Choosing an executor – or estate trustee – isn’t necessarily a complicated decision but it is one that requires some thought.

Although far too many otherwise smart and savvy business people don’t have a will or estate plan, those who do take the time to think through how they want their estate to be handled often stumble on a small but key element of every will: Naming an executor or estate trustee to take care of the details surrounding the distribution of assets.

Too often, picking an estate trustee is almost a “throwaway,” with a spouse or adult child named without a lot of consideration given to the choice. In fact, the estate trustee’s job is too important for a casual decision. The job requires a unique skill set that includes organization, a knack for keeping track of the minutiae that is involved in administering an estate, and scrupulous honesty in handling money and other assets.

Obvious Choice

For people who have a relatively simple estate and where the spouse will be the primary beneficiary, naming the spouse as estate trustee usually makes sense and is an obvious choice. Even if there is a small business to be disposed of, chances are that – with the help of a qualified business valuation professional, a lawyer to draft or review the sale documents and an accountant to advise on tax issues – even a spouse with no real experience in business can wrap up matters and close an estate.

That said, relying solely on a spouse to be the executor might place a burden on them at a time when they might not be able to juggle the work and their grief.

Thus, naming a secondary trustee to help, or even take over the job if the spouse feels it is more than they can handle, is always a good idea. An adult child or several children jointly is another possibility; however parents need to ensure that their appointed child is very responsible and has the requisite maturity to handle the task.

More Complicated

In larger or more complex estates, it often makes sense to have an “institutional” trustee such as a bank or trust company.

While everyone may have their own definition of “larger or more complex estates,” as a general rule this is likely an estate with multiple businesses, or where numerous or lengthy trusts are being created for a spouse, children, grandchildren or others, or where there are unique items that because of their nature, such as an art collection, would benefit from the expertise and permanency that a bank or trust company can offer. And while some spouses may feel comfortable and be well-equipped to act as estate trustee, adding a corporate trustee to help – or take over the entire process – can be a good idea.

It is worth mentioning that both individual and corporate estate trustees are entitled to compensation from the estate for carrying out their duties.  A corporate trustee will generally have standard rates and fees, and in most cases they will need to be negotiated and agreed to prior to adding the institution such as a bank or trust company as an executor.  Individuals are also entitled to compensation and this is amount is typically a percentage of the value of the estate; the rate can fluctuate depending on the complexity of the work involved.

Residency and Tax Considerations

An estate trustee who lives outside of Ontario will be required by the province’s Superior Court to post a surety bond before being granted the authority to administer the estate.  The bond provides insurance that the ‘foreign’ estate trustee will faithfully and properly administer the estate for the benefit of the beneficiaries.  From a practical perspective, a surety bond is expensive and the estate will bear the cost.

If the proposed estate trustee is a United States resident, there are a host of tax consequences to consider for the estate and any trusts created by the will.  There are Canadian and U.S. tax filing and reporting requirements for both the estate and the beneficiaries.  If the trustee or any beneficiaries are U.S. residents, professional advice is going to help the estate save taxes and avoid getting on the wrong side of either the CRA or IRS.

Carefully selecting the right executor or estate trustee is critical for the overall success of your estate plan.  Understanding the role of the trustee and the skills needed to effectively administer an estate will help ensure that the right person is selected – and that you have the peace of mind a thoughtfully drafted will can bring.

Private wealth and estate lawyer Rachel Loizos can be reached by phone at 416.572.7307 or e-mail at rloizos@sotosllp.com.