of" the document, this sounds more like what you are dealing with.

 

The law in Canada generally does not allow a person acting under a health care directive to charge a fee. You can, however, usually recover reasonable expenses. Please understand that this has absolutely nothing to do with the will. You have to follow the law as it applies to the health care directive, which varies from province to province.

 

As for your second question, the executor doesn't have to follow the will to a tee regarding the funeral. In fact, legally the executor can totally ignore what the will says about the funeral, because the funeral wishes in a will are a wish only. They are not legally binding. The law says that if the executor has the legal responsibility to dispose of the body, then he or she must have the legal right to decide the best way to do that.

 

Please keep in mind the emotional fall-out that can happen if you decide not to follow the will. It may upset people, to put it mildly. Consider what damage will be done to family harmony, and think about how you will deal with this. I'm not saying that you can't do the funeral the way you think best; I'm saying you may have to gently explain to family members why you made a different decision.

 

I'm glad you decided to ask for input before taking these steps. Sometimes just asking helps avoid real problems.

Proceed with caution: Executors do some heavy lifting

Several months ago I spoke with Elyse Umlauf, a reporter, but it wasn't until today that I came across the article she wrote based on our interview.

The article talks about 8 things you should consider when choosing an executor. Then, just to round out the topic, it talks about 5 things you should consider before saying yes when someone asks you to be their executor. It has tons of good information so if you want to check it out, click here to be taken to the Canadian Newsletter for www.seniorsrealestate.com.

Can the executor hire cleaners?

It can be hard to find answers to "how to" questions about estates. That's something I hear from readers every day. So when someone writes to me with a question like the one below that I know many of you have to deal with, I like to post my answer here so that all of you can read it.

Here's the question:

"I am the executor for a friend that recently passed away [in another city]. I can do all the executor duties such that are administrative from home, but find it difficult to do the actual sorting of the house (clothes, furniture, stuff) because of the distance involved. Can I hire someone to do this manual work? Does the cost of this service come from the executor fee or is it considered an out of pocket expense?"

Yes, an executor can hire people or companies to help with many of his or her tasks, as long as the executor is not delegating his or her discretion. This executor is allowed to hire someone to take away items from the house and to clean the house and yard.

I would advise an executor to go through the house before hiring any sorters or cleaners, to check for small valuables (cash, jewelry, key to safe deposit box), important mementos (photo albums, framed certificates) and paperwork (I.D. cards, marriage certificate, birth certificate, credit cards, insurance policies, vehicle pink slip, bank statements, title deeds, etc). The executor must understand what's in the house. If the will leaves a specific item to a specific person, find that item and remove it to a secure place.

The executor should protect the estate against identity theft by removing or shredding the deceased's private information.

When hiring cleaners, make sure you give clear instructions about what is to be done with items taken from the home. Are they to be thrown away? Boxed and put into the garage?

The cost of hiring cleaners and sorters does not have to come out of the executor's fee. It is a legitimate cost of administering the estate. However, the executor should be absolutely clear on what is going to be paid and should keep the cost reasonable. Often a family member takes it upon himself or herself to do the cleaning and sorting because they don't want a stranger to do that. This is fine, as long as the individual doesn't then try to charge an exhorbitant amount for the work.

In many wills, there is a specified power or authority for the executor to hire "agents", which can include lawyers, accountants, appraisers, realtors and anyone else needed to carry out a smooth estate administration. This clause is included for the information of the executor and the beneficiaries so that everyone understands that the executor can't necessarily do all jobs himself or herself. Even without this clause, an executor can hire the help needed.

The Executor's Year

I've posted on this blog before about the executor's year, but I know it's something that readers need to know more about. It's a rule of thumb that says an executor should have substantially wrapped up an estate within a year unless there are extenuating circumstances that prevent that.

I recently found the following case summary at www.disinherited.com that talks about the court's application of the executor's year rule, and makes it clear that an executor can be called upon to explain himself or herself if the estate is taking too long. The executor in such a case can be removed as executor for improper delays, and held personally liable for any losses to the estate that result from improper delays. Click here to read the case summary.

I particularly liked the author's summary, as follows: "most of the complaints relating to the executors year is often related to an executor that either cannot or will not deal with the estate for various reasons, usually emotional, or they are simply power tripping over the other beneficiaries and literally keeping them in the dark."

The phrase "power tripping" is absolutely perfect to describe how many executors behave. However, if the power trip lasts longer than a year for no good reason, it may well be cut short by the courts.

Judge disallows executor's fee for manipulative, deceitful executor

Executors who are being careless or deceitful and not properly looking after the estates they are supposed to protect should read this case. So should beneficiaries who are suffering at the hands of that kind of executor and wondering whether there is anything they can do. In this case, the executor "breached her duty of honesty and utmost good faith, was prepared to simply cut a cheque to pay out a claim against the estate without any investigation into its merits, and was prepared to use the threat of destroying the testator’s beloved pets as a means to try to extract benefits for her friends and herself".

