I THOUGHT I KNEW HIM BETTER THAN THAT . . .
MISTAKE #49
Expecting the estate to go smoothly all of the time and being unprepared for the unexpected
AS AN EXECUTOR, it’s a mistake to be caught off guard and potentially slowed down if you come across one or two surprises about how the deceased managed his or her affairs. Everyone’s human! The first time Jean went to a bar mitzvah, she was so impressed by the accolades about the young man. How could he be so close to achieving world peace and curing cancer at the age of 13? And then she attended her second bar mitzvah and realized that part of these wonderful occasions is to celebrate to the max the positive attributes, steering clear of anything even mildly critical. The light bulb went off: bat and bar mitzvah speeches are like eulogies, the difference being that the person in question is there to enjoy the tributes!
Just as most teenage kids aren’t perfect at age 13, the person whose estate you are administering may also have done things he or she shouldn’t have or left other important tasks undone. When you become aware of these issues during the estate administration, it is easy to waste time bemoaning the unexpected challenge rather than simply addressing it head-on. During our meetings with professionals from the major Canadian trust companies, all of whom have “seen it all,” they shared with us a number of possible surprise occurrences for a first-time executor, and we will go through several of these below. However, an overriding point to keep in mind in dealing with any unexpected problems is to remember that you are in a fiduciary role. As a fiduciary, you must always act in the best interests of the estate and all of its beneficiaries. From a practical perspective, acting in a good-faith, honest manner requires you to become well informed on whatever issues and options are in front of you before you take action or make a decision.
1. assets held unexpectedly in joint tenancy
Throughout our lives we tend to hold some or all of our assets jointly with our spouse or partner. The legal impact of this—a joint right of survivorship—is most times exactly what we want. At the time of the first partner’s death, the clear intention is for the joint account or house to be transferrred as easily as possible to our surviving partner.
Holding assets jointly with people other than our spouse, usually later in life, can be a little murkier. The question then often asked is, what was the deceased’s intention in doing this? At the death, the executor may not be sure whether the account, for example, is an estate asset or rightfully belongs to the surviving joint owner, perhaps an adult child of the deceased or a caregiver.
What the law says about this would easily fill a legal memorandum and even the Supreme Court of Canada has opined on the topic in recent years. The law hopes to find, in any situation of joint assets, evidence as to what the deceased intended to happen. If there isn’t any evidence, then there is a presumption that a surviving spouse was intended to receive the jointly held asset account and a presumption that an adult child was not intended to do so.
However, as an executor, you do not want to guide the estate through litigation to get the final answer. A far better approach is to speak as soon as possible with the surviving joint owner to explore the fundamental question of whether the deceased intended for the joint asset to be a gift to the joint owner. Some questions for discussion include:
• What is the position (opinion) of the joint owner? Is the joint owner even taking the position that the asset belongs to him or her?
• If yes, then when did the asset become jointly held (or when was the account opened if it was always a joint bank account)?
• What was the purpose of the account?
• Who put money into the account (or the house) and who used it?
• What was the believed intention of the deceased and is there evidence of this?
Ideally you will be able to resolve the situation either on your own with the surviving joint owner or with the help of the estate lawyer. If it appears that the matter is becoming heated quickly, consider retaining a mediator to assist you and the person taking the position that the asset belongs to him or her. Often a mediator charges a flat rate for a day with disputing parties, and it is possible that the matter can be resolved in a day.
2. assets with outdated titles
One trust officer mentioned to us a simple matter but one that arises fairly often when the last surviving spouse passes away and still lives in the family home of 50 years. When Josie dies, leaving her husband Joe surviving her, often no one will bother to change the title to the house into only Joe’s name. This means that at Joe’s death ten years later, it is still registered in the names of Josie Romano and Joe Romano, as joint tenants. What sounds like a small detail becomes a big nuisance when a buyer for the house is anxious to close the purchase from the estate. Similarly, a title to an estate property may still have outdated mortgages on it that were paid off long ago.
The moral of these stories? Check the property title before you list it for sale in order to avoid surprises and delays in the process of trying to liquidate the estate.
3. loans or guarantees made by the deceased or payments being made to others
Professionals who work in the area of trust and estate planning and administration know that many people have a story of some sort that emerges during the administration of an estate. We are not just talking about titillating secrets; one of the most common surprises is a person of apparently very modest means who leaves charities millions of dollars.
In a similar vein, an executor may discover that the deceased had loaned money to people, guaranteed loans or provided mortgages, none of which is clearly referred to in the will or other documents. The sooner that these arrangements can be discovered the better, so as we recommended earlier, from the time you learn about the death, set the stage for open communication with the beneficiaries and others with whom the deceased was close, either through business dealings or in his or her personal life.
By establishing open lines of communication, you will be more likely to hear from people if the deceased guaranteed their small business, loaned them some money or gave them a mortgage on the house. While it is impossible for us to hazard a guess about the variety of situations you may face, keep in mind that you are not negotiating on behalf of the deceased but rather on behalf of the estate. Upon his or her death, the perspective of the deceased may not match what is in the best interest of the estate and its ability to carry out the terms of the will.
For example, if the estate will be funding several trusts for minor children, renegotiating a mortgage on the deceased’s brother’s home will be a different matter for the executor than it may have been for the deceased who was in the prime of his income-earning years when he granted the mortgage to his unemployed brother.
The right answers to any situation of an unexpected loan, guarantee or stream of payments is that “it depends” and by saying this we are emphasizing the fact that being an executor is a discretionary role that can’t be done by rote. Whenever you are unsure how to appropriately exercise your discretion as an executor, seek and carefully consider the counsel of an experienced estate lawyer.
4. unfiled tax returns in Canada or other countries, especially the United States
If you are a dutiful Canadian and file your tax return each year, it may come as a surprise that a number of people are not as dutiful, and one of the first things you will need to do as an executor is to make sure that all past tax returns have been filed and the taxes paid. It’s important to do this early in the administration because the catch-up process can take a while, and before you are able to do the final tax return and request a clearance certificate, all prior years will need to be filed and assessed.
A further wrinkle involves a citizen from another country who dies as a Canadian resident. Some countries, such as the United States, require their citizens to file tax returns each and every year in that country even if they do not reside in the country of that citizenship. So if you are an executor facing a situation of unfiled foreign tax returns, again, all we can say is don’t be surprised (this happens more than you might think!) and get on it quickly.
points to take away
• None of us is perfect and that doesn’t change just because we pass away. As an executor, expect the unexpected.
• Early communication with the beneficiaries and anyone else who may have an interest in the estate will assist you in finding out about potential challenges sooner rather than later.
• Finding a practical solution that is in the best interest of the estate and the beneficiaries’ interests under the will is preferable to an expensive estate dispute. Through your own discussions with people involved and the assistance of an experienced estate lawyer or mediator, do what you can to resolve problems wisely and with minimal acrimony. Your goal is to wisely administer the estate, not have its activities reported in the Canada Supreme Court Reports.
