When someone dies in Canada, most of their assets will be frozen. Their beneficiaries can only access and receive this inheritance AFTER a probate application has been submitted and approved by a judge.
When submitting this necessary probate application, the beneficiaries must choose an executor for the estate. The executor is the manager of the estate and would be the only signing authority on the estate account. They are the only one(s) who can access and distribute the estate to the beneficiaries.
Fortunately, the executor can be the same person as the beneficiary. This is actually highly advised to prevent any conflict of interest. For instance, you don’t want your sister, the executor, to run away with all the money because she was not a beneficiary to your estate.
However, there many reasons why the beneficiary may choose to not become an executor.
The top reasons are that they are simply not eligible or not able to take on this role. There are two requirements to becoming an executor:
- You must be above 18 years old – so any minor beneficiaries are not eligible
- You must be able to stay physically in Canada for around a year, as many executor duties, such as creating the estate account and distributing the money to beneficiaries, require your physical presence and attendance. Thus, any foreign beneficiaries who are unable to stay in Canada for a year cannot fulfill this role.
In fact, the Courts are strongly against foreign beneficiaries, defined as people who are not long-term Canadian residents. If the deceased does not have a valid Will appointing foreign executors, the Court will usually not approve foreign executors. An experienced lawyer must bring about a complicated and expensive motion, with many supporting evidence, to try to convince the Courts otherwise. It is much easier, cheaper, and faster to just appoint a local executor.
Even if one is eligible, they may not want to be an executor, because it is a very labour-intensive job that involves many obligations, including:
- Locating any wills;
- Determining what the deceased owned at the time of death;
- Notifying banks so they don’t sue the estate for not responding or paying bills;
- Doing final income taxes for the deceased;
- Determining who the beneficiaries will be (set by legislation if there is no will);
- Preparing all of the estate documents and submitting them to the correct court; and
- Purchasing a bond insurance policy, if necessary;
- Once approved as executor, create an estate account with the bank;
- Pay out all debts owed by the deceased; do notice to creditors for unknown debts;
- Sell any estate assets, like real estate and vehicles, for the highest possible price;
- Filing and paying estate administration taxes for the deceased;
- Distribute the inheritance to the beneficiaries.
Today, we will compare the differences of choosing a friend/family to be executor vs. hiring a lawyer to be executor.
Nominating a Friend or Family Member from Ontario
When doing probate, foreign estate trustees are subject to different rules and restrictions than locals. For example, while you may get approved even if the trustee lives in another province or commonwealth countries, you may need to get a very expensive bond insurance policy. Also, if the individual lives in non commonwealth countries, like China or the United States of America, it is almost impossible to get a foreign person approved as the estate trustee without a will.
When you cannot have the beneficiary be the estate trustee, one option for them is to appoint a friend or family member from Ontario to apply to be the estate trustee. Unfortunately, this choice comes with huge risks. When someone becomes the estate trustee, they have full authority over the estate. This means they can take money out of the deceased’s accounts, they can sell the deceased’s assets, and they can give these assets to the beneficiaries. Unfortunately, there is no supervisor to ensure they do everything correctly. Ultimately, you must trust that the person you chose will not make mistakes, try to steal the assets, or use them for their own benefit.
Case Study: A 22-year-old son dies in Toronto, but his family lives in China. The son’s college friend offers to be the estate trustee.
Risk Case Study #1
After becoming the estate trustee, the friend steals everything from the estate. Unfortunately, the family would need to sue the friend, which can take a very long time and can be very expensive. In the end, if the friend has no money and has already spent the money he stole from the estate, the family will get nothing.
Risk Case Study #2
After being approved as the estate trustee, the friend makes mistakes and takes a long time to complete the process. The friend doesn’t inform the bank holding the mortgage, and the bank tries to sell the property and charges huge penalties. Also, when selling the property, the friend hires a bad real estate agent and doesn’t prepare the house well, so the house sells for way less than it is worth. Additionally, the friend didn’t know how to handle the estate and never discovered several investments of the deceased son. If this happens, there is nothing the family can do. Basically, it was their fault for selecting an inexperienced and incompetent estate trustee.
Risk Case Study #3
After being approved as the estate trustee, the friend sells all of the property and transfers 95% of the money to the beneficiaries, but keeps 5% for himself as payment. Unfortunately, unless the family got the friend to sign a document stating that they will not charge to be the estate trustee, the law allows the friend to charge up to 5%.
Risk Case Study #4
Since there is no will and the estate trustee is not a beneficiary, the court may require an expensive bond insurance policy to protect the beneficiaries. This policy can cost as much as 5% of the total value of the estate in some cases.
As you can see from these examples, there are many risks when selecting a friend to be the estate trustee, which is why many people prefer to hire a professional estate trustee, like a lawyer or trust company.
Hiring a Professional Estate Trustee
Now, there is no rule stating that you must hire a professional estate trustee, like a lawyer. However, when the beneficiaries do not have a trusted and experienced person to appoint, the best solution is often to hire a professional.
When hiring a professional, like Varity Law, to be the estate trustee, you get many benefits, such as:
- Experience with banks – as experienced estate trustees, our team knows how to speak to the banks and other 3rd parties to locate ALL of the deceased’s assets. We have contacts with all major banks, we know their procedures and we can force the banks to follow the law, which they do not always do without extra pressure;
- Experience with real estate law – as experienced estate trustees, and real estate lawyers, we are extremely familiar with the process for real estate sales and we have many trusted real estate agents we can hire to appraise the property and aid in the sale. This reduces risks of loss and saves time;
- Integrity – as lawyers, we are regulated by the Law Society of Ontario. Unlike a friend, the Law Society can ensure the lawyer serving as the estate trustee doesn’t take the estate assets and that they do the job properly; Law Society audits licensed lawyers who acted as estate trustees every year, and will ensure that their actions are correct and reasonable; otherwise, the lawyers risk losing their licenses and livelihoods;
- Insurance – as lawyers, the Law Society of Ontario requires us to carry substantial insurance policies to protect our clients. Since we already have this insurance, the family is not forced into purchasing added insurance, which can cost as much as 5% of the estate.
- Efficiency – as experienced estate trustees, our team knows the process, which can save a lot of time by avoiding the costly and time-consuming mistakes made by inexperienced friends who get appointed as the estate trustee. Additionally, since the court places a lot of trust in lawyers, their approval of the probate application is often much faster.
- We are experienced at holding off creditors – it is unlikely that the family friend can achieve the same results that knowledge & experience will get you. For example, if there is a mortgage, a skilled lawyer may negotiate with the bank to suspend payments until probate is approved, while an inexperienced friend may be forced to continue the mortgage payments from their own funds, or may see the property sold by the bank under power of sale, which will always result in enormous fees and penalties charged by the bank.
Conclusion:
As you can see, where there are issues finding a suitable estate trustee, the best option may be to appoint a professional estate trustee, like a lawyer, as the legal representative of the estate.
The top reasons for choosing an estate lawyer as estate trustee rather than a friend/family include:
- The family/friend is not trustworthy or have a conflict of interest with the beneficiaries (may steal their inheritance)
- No family/friend/beneficiaries are above 18 years old AND are long term residents of Ontario;
- The family/friend is inexperienced, incapable, or simply not willing to handle all the complexities and obligations associated with being an estate trustee.
If you have any questions regarding probate or professional trustee services, we invite you to book a 1st free consultation with us: https://calendly.com/sabrina-668/1stfreeconsult
