conflicts with your best interests.
Some professionals, such as lawyers, accountants, bankers, and brokers, are also fiduciaries, and there are rules in place to ensure that they use the assets of an estate for the right purposes.
An executor is in conflict of interest if he or she cannot reconcile his or her personal interests with that of the estate, or if it appears to others that they cannot be reconciled. Few people can really overlook his or her own wishes when it comes to an estate. This may make it difficult to fulfill the fiduciary duties required.
A commonly seen example of an executor who is in a conflict of interest position is that of a spouse or child of the deceased who is the executor, but who wants to make a claim for a larger portion of the estate. The conflict arises because it is the executor’s job to represent and defend the estate when any claim is made. It is impossible to sue the estate and defend the estate on the same lawsuit. An executor who is in a conflict of interest should step down as executor because it is impossible for him or her to properly act as a fiduciary.
Another important issue for executors that arises from their positions as fiduciaries is that of improper delegation. The general rule is that an executor cannot delegate his or her discretion. In other words, the deceased has asked you to step into his or her shoes to make decisions; you cannot then ask someone else to make those decisions.
We know that executors are allowed to hire people to help with an estate. As an executor, you may hire someone to help you carry out the decisions you have made, but you must be careful not to cross the line into letting others actually make the decisions for you. Executors are allowed to delegate tasks that are purely administrative, which allows you to hire a lawyer to apply for probate, an accountant to prepare a tax return, or a realtor to sell a property.
The key to avoiding liability when delegating these tasks is that you must make the decision to obtain probate and to place the values on the estate. You must decide that a return needs to be filed. You must decide that a property is to be sold and decide whether any particular offer is to be accepted. You have the responsibility and the liability for those decisions.
There is also a “reasonability” test. This means that executors are allowed to hire agents for assistance where it is reasonable to do so. Not every estate is complicated or large in value, and not every task is complex. An executor should only hire an agent when it is reasonable to do so in the circumstances of a particular estate. As a general rule, the courts have agreed that it is reasonable for executors to hire financial advisors or money managers to assist with investments, so you will not be held liable for delegating the management of a portfolio to them.
Executors and administrators are also affected by Canada’s income tax laws, whether or not those laws are mentioned in the will. This is because our Income Tax Act specifically says that any legal representative (which includes executors and administrators) is responsible for any taxes that are not paid if the legal representative pays out the beneficiaries before paying the tax. Again, this is something that you may not see in the will, but you are expected to find out when you start acting as an executor.
4. Common Law
Other rights and obligations for executors and administrators are not always written down in a rule book anywhere. They have developed over the years from what we call the “common law.” This refers to a history or accumulation of cases that have been interpreted and decided by our courts (and before them, the courts of England). We rely on those cases as having set precedents, so that we can extrapolate the findings of those cases to our own situations. The reliance on precedent is intended to guide, interpret, and control the actions of executors, administrators, beneficiaries, creditors, and claimants.
Provincially, only Québec does not use the common-law system; it has its own legal system known as a civil-law system.
An example of a common-law rule that affects executors is the concept of the executor’s year. This concept means that unless there are difficulties or complexities in an estate, the executor should be able to finalize it and pay out the beneficiaries within a year. It sets a goal for the executors, and it also alerts the beneficiaries not to expect the job to be done overnight.
The fact that a rule arises from a common-law precedent and not a written statute (except in New Brunswick where the one-year rule is set out in the Devolution of Estates Act) does not change the fact that an executor must abide by it, and may face consequences if he or she does not do so.
5. Summary of the Executor’s Responsibilities
The following is a summary of the responsibilities of the executor that are created by statute and by the common law:
• The executor must follow the will.
• The executor must be impartial and fair towards all beneficiaries.
• The executor must protect and maximize the assets of the estate.
• The executor must give information as needed to beneficiaries, tax officials, creditors, agents, and third parties.
• The executor must delegate only matters that are appropriate.
• The executor must act in good faith.
Those general responsibilities each break down into several dozen individual tasks to be completed by an executor. In the downloadable kit included with this book you will find a more detailed list of executor’s specific duties for you to use as a checklist as you work on your tasks as executor. When using the checklist, you should realize that as each estate is different, not every item on the list may apply to your situation.
6. Specific Language in a Will
It is important to realize that the powers and limitations of an executor as described in the previous sections of this chapter exist, but may be changed or augmented by specific language used in a will. The general rule is that the existing law is used as the default position unless it is varied by the will itself.
Not every wish or instruction given by a testator in a will is legal or binding. Sometimes testators will include clauses that simply cannot be followed, such as a man leaving a gift to his daughter only if she divorces her husband, or one that requires someone to repay an inheritance to the estate if he picks up the habit of smoking. If the will you are administering contains any unusual clauses like these, you should take the will to a lawyer for a discussion of how to handle the instructions.
However, most instructions left in a will that are intended to override the usual way of doing things are valid and should be followed. A few examples of clauses that validly direct the executor to manage things in a way that is outside the usual are:
• Directing that the beneficiary who inherits an asset pays the tax on that asset. Normally the taxes are paid by the general estate, regardless of who receives the taxable asset. This means that in the absence of any specific instructions, one person might inherit the deceased’s cabin, while all beneficiaries have to bear the tax burden from the cabin. Sometimes testators who are aware of the way tax rules work will include a clause in the will directing that the beneficiary who gets the cabin (or business, land, or other taxable asset) will pay the taxes. As an executor, it is essential that you understand the source of tax payments, so pay close attention to any instructions in the will that reference payment of taxes.
• Directing that the share of someone who predeceases the testator is not to be shared among the
