When Things Go Wrong In Estate Planning
Let me tell you about a family and their estate. The family consisted of a widower, Charles, and his two adult sons, William and Harry.* Charles and his late wife had drafted mirror wills years ago. William, the elder son, was the estate trustee, with Harry named as the alternate. William is a well-known businessman in the community. Harry lives modestly on income from a rental property but is not otherwise employed. He lived with Charles to take care of him and the home. William and Harry do not get along.
Five years ago, Charles passed away. William asserted his right as estate trustee to take over the administration of the estate. He took care of the funeral and burial, and assumed control of the bank account, but did little else. Harry asked William what was going on with the estate, but William told Harry nothing, concerning which Harry complained bitterly, but did nothing himself to rectify the situation.
Months passed. Harry continued to live in the home. Eventually, William cut the utilities and demanded that Harry pay rent for the time that he had continued to live in the house. Harry was forced to move out.
Finally, fully two years later, William got on with the business of selling the house, which had deteriorated due to neglect. The house was the primary asset, aside from a bank account and Registered Retirement Income Fund of nominal value. William presented a statement to Harry, which documented the various expenses involved in the disposition of the estate and included William having paid himself 5 percent for his role as estate trustee. The amount due to Harry was reduced by a rental amount that William determined.
Harry was upset by this outcome, especially since he felt he had not been treated properly by his brother. However, he chose not to do anything about it because he was unwilling to spend money on a lawyer for an uncertain outcome. Aside from the inheritance, one of the sad outcomes was the solidifying of the estrangement between the two brothers.
What Went Wrong?
William has “rights” as an estate trustee
There is a popular notion that to be named an estate trustee (depending on the jurisdiction, the correct term may be executor, liquidator, administrator, or estate representative) is a privilege that confers rights upon the person so named. One should rather think of the trustee’s role as a responsibility that imposes a fiduciary duty, the most onerous level of duty in law.
William did not communicate with his brother
While Harry had no right to be vexatious toward his brother, William had every obligation to keep communication lines open, keep Harry regularly informed, and respond to Harry’s reasonable inquiries for information. This was not done, and when communication took place, it was mostly accusations replied to with threats.
William did not maintain the home
After Harry left the home, William did not monitor it adequately. When speaking with a property and casualty broker, I was advised that someone should go inside every other day to see if it is in good order. And, by the way, that expectation of the insurance company applies when the average family goes on vacation, too. Failure to properly monitor a home could void an insurance claim. Despite the acrimony between the brothers, it would have been wiser to allow Harry to stay in the home until it was ready to be sold.
William also did not maintain the home very well or make any effort to make it more saleable. He hired a lawn care company to keep the grass trim, but that was about it. As a result, the home sold for well under the prevailing rates in the neighbourhood where the house was located. This is another area where Harry might have had grounds to complain since William did not make reasonable efforts to increase the value of the estate.
William took too long to wind up the estate
A simple estate in Ontario, as this was, could have been easily wound up within 18 months. On this basis alone, William did a poor job.
William paid himself 5% for his role as estate trustee
Nothing in Charles’ will specified an amount that William could charge against the estate for his services. Therefore, even as an heir, he was within his rights to receive compensation for his work. However, 5% of the value of the estate is a general maximum. Ontario’s Trustee Act states that the estate trustee is “entitled to such fair and reasonable allowance (italics mine) for the care, pains and trouble, and the time expended in and about the estate.” Criteria to consider in setting compensation: 1. The size of the estate; 2. The care and responsibility required; 3. The time required; 4. The skill and ability displayed; and 5. The success of the trustee’s efforts. Based on these criteria, Harry could have challenged the compensation William paid himself, but he did not.
Harry did not assert his “rights” as a beneficiary
Technically, beneficiaries do not have rights. Rather, William, as estate trustee, had obligations toward the disposition of the estate and the beneficiaries. Estate trustees are obligated to act; they are not entitled to do nothing for extended periods. Harry might have had a case here, too, but his inaction amounted to tacit approval of William’s actions.
What Could Have Been Done?
William could have probated the will
In most cases, a will needs to be probated. The obligation to probate is often required by financial institutions, but William’s status among the city’s business community was sufficient to persuade the banks involved to waive the need for probate before giving William authority over his father’s accounts.
Harry could have petitioned the court to be the estate trustee
If Harry was sufficiently dissatisfied with William’s behaviour, as the named alternate he could have petitioned the court to replace William. One could raise the question, though, as to whether Harry would have done any better. His complaints to William were not followed up by action. Furthermore, as a resident in the house that formed the bulk of the estate, he may have had a conflict of interest that would justify his own reasons for delaying fulfillment of the terms of the will.
Charles could have specified the fee to be paid to the estate trustee
To the extent that the fee that William charged was excessive, one way this could have been resolved would have been for Charles to specify the amount that the estate trustee could be paid, if anything at all.
Charles could have arranged for a professional estate trustee
Charles knew that his sons did not get along. However, like most retirees without much in the way of assets beyond their home, a bank account, and a RRIF, Charles felt that it would be a simple matter to wind up his estate. In fact, Charles was like most other Canadians with wills in appointing a family member, in this case, his oldest child, as his estate trustee.
Few people consider the professional estate trustee as an option, probably because they are concerned about the expense. A second reason may be the view that naming someone to take care of your will is an honour that should go to a family member, not a dispassionate corporate entity. However, it is precisely that objectivity and professionalism that would have resolved many of the issues between the brothers, perhaps allowing for some healing as they mourned together.
How to Find a Professional Estate Trustee or Executor
If you are considering a professional estate trustee, there are a few alternatives available to you. One possibility may be a lawyer who specializes in trusts, wills and estates. It could be the lawyer who drew up your will, for example, or, if you used a generalist lawyer or a notary public (a common option in British Columbia, as I recall), you may wish to search for a specialist.
An alternative could be your financial planner. However, that is an increasingly uncommon option as the combination of roles is fraught with conflicts of interest. Most firms now prohibit their planners and other advisors from accepting the role of estate trustee, except for close family. Nevertheless, those with financial planning designations have usually done training in the area of estate planning and can help get you started on the right path or review a currently existing will to suggest areas of concern.
Several years ago, when I worked in the discount brokerage division of one of the big banks, my wife and I engaged with that bank’s trust division for help in updating our wills. Since our children were teens at the time, we arranged for the trust company to act as estate trustee. Trust companies of the banks continue to be an option for some.
Credit Unions may not offer these sorts of services in-house, but many across Canada work through Wyth, formerly known as Concentra, to provide trust services.
Independent trust companies are not that well-known, but they might also be considered.
The following is a list of trust companies. Note that at least some of the provincial agencies that provide these lists do not stand by them, offering them to the public only for convenience:
British Columbia: Regulated Trust Companies
Manitoba: Trust and Loan Corporations
New Brunswick: Loan and Trust Companies Licensed in New Brunswick
Newfoundland and Labrador: no central list found
Northwest Territories: no central list found
Nova Scotia: no central list found
Nunavut: no central list found
Prince Edward Island: Trust and Fiduciary Companies Act (dated 2015, provides a list of companies at the end of the document)
Saskatchewan: List of licensed Trust, Loan and Financing Corporations
Yukon: no central list found
Many financial institutions are federally regulated. Their information can be found in the Office of the Superintendent of Financial Institutions.
*Any resemblance to actual persons, living or dead, is purely coincidental.
This is the 148th blog post for Russ Writes, first published on 2022-05-16.
Click here to contact me for an appointment.
You may be interested in a half-hour no-cost, no-obligation financial planning conversation with me. Click here to sign up for a free session of FinPlan30.
Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.