GO­ING PRO

Hir­ing a pro­fes­sional to ad­min­is­ter the terms of a will can be ex­pen­sive. But in cases in­volv­ing a large, com­plex or po­ten­tially con­tentious es­tate, an ex­pe­ri­enced hand can be well worth the cost

Investment Executive - - FRONT PAGE - BY RUDY MEZZETTA

Should your client use a cor­po­rate ex­ecu­tor?

if you’re con­sult­ing with a client about who to name as ex­ecu­tor of his or her will, you might do well to suggest your client con­sider choos­ing a cor­po­rate trustee rather than a fam­ily mem­ber or friend.

Al­though the fees as­so­ci­ated with ap­point­ing a cor­po­rate ex­ecu­tor may ap­pear to be high, they could be well worth it in cases in which a large, com­plex, or po­ten­tially con­tentious es­tate is in­volved.

“[Ap­point­ing a trust com­pany] re­moves a lot of the bur­den from fam­ily at a time when a fam­ily should be griev­ing,” says Keith Master­man, vice pres­i­dent of tax, re­tire­ment and es­tate plan­ning with CI In­vest­ments Inc. in Toronto. “And it re­moves from the fam­ily some­thing they might end up fight­ing over.”

For a fee — the in­dus­try stan­dard is up to 5% of the as­sets that pass through the es­tate — a cor­po­rate ex­ecu­tor can step in and ad­min­is­ter all as­pects of a de­ceased client’s es­tate. These tasks are as var­ied as mak­ing sure util­ity bills are paid for the de­ceased’s home while the es­tate is be­ing ad­min­is­tered, lo­cat­ing and com­mu­ni­cat­ing with ben­e­fi­cia­ries, and mak­ing sure ben­e­fi­cia­ries re­ceive their en­ti­tled dis­tri­bu­tions.

A client can ap­point a cor­po­rate trustee in the will to serve as a co­ex­ecu­tor along with a fam­ily mem­ber or a friend in or­der to ease some of the ad­min­is­tra­tive bur­den on the ap­pointed fam­ily mem­ber.

Trust and es­tate ex­perts, such as Chris­tine Van Cauwen­berghe, vice pres­i­dent, tax and es­tate plan­ning, with In­vestors Group Inc. in Win­nipeg, are see­ing an in­creas­ing num­ber of es­tates — in par­tic­u­lar, larger es­tates or those in­volv­ing prop­erty in mul­ti­ple ju­ris­dic­tions — for which a cor­po­rate trustee should be con­sid­ered.

“There are a lot of high net­worth peo­ple out there with com­plex as­sets, such as art col­lec­tions or more so­phis­ti­cated in­vest­ments,” Van Cauwen­berghe says. “They just don’t be­lieve that their fam­i­lies have the skill set to man­age those as­sets, [which] need pro­fes­sional man­age­ment.”

Trust com­pa­nies re­port in­creas­ing in­ter­est in the use of their trust and es­tate ad­min­is­tra­tion ad­vice and ser­vices, in­clud­ing for the role of cor­po­rate ex­ecu­tor.

“The num­ber of wills in which we were ap­pointed [as cor­po­rate ex­ecu­tor] last year was up well over 100% year-over-year,” says Leanne Kauf­man, head of es­tate and trust ser­vices with Royal Bank of Canada’s (RBC) wealth-man­age­ment divi­sion in Toronto. “That trend could be at­trib­uted to in­creased aware­ness of the cor­po­rate ex­ecu­tor op­tion, gen­er­ally, or it could be the closer work­ing re­la­tion­ship we have with our ad­vi­sor part­ners at RBC.”

Rox­ana Ta­vana, pres­i­dent and CEO of Bank of Nova Sco­tia Trust Co. in Toronto, says her firm in­creased the num­ber of es­tate and trust con­sul­tants on staff last year by 10% to meet grow­ing client de­mand.

FAM­ILY DY­NAM­ICS

One rea­son for that in­creased in­ter­est, Ta­vana says, is that fam­ily struc­tures are be­com­ing more com­plex and po­ten­tially prob­lem­atic for es­tate ad­min­is­tra­tion.

“Sec­ond mar­riages and blended fam­i­lies might ne­ces­si­tate hav­ing an im­par­tial cor­po­rate ex­ecu­tor in place,” Ta­vana says. “That’s re­ally to en­sure har­mony among chil­dren and other fam­ily mem­bers.”

As an ex­am­ple of how fam­ily dy­nam­ics can come into play, Master­man of­fers the sce­nario of two sib­ling ben­e­fi­cia­ries: the older sib­ling re­ceives money in a will di­rectly; the younger sib­ling is left money in trust, with the older sib­ling as trustee.

