9 months ago, George and his sisters came to my office all gloomy. They had just lost their mom a few months ago, and now they need to deal with all her bills. At the same time, they cannot access her funds to pay those off until probate is approved. Luckily, given our firm’s experience, we got the probate certificate within 3 months! Relieved, they can now get all the creditors off their backs and then split the rest of the estate three ways.
But last month, George came to my office all upset again. Being the eldest son and the most trustworthy, his mom appointed him as the only executor in her Will. This means that while the estate would be divided 3 ways, George is the only person who is allowed to manage the funds. He would have sole control over all deposits to and withdrawals from the estate account.
George is a very reliable person who would not intentionally squander his siblings’ inheritance. But like most people, George is not extremely proficient with bookkeeping. After a few months, his sisters demanded to see the transactions in and out of the estate account. After George provided the bank statements to them, they questioned many transactions. There were withdrawals where the only description on the bank statement shows “branch-to-branch transfer” or “cash withdrawal”. When the sisters asked George what those expenses were for, George could not remember. At the time he made those payments, he was sure it was for a legitimate purpose. But now many months have passed, and he honestly cannot remember. Especially since the estate account had 10-20 transactions per month.
Without a good explanation and worrying that George is managing all of their money, the sisters are very unhappy and are thinking of starting litigation against George for those unexplained, large expenses.
Equally troubling is when George tried to file for his late mother’s probate taxes and income taxes. Like his sisters, the accountant required a detailed breakdown of all deposits and withdrawals in order to calculate how much tax is payable. Did the investment account make any money that should be taxed? Were there legitimate expenses that could be deducted against taxable income?
After several months of stress, George finally came to our office asking for help. We immediately started estate account bookkeeping for him, but we also needed him to provide all the receipts and explanations for deposits & withdrawals. Luckily, with our help and George going over countless past documents, we were finally able to explain every single transaction. This immediately put his sisters at ease, who now verified that George did not waste their inheritance away. It also enabled the accountant to file for taxes accurately and pay the exact amount necessary to CRA.
The saving grace is that George came to us for help within a few months. This means that if he tried hard enough and with our help, he could still find those documents and receipts showing the reason for each deposit and withdrawal. We had some clients who came to our office way later, years after the estate account was opened. Unfortunately, we could not help those clients because there is no way for them to recover lost receipts from years past. Without knowing what each deposit and withdrawal is for (backed up by receipts), we cannot do good bookkeeping to the satisfaction of the beneficiaries or CRA. In those cases, the beneficiaries can sue the executor in Court, and if the executor loses, they may have to use their own funds to make up for any unexplained (illegitimate) expenses/withdrawals.
The morale of the story is to ensure bookkeeping is done perfectly from day 1 (when the estate account is opened). If you need help, we are always here – as long as you can still locate the receipts and documents explaining the purpose of each withdrawal and deposit.
Learn more about executor duties and risks. To book a 1st free consultation with us, please click HERE
