Estate Planning: Avoid These Estate Administration Errors
April 17, 2024
Have you been appointed as someone’s estate “executor” or “liquidator”?* Or, if you are planning for your own estate, will your executor avoid these errors?
Administering an estate can be a time-consuming and complex task, often challenged by what may be an emotionally difficult time. All too often, executors can make mistakes that have the potential to lead to increased tax liabilities, conflict with or between beneficiaries or, worse yet, escalation to potential litigation. Equally concerning, the executor risks personal liability for these mistakes.
Here are five common errors: 1. Overlooking directives in the Will. Estate lawyers say that executors can sometimes ignore parts of the Will, such as forgiving loans that were to be collected, perhaps due to a lack of knowledge or because it is easy or convenient. Others may choose to distribute assets differently than directed within the Will, under the belief that they have a more ‘fair’ idea for this distribution. 1 However, neither situation is within an executor’s authority, exposing them to potential liability.
2. Failing to communicate. Sometimes executors become so involved in the process that they neglect to communicate. One of the executor’s duties is to respond to reasonable inquiries from beneficiaries. Silence may be misinterpreted as being secretive or suspicious, and this can often prompt estate disputes. Maintaining transparency and ongoing communication can go a long way in helping to prevent conflict.
3. Making distributions too early. If distributions are made too early, such as before taxes or other liabilities are paid, the executor may be held personally responsible. This can often happen when the executor succumbs to pressure from beneficiaries for distributions. However, any outstanding debts of the deceased must be paid before estate assets can be distributed to beneficiaries — and it is the job of the executor to identify these debts. Sometimes the executor overlooks the importance of determining whether there are unknown creditors, which often involves a time-consuming process of creating a public notice. Advertising for creditors before any distributions are made can protect the executor should a creditor make a claim after the estate has been distributed.
4. Trying to keep costs low. Some executors may act too prudently to try and limit estate expenses. However, this may lead to higher eventual costs. For example, if an executor decides to do the tax returns without the help of an accountant, they may miss eligible tax credits or deductions. In the past, advertising for creditors in the newspapers of multiple cities was very costly, so some executors avoided the process, only to be caught by surprise when creditors eventually made claims.
5. Treating estate funds as their own. Given the significance of assets that are often available within an estate, some executors may wrongly use estate funds for their own purposes, such as to make loans to themselves or family members. Others may make more honest mistakes, such as using funds to cover travel costs for family members to attend a funeral. If estate funds are used incorrectly, the executor may be held personally liable. As well, if the executor acts unreasonably or in self-interest, they may not be entitled to charge compensation from the estate. 2
Plan Ahead If you have been appointed to administer an estate, being aware of these potential pitfalls may help as you contemplate the role. Remember also that you can decline the position, but doing so after accepting the role can be difficult and/or costly. As you plan for your own estate, carefully choosing your potential executor is important to prevent these and other mistakes; it may be preferable to seek a professional to act in this role. Click here for a copy of Echelon’s Executor Checklist . If you have any questions, please contact your advisor.
*The names vary by province. For this article, the term “executor” is used to describe the role of the person responsible for carrying out the instructions of the Will. 1. http://estatelawcanada.blogspot.com/2010/07/top-five-mistakes-made-by-executors.html; 2. https://www.canlii.org/en/on/onca/doc/2016/2016onca521/2016onca521.html
Here are five common errors: 1. Overlooking directives in the Will. Estate lawyers say that executors can sometimes ignore parts of the Will, such as forgiving loans that were to be collected, perhaps due to a lack of knowledge or because it is easy or convenient. Others may choose to distribute assets differently than directed within the Will, under the belief that they have a more ‘fair’ idea for this distribution. 1 However, neither situation is within an executor’s authority, exposing them to potential liability.
2. Failing to communicate. Sometimes executors become so involved in the process that they neglect to communicate. One of the executor’s duties is to respond to reasonable inquiries from beneficiaries. Silence may be misinterpreted as being secretive or suspicious, and this can often prompt estate disputes. Maintaining transparency and ongoing communication can go a long way in helping to prevent conflict.
3. Making distributions too early. If distributions are made too early, such as before taxes or other liabilities are paid, the executor may be held personally responsible. This can often happen when the executor succumbs to pressure from beneficiaries for distributions. However, any outstanding debts of the deceased must be paid before estate assets can be distributed to beneficiaries — and it is the job of the executor to identify these debts. Sometimes the executor overlooks the importance of determining whether there are unknown creditors, which often involves a time-consuming process of creating a public notice. Advertising for creditors before any distributions are made can protect the executor should a creditor make a claim after the estate has been distributed.
4. Trying to keep costs low. Some executors may act too prudently to try and limit estate expenses. However, this may lead to higher eventual costs. For example, if an executor decides to do the tax returns without the help of an accountant, they may miss eligible tax credits or deductions. In the past, advertising for creditors in the newspapers of multiple cities was very costly, so some executors avoided the process, only to be caught by surprise when creditors eventually made claims.
5. Treating estate funds as their own. Given the significance of assets that are often available within an estate, some executors may wrongly use estate funds for their own purposes, such as to make loans to themselves or family members. Others may make more honest mistakes, such as using funds to cover travel costs for family members to attend a funeral. If estate funds are used incorrectly, the executor may be held personally liable. As well, if the executor acts unreasonably or in self-interest, they may not be entitled to charge compensation from the estate. 2
Plan Ahead If you have been appointed to administer an estate, being aware of these potential pitfalls may help as you contemplate the role. Remember also that you can decline the position, but doing so after accepting the role can be difficult and/or costly. As you plan for your own estate, carefully choosing your potential executor is important to prevent these and other mistakes; it may be preferable to seek a professional to act in this role. Click here for a copy of Echelon’s Executor Checklist . If you have any questions, please contact your advisor.
*The names vary by province. For this article, the term “executor” is used to describe the role of the person responsible for carrying out the instructions of the Will. 1. http://estatelawcanada.blogspot.com/2010/07/top-five-mistakes-made-by-executors.html; 2. https://www.canlii.org/en/on/onca/doc/2016/2016onca521/2016onca521.html
Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.
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