In this sce­nario, the younger sib­ling now must ask the older sib­ling for any ex­tra dis­tri­bu­tions from the trust, cre­at­ing a “babysit­ter” sit­u­a­tion that could lead to con­flict.

“When I’m treat­ing one child dif­fer­ently than an­other, I might want a pro­fes­sional trustee [to man­age the trust] be­cause it keeps peace in the fam­ily,” Master­man says. “I don’t care if both my kids end up hat­ing the cor­po­rate trustee, but I do want them to love each other af­ter I die.”

A cor­po­rate ex­ecu­tor also will as­sume all the po­ten­tial li­a­bil­ity in­volved in the ad­min­is­tra­tion of an es­tate, re­liev­ing an in­di­vid­ual ex­ecu­tor of that risk. Ben­e­fi­cia­ries can sue an ex­ecu­tor they be­lieve to be neg­li­gent.

“We see more es­tate lit­i­ga­tion these days, just be­cause of the mas­sive amount of wealth that is be­ing trans­ferred,” says Am­bie Edgar-Chana, a l awyer with Edgar Chana Law, a firm in Toronto that spe­cial­izes i n es­tates, trusts and patents.

Cor­po­rate trus­tees can en­sure con­ti­nu­ity in an es­tate’s ad­min­is­tra­tion, which may be an im­por­tant con­sid­er­a­tion when trusts are in­volved, says Maria Velichko, as­so­ciate lawyer with Wil­son Vuke­lich LLP in Toronto: “A client can ap­point an in­di­vid­ual ex­ecu­tor, but that per­son will likely have to re­tire at some point.”

FAM­ILY IN OTHER LO­CALES

Ap­point­ing a cor­po­rate ex­ecu­tor may be the best al­ter­na­tive for a client for whom there’s no suit­able fam­ily mem­ber avail­able in the ju­ris­dic­tion in which that client re­sides.

If your client names an ex­ecu­tor who lives in an­other coun­try, or even in an­other prov­ince within Canada, trou­ble­some es­tate ad­min­is­tra­tion and tax is­sues may en­sue. This sit­u­a­tion poses a par­tic­u­lar prob­lem for new im­mi­grant fam­i­lies to Canada, Van Cauwen­berghe says, par­tic­u­larly in cases in which all the adult rel­a­tives live in an­other coun­try.

“These fam­i­lies are look­ing for so­lu­tions in terms of what would hap­pen at the time of death,” Van Cauwen­berghe says.

IT COMES AT A COST

Al­though cor­po­rate ex­ecu­tors may be in­creas­ingly use­ful, costs re­main a stum­bling block for many clients. Each of the big Cana­dian banks has a trust com­pany sub­sidiary, and there are var­i­ous in­de­pen­dent firms in the mar­ket. These firms typ­i­cally charge a one-time fee based on a per­cent­age of the as­sets in the es­tate, a rate that typ­i­cally de­clines for larger es­tates.

For ex­am­ple, a trust com­pany might charge 4.5% on the first $500,000 in an es­tate and a pro­gres­sively lower per­cent­age rate on es­tate amounts above that thresh­old.

Some trust com­pa­nies will ac­cept ap­point­ments only from es­tates that have a value of at least $500,000; oth­ers re­quire at least $1 mil­lion. Or, the trust com­pany may set a min­i­mum fee for es­tate ad­min­is­tra­tion, which could be in the $15,000-$20,000 range.

In ad­di­tion to the es­tate ad­min­is­tra­tion fee, there may be ex­tra fees as­so­ci­ated with items such as le­gal work on be­half of the es­tate. If there is a trust es­tab­lished in the will that the trust com­pany is to man­age, an an­nual ad­min­is­tra­tion fee plus

in­vest­ment man­age­ment fees will be charged.

Fees may be ne­go­ti­ated, de­pend­ing on fac­tors such as the rel­a­tive com­plex­ity of the es­tate or whether your client has other busi­ness with the trust com­pany or its af­fil­i­ated firms.

Ted Recht­shaf­fen, pres­i­dent and CEO of TriDelta Fi­nan­cial Part­ners Inc. in Toronto and an es­tate plan­ning spe­cial­ist, of­ten dis­cusses the op­tion of us­ing a cor­po­rate trustee with his clients. Many de­cide against it be­cause of the cost.

“Clients have to ask them­selves: ‘Are the risks of not choos­ing a cor­po­rate ex­ecu­tor greater than the cost of the fees?’” Recht­shaf­fen says. “The bar is set pretty high in terms of the cost. How­ever, there def­i­nitely will be times when they’ll be bet­ter off with a cor­po­rate trustee than the al­ter­na­tive.”