I'm talking about the recent Ontario case of Re Watson Estate. The court got it exactly right, in my view, by refusing to allow the executor to receive a fee and ordering her to repay the fee she had already taken. To read a description of the case on the All About Estates blog, click here.

Decision-making by trust companies

Ever wonder how decisions are made when the executor is a trust company? In this article, Elaine Blades gives you a peek into how things are done. Click here to read it.

4 things to consider before becoming an estate executor

Regular readers of my blog will know that I frequently suggest that people take the time to really think about who they want to appoint as executors of their estates. In this article from Investopedia, the person named as executor is encouraged to think just as carefully about whether it's a good idea to accept being named as the executor. Click here to read the article.

Just what are the assets of an estate?

It's important for an executor to have a thorough understanding of which assets are in the estate he or she is trying to administer, for several reasons. The executor has to create an inventory of assets and liabilities, which is sworn to be accurate and filed at the court. Also, the executor is personally liable for errors and negligence, and neglecting to deal with an asset would certainly count as negligence. Also, the executor usually has to answer a lot of questions from beneficiaries who are counting on the executor to be the most informed person in the group.

Some assets cause problems for executors just by their existence, and often the problem has arisen because nobody really understands whether those assets are in the estate or not. So let's try to clear up those misunderstandings.

As a general rule, assets that are held in joint names with a right of survivorship are not in an estate. This is because when the deceased person died, all of his or her right in the property automatically transferred to the surviving joint owner. An executor doesn't have to deal with the jointly owned property if he or she is looking after the estate of the first joint owner and does not have to include it in the estate inventory. All the executor has to do is inform the surviving joint owner of the death, and provide a death certificate.

The exception to that general rule is an asset that is held between a parent and an adult child as joint owners. Now those joint assets are to be considered as being held in trust by the child when the parent dies. Unless there is clear evidence that the parent did in fact want the child to own the joint asset, it must be paid into the estate and looked after by the executor.

If the deceased person owned real estate as a tenant-in-common with another person, the deceased person's share of the real estate is included in the estate.

Another asset that is not going to be part of the estate is a life insurance policy that names a specific person as beneficiary. Again, the executor isn't responsible for looking after this. The executor should let the insurance company know that the policy owner has died and provide a death certificate but after that, it's up to the beneficiary to get the money paid out.

If the insurance policy named the estate as the beneficiary, then it is the executor's job to get the money paid to the estate so that he or she can deal with it.

If the deceased owned assets such as RRSPs, RRIFs or LIRAs that name an individual as the beneficiary, the executor's duty is once again restricted to advising the plan holder (e.g. bank) of the death of the owner and providing a death certificate. If any of these plans name a beneficiary who has already passed away, the funds will be payable to the estate and in that case it's the executor's responsibility to look after it.

Usually the household goods of a married (or common law) person are only included in the estate if the spouse does not survive.

Vehicles, equipment, collections etc that are in the name of the deceased only are included in the estate. In fact, any items of any kind, from land to digital assets, that are owned by the deceased alone are included.

When the executor is preparing the inventory of the estate for filing at the court, he or she must include all assets that the deceased owned on the date of death, even if that asset has been sold or given away on the day in the inventory is done. For example, if Joe owned a car on June 19, the day he died, then his executor sells the car on July 30 and prepares the inventory on July 31, the car should still be shown on the inventory. This is because the inventory is intended to be a snapshot of the deceased's financial situation on the date of death, not on some random later date.

Executor's discretion when to sell land

This blog post from Rule of Law talks about a recent case from the Supreme Court of BC in which the court looked at how long an executor could wait before selling land from the estate. In this case, it was 11 years, which the court thought was fine based on the facts. One very important fact here is that all of the beneficiaries agreed to hang on to the land for that long, except for one who eventually changed her mind and demanded the land be sold so that she could have her inheritance. I agree with Rule of Law's conclusion that it would have been a much different outcome if the beneficiaries had not agreed to the delay. Click here to read the post.

You want me to pay for you to attend my funeral? I'd rather you stayed home

Executors don't have an easy job. One of the tricky issues they have to deal with is deciding which expenses should be paid from the estate and which should not.

Possibly the most common question about estate expenses is whether the estate should pay for the airfare, busfare, mileage, hotels etc for out-of-town family members to attend the deceased's funeral. Somehow, the prevailing idea is that the estate has to pay for everyone to come to the funeral. This is completely wrong and an executor who allows those expenses could find himself or herself personally repaying those amounts to the estate.

