If you are asked to be an executor for a friend or family member you should gain an complete understanding of your fiduciary duties. Being an executor has a broad range of responsibilities, including funeral arrangements, financial decisions, income tax returns, and satisfying creditors.
In this column we will focus on investments.
Let’s use as an example, the widowed Mary Wilson, who named her eldest son, John, as her executor. Mary has four children and her last will states that her estate is to be divided equally amongst her children.
We receive a phone call from John notifying us that his mother has passed away. We immediately create a new account and transfer all the investments “in-kind” to the Estate of Mary Wilson.
John comes in for a meeting and he asks us our opinion regarding the investments in the estate. Some of the investments are considered medium and high risk. John feels that the market will be positive over the next several months. But his siblings are already disagreeing with how the money should be invested.
Here are some key points to consider regarding the investments of an estate:
- It is crucial that you review the terms of Mary’s will carefully to determine the executor’s investment powers, and what specific powers you have as executor to retain assets and reinvest.
- Obtain a list of all investments and which financial institutions they are held at, including type of account. Make a note of all contact names, such as investment advisors and associates usually listed on investment statements.
- Notify all financial institutions as soon as possible after the date of death. At the same time, you should consider making instructions that no further trades are to be done if the accounts are discretionary. Request a schedule of all investment maturity dates of fixed income and obtain an understanding of the associated costs if you were to sell any investments.
- Make a note of all investments that are not held at an investment firm directly, including physical share certificates. Anyone who has had to change the name on a share certificate will know the work involved and the associated costs. Clearly make a note of all old defunct security statements. If in doubt you may bring the certificates into your investment advisor to do a search. We encourage everyone holding physical share certificates to deposit them into a financial institution to reduce costs to your estate and avoid passing on unnecessary work to your executor.
- An executor has the responsibility, not only for making investment decisions relating to all accounts, timing of distributions, and even the financial institution where the investments are held at, but also for insuring and safeguarding other assets, such as real estate, vehicles, personal effects and caring for animals owned by the deceased. All creditors, including Canada Revenue Agency, must be considered. We recommend an executor consolidate multiple investments accounts, if not done so already, for simplicity and to be able to work with one advisor. It will also be easier to perform distribution calculations.
- One of the toughest decisions you will have to make is whether to hold, sell, or buy specific investments, especially if some of those are medium or high risk equities. If the executor is a beneficiary, along with others, it is important to avoid conflicts as well as act as a fiduciary. It is possible that some of the beneficiaries would rather have the investments in cash equivalents or short term fixed income, rather than in equity. In many cases it makes sense to liquidate the equity investments and move the proceeds into cash equivalents. This may be especially important if one of the beneficiaries objects to taking on risk.
- Create a consolidated list of all assets at the time of death, with market values as of the market close the day before death. This information, along with the adjusted cost base, will be used to calculate realized gains (loss) on the deceased’s final tax returns.
- Obtain a list of accrued interest and dividends declared but not paid as of the date of death. Depending on the amount, it may make sense to file a rights and things tax return to take advantage of another set of basic exemptions.
- Depending on how many financial institutions you need to contact it may be best to request several notarized copies of the death certificate and will. Depending on the size of the account and how the account was set up, you may require letters probate. As well, obtain an understanding of what documents are required by each financial institution
- Some investments may be designated to pass to beneficiaries outside of the estate. This is common for insurance products, registered accounts, and joint with right of survivorship accounts. These investments essentially bypass the estate. Hopefully the deceased’s will is consistent with this.
- If an executor is negligent in discharging his or her duties, s/he can be held liable. It is completely allowable, and indeed advisable, for an executor to seek professional help.
You always have the right to decline being an Executor. If you do not want to accept this responsibility, you should renounce as Executor immediately. You may seek the advice of a corporate executor and/or trustee at any time.