If an es­tate ad­min­is­tra­tion case ap­pears to be fairly straight­for­ward, your client may de­cide that ap­point­ing a fam­ily mem­ber or friend as an ex­ecu­tor rather than a trust com­pany will be en­tirely ap­pro­pri­ate, says Sam Feb­braro, ex­ec­u­tive vice pres­i­dent of ad­vi­sor ser­vices with In­vest­ment Plan­ning Coun­sel Inc. in Mis­sis­sauga, Ont.

“If the fam­ily dy­nam­ics are not hos­tile,” he says, “if the as­sets in the es­tate are fairly liq­uid and sim­ple; if there has been es­tate plan­ning done in ad­vance and in­ten­tions com­mu­ni­cated to fam­ily mem­bers; then per­haps a cor­po­rate trustee isn’t nec­es­sary.”

AHUGE AMOUNT OF WORK

A fam­ily mem­ber or friend who acts as ex­ecu­tor has the le­gal right to ask for and re­ceive com­pen­sa­tion for ad­min­is­tra­tion of the es­tate, al­though many choose not to charge a fee.

“Peo­ple need to un­der­stand that [es­tate ad­min­is­tra­tion] is a huge amount of work,” Van Cauwen­berghe says. “If an es­tate is go­ing to pay an amount, any­way, it might as well pay it to some­one who knows what they’re do­ing rather than to some­one who is not do­ing a very good job of it.”

If an ex­ecu­tor grossly mis­man­ages the es­tate, ben­e­fi­cia­ries may choose to sue. As le­gal costs add up, an es­tate can be­come de­pleted well i n ex­cess of the cost would have been to ap­point a cor­po­rate trustee in the first place, Van Cauwen­berghe says.

If your client does choose to ap­point a fam­ily mem­ber or friend as ex­ecu­tor, and that in­di­vid­ual needs help i n man­ag­ing the es­tate, the ex­ecu­tor can choose to en­gage a trust com­pany to as­sist in the ad­min­is­tra­tion, pay­ing the firm out of his or her es­tate com­pen­sa­tion based on the level of help needed.

Ul­ti­mately, how­ever, the ex­ecu­tor re­mains li­able for the es­tate ad­min­is­tra­tion.

“We do a [cost] pro­posal each time based on the sit­u­a­tion, de­pend­ing on what there’s left to do,” Ta­vana says. “Some­times, ex­ecu­tors come to us half­way through [the es­tate ad­min­is­tra­tion]; some­times, they come to us at the be­gin­ning.”

A fam­ily mem­ber or friend who acts as ex­ecu­tor has the le­gal right to ask for and re­ceive com­pen­sa­tion for ad­min­is­tra­tion of the es­tate

THAT PER­SONAL TOUCH

An­other po­ten­tial draw­back to ap­point­ing a cor­po­rate ex­ecu­tor, for some clients, is that a trust com­pany won’t re­place the per­sonal sen­si­bil­ity that a fam­ily mem­ber or friend might bring to ad­min­is­ter­ing an es­tate, Master­man says.

For ex­am­ple, a cor­po­rate trustee won’t know if a per­sonal item in the de­ceased’s home had a spe­cial sen­ti­men­tal value to the fam­ily — un­less that has been noted in the will — the way an in­di­vid­ual ex­ecu­tor might.

“The trust com­pany is a third party that doesn’t have a per­sonal re­la­tion­ship with me,” Master­man says. “That’s both an ad­van­tage — I know that it’s go­ing to ad­min­is­ter the es­tate to the let­ter of the law — but it’s also a dis­ad­van­tage be­cause it hasn’t walked a mile in my shoes, so to speak. The [trust com­pany] doesn’t know what my val­ues are.”

Some clients be­lieve that they are be­stow­ing an hon­our on whomever they choose as ex­ecu­tor, and some fam­ily-mem­ber ex­ecu­tors will view it that way, too.

If your client chooses to go with a cor­po­rate ex­ecu­tor, com­mu­ni­cat­ing that de­ci­sion — and the rea­sons why that de­ci­sion was made — is a good idea, Ta­vana says.

“We un­der­stand that ex­ecu­tors view their role as an hon­our, and it should be,” she says. “But it’s also a mon­u­men­tal re­spon­si­bil­ity. The way we po­si­tion things with our clients is that we’re re­ally just here to help and al­le­vi­ate the bur­den.”

In fact, the big­gest favour your client might do for the fam­ily is re­liev­ing them of that bur­den al­to­gether.

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