Remember that money paid out of the estate is money that is being taken directly out of the pockets of the beneficiaries.  For each person who is pleased that you've covered their airfare and hotel, you're going to have an upset beneficiary.

And why should the person who passed away have to pay for people to attend the funeral? If it were my funeral, I'd prefer you stay at home rather than charge me to attend. It's pretty insulting to make the deceased pay for the attendees, don't you think? The law supports me on this. Family members have to pay their own way. If they can't afford it, either they miss the funeral or the other family members get together and pool their funds to help out.

So what can an executor do when faced with a family member who insists that the trip to the funeral must be covered by the estate, since that is what happened when their friend's brother's hairdresser's mom's neighbour died?

If the family member is also a beneficiary of the estate, the executor has some room to work things out. The executor can advance a sum of money to the beneficiary on the understanding that the amount will later be deducted from the beneficiary's inheritance (get it in writing). Even this is risky for the executor; debts of the estate must be paid before beneficiaries get anything, so if the estate turns out to be insolvent, there might not even be an inheritance for this particular person.

Realistically, the executor might not even have seen the will, or had any chance at all to deal with it, by the time the funeral is held. It's very unlikely that the executor will have a good understanding yet about what's in the estate and who is going to inherit what. So when family members discreetly ask the executor where to send their receipts to be reimbursed, he or she might just have to say that everyone is just going to have to pay his or her own way, and that if it's possible to reimburse beneficiaries later on, the executor will let them know.

Yes, I realize that this is going to make the executor pretty darn unpopular. But what's worse, being unpopular, or being popular but personally responsible for a couple thousand dollars of other people's expenses that you wrongly paid out of the estate?

One thing that the executor can do for those travelling to the funeral is provide them with a copy of the Funeral Director's Statement of Death so that they can claim a bereavement discount from the airline.

Welcome to executorship. This is just the first of many minefields.

Can the executor sell an estate property to a family member?

An executor who is looking after the estate of someone who has just passed away has the obligation to gather in all of the assets of the deceased, pay the bills and distribute the remaining property to the beneficiaries. Usually the executor must deal with the house or condo owned by the deceased. Most likely he will sell the house and divide the net proceeds among the beneficiaries. But what if one of those beneficiaries, a family member of the deceased, wants to buy the house rather than having it sold outside the family? Can the executor do that?

The executor must first look to the will to see whether there is anything in the will that would prevent this. For example, the house might be left to one of the beneficiaries as their inheritance, either outright or in a trust. Or the will might state that a certain beneficiary has a specific amount of time to come forward with an offer to purchase, during which time nobody else can buy it. This might happen if the deceased had felt that more than one of the children might be interested in the family home, or if there is something unique about the property, such as a farm or family cottage.

Another option, although a rare one, is that the deceased might have specifically directed that the estate be liquidated, possibly to prevent any of the beneficiaries from owning any particular property.

If the will doesn't specifically prevent the executor from selling to a family member, the executor can go ahead and arrange to sell the property to the family member. It must be sold at fair market value, in other words, the price it would fetch if it were sold on the open market. (Executors would be well advised to protect themselves by gettiung two or three appraisals before agreeing on a price).

The executor must always remember that the beneficiaries can't receive anything from the estate until the deceased's debts have been paid, so it's possible that the house is needed for paying debts. In that case, the family member who wants the house is out of luck.

If the family member who wants to buy the house is a beneficiary, and the house is worth less than the beneficiary's total inheritance, the beneficiary can simply choose to take the house instead of cash. For example, the beneficiary's share of the estate might be worth $500,000, while the house is worth $400,000. Instead of taking $500,000 cash, the beneficiary might want to take the house plus $100,000.

If the beneficiary's share is less than the value of the house, the beneficiary may still use his or her inheritance to buy the house. For example, if the beneficiary's share is going to be $200,000, and the house is worth $400,000, obviously the beneficiary can't simply take the house. But he or she would only have to pay $200,000 for the house, as the other $200,000 is coming out of the estate.

Don't try this without the help of an estate lawyer!

One last thing that might cause a problem for the executor is a lack of powers and authorities in the will. This is a section of the will in which your estate planning lawyer examines your goals as stated in the will, and the assets you own, and includes the legal wording that will make sure your wishes are carried out in the most effective way possible. This is almost always missing from home-made wills, and frankly, sometimes even in the wills drawn up by non-specialist lawyer.

For example, in many jurisdictions, the law says that if an executor needs to sell the house from an estate to pay the bills, he doesn't need anyone's permission. However, if the executor is going to sell the house for any other reason - such as to sell to the beneficiary discussed in this post - he does need permission. He needs the written ok of all residuary beneficiaries. If one of those beneficiaries is a minor, the permission needs to come from the Office of the Public Trustee.

Having said that, the lawyer drawing the will should have included a clause that dispensed with the otherwise needed permission.