You’ve known Alice for a long time, way back to when she and Gord moved in down the street. Your families got to know each other through school plays and sports outings. Good neighbours became good friends, and eventually clients.
After Gord passed away, Alice depended on you to help settle the estate, and in fact you went beyond the strict job requirements in an effort to relieve the pressure on her. Ever since, Alice has looked to you for support and guidance.
Now, sitting across the desk from you at your office, she has popped ‘the question’ – No, this isn’t some sappy dime store romance novel. It’s something that almost every financial advisor inevitably faces, which is …
“Will you be my executor?”
Did you feel a chill run down your spine? You should.
Accepting executorship is more than merely stepping up the degree of commitment to a client’s affairs. It is of a fundamentally different nature compared to the classic financial advisory role, which is founded mainly upon contractual and/or agency principles.
By contrast, an executor is a fiduciary whose interests take a legal backseat to those of the estate and its beneficiaries. This includes the duties to:
- Act in good faith in the best interests of those represented
- Exercise the same care and diligence that a reasonable person would in managing his/her own affairs (which may differ from your personal inclinations)
- Act personally, engaging specialized and professional skills as may be necessary, but remaining cognizant that final decision responsibility rests with the executor
- Be loyal, avoiding conflicts of interest, including not taking benefits for oneself even if the estate is no worse off (except as authorized by the Will or all beneficiaries)
- Be even-handed among estate beneficiaries, including balancing trust investment practices to serve both income and capital beneficiaries.
Here then is an overview of the rewards and risks of accepting the role of the executor. Some apply to anyone considering the call to act, whereas others are directed at the sensitivities of a professional financial advisor.
Potential rewards
Honour
It is indeed an honour to be asked to accept this very important role, being the last decision of the deceased to entrust you to complete the distribution of his/her earthly affairs. That said, feeling honoured is insufficient on its own to lead one to accept. It will only be honourable if the responsibilities can actually be carried out effectively.
Self-satisfaction
It is a natural human impulse to want to help, and to feel satisfied in doing so. This is the core of human charity, and is a fair emotional ingredient in the decision to accept or decline.
Business goodwill
As a part of your offering to clients, you may see this as a way to offer value and differentiation. Still, there will be a limit to your ability to serve all clients, so such an approach must be coordinated within the broader strategic positioning of the practice.
Compensation
Generally executors are entitled to compensation for their activities, amounting to possibly five percent of the assets managed, depending on the complexities arising and skills applied. Bear in mind that payment is usually at the end of the administration (a year or two on), though occasionally interim compensation is permitted. Also be aware that pursuant to the fiduciary duty of loyalty, an executor may be precluded from concurrently being a compensated financial advisor to the estate.
Risks
Your skills, particularly interpersonal
Though the main function may appear to be property management, do not be fooled into believing that an estate can be managed on a spreadsheet. At a minimum, your sincere compassion and empathy will be required. At worst, estates are famous for emotional battles due to pent-up anger, simmering rivalries and hidden (and overt) greed, among other nastiness.
Compliance and other oversight
Check first with your compliance department as some organizations bar or restrict their advisors acting as clients’ executors. You carry errors and omissions insurance to cover against perils that may arise under your financial licenses – Your executor activities will not be so covered. At the extreme, a poorly managed estate (or disaffected beneficiaries, whether warranted or not) could bring your good character into issue, placing you under regulatory scrutiny and exposure to public embarrassment.
Time commitment
There is a reason why an executor is compensated. Consider carefully the personal and business toll your absence from daily routine will take from your family and practice, respectively. Know your hourly billing rate to know what you are exchanging.
Exposure to deceased’s tax liabilities
Two recent technical letters from the Canada Revenue Agency highlight the hefty compliance burden on an executor as the estate’s legal representative. In the most severe circumstances, an executor can be personally liable for estate taxes, interest and penalties.
On balance…
While the picture painted here is purposely one of caution, the decision is a very personal one, notwithstanding the professional overtones. It’s obviously not a matter to be taken lightly or impulsively … though Alice is still waiting for your answer.