Canadian Capitalist recently wrote about the issues of settling an estate where the details of the deceased was not easily findable.  This post expands on the topic by addressing how you should physically organize your affairs so that your family and/or executor can settle or administer your estate easily.  The same tips are equally applicable if a member of your family winters down south or about to embark on a long trip and you may need to get a hold of important financial information.

Keep your will and power of attorneys in one place.

If you have hired a lawyer to draft your wills and power of attorneys (a power of attorney for personal care is also known as a living will), the back page of the will typically has the contact details of the lawyer so that the executor can quickly contact them if you need a lawyer to help you settle an estate.

If you have alternate power of attorneys, one power of attorney should be  releasable to your first choice in the event the power of attorney is required. In the event the first choice has predeceased you or is no longer able to carry out their duties, a legal document known as a “direction” should be on file which directs the power of attorney to be releasable to the 2nd choice; if you have two power of attorneys issued, you have two people with power over your property or personal care.

This is an especially important point if your primary power of attorney is your spouse and you both pass away at the same time or the survivor passes away shortly thereafter. A direction is typically kept on file by your lawyer (safe-keeping of wills and power of attorneys is often an over-looked aspect of why you should hire a lawyer to draft a will; in some jurisdictions, a lost will can be interpreted as no will at all).

Here is the important point: let someone know where you have kept these documents and provide them access to it whether through a copy of the key to the safety deposit box, the combination to the safe or the contact details of the lawyer who drafted the will.

Provide a one page memo of your holdings.

As Canadian Capitalist suggested, a one page listing of all our bank accounts, insurance policies and portfolio statements would be helpful. To drill down one more level, it should not only list the account name and numbers but who to call for more information. In the case of insurance policies, it may be helpful to list the insurance broker’s name since many older policies are underwritten by a different company than who issued it given the consolidation in the industry. The account number on the insurance policy may be different so the broker should be able to provide some assistance.

One would be surprised how much unclaimed money there is in bank accounts or unclaimed insurance proceeds simply because the executor did not know an account existed or a policy was purchased.

Photocopy important underlying documents.

This tip is especially important if the deceased was born in a different jurisdiction. Photocopies of birth certificates, and citizenship cards are important if you have to claim property in other countries. The deceased may have copied account numbers wrong and the one page summary sheet becomes incorrect.

If you photocopy underlying documents and produce a one page memo of your holdings, it would help to put them in a folder which, in turn, is stored in a drawer or cabinet. In this manner, it is easy to find rather than having an executor rummage through drawers to find one item and then a set set of drawers to find the other.

Provide the password to computers

Certain accounting software now as emergency record features. However, if the executor cannot access a password protected computer, how can they use this feature? The alternative would be to save all of the above on a USB card and to provide it to your executor.

In 1948, Cecil Harris, a farmer, found himself trapped under his own tractor. Knowing that the end was near, he carved onto the fender of his tractor: “In case I die in this mess I leave all to the wife. Cecil Geo. Harris.” Mr. Harris later succumb to his injuries. The will was duly accepted as being legitimate and his estate distributed to Ms. Harris as per his wishes.

The case is rather famous/infamous in all introduction to wills and estates classes in law school since it addresses the topic of whether a hand-drafted will, or a holographic will, is an acceptable and binding legal instrument.

What makes holographic wills rather unique is the history and forms of wills itself. If you ever read a will, you will notice that the language is rather archaic. The reason is that the interpretation of wills language is based on centuries of common law (judge made law) and many of the archaic phrases have meanings attached to them- in other words, some judge centuries ago defined what “happy home life,” a phrase often found in describing the standard of care for a minor child, meant in specifics.

A traditional will also has a prescribed form (in writing, signed by the testator, witnessed by two people over 18 and of sound mind and who are not beneficiaries and, in some jurisdictions, an accompanying affidavit of execution by the witness). Many holographic wills have neither the language or form required of a traditionally recognized will which has made recognizing this type of will problematic.

Nonetheless, some jurisdictions do accept holographic wills BUT it must be hand-written and not typed and it does not even have to be signed in some cases; the form varies from jurisdiction to jurisdiction and you should seek advice on this matter. However, by and large, it is a completely home-made will in all forms, shapes and sizes.  The reasoning for this lack of form is that the underlying policy of accepting a holographic will is that it should be a will made in emergency situations only and accepted for this reason primarily.

For this reason, a holographic will in most jurisdictions that accept them can replace an existing will but, in some jurisdictions, CANNOT amend an existing will (an amendment to a will is known as a codicil and must have the same requirements as a traditional will to be valid).

Thus, for the raging DIYers, there are several issues. Depending on where you live, a holographic will may or may not be recognized. Even if it is recognized, it must be of a certain prescribed form (for example, California requires you to date the will; New York only recognizes a holographic will from a member of the armed forces; Alberta recognizes a holographic will but B.C. doesn’t; Ontario requires no witnesses; Quebec case law only recognizes the non typed parts etc. etc.). It is all a hodge-podge of differing laws and case law.

It is best not to take your chances and draft a holographic will unless you are truly in an emergency and do not wish to die without a will. The more prudent route is to make drafting wills part of your personal finance process either through a qualified professional or as part of a will kit.

Ted Williams, arguably the greatest left-handed hitter in baseball, died in 2002 with 3 adult children. In the immediate aftermath of his death, rather than celebrate a full life as a hall of fame baseball player and war veteran, his children squabbled over what to do with his body. Ted’s will stated he wanted to be buried but two of his kids had his remains frozen instead based on Ted’s hand-written instructions on a napkin. A legal fight ensued among the children over whether these instructions were real or not  with the two kids eventually winning (I am, sadly, not making this up).

Most of us would never engage in such a high-profile and costly legal fight over the burial of a loved one but what does the law say about this topic?

First, here is some practicality about the matter. Wills are often read weeks after the funeral. Therefore, the possibility exists that your family may have had you cremated rather than the New Orleans style funeral you wanted. Given the timing issue, some lawyers suggest not even putting burial instructions in your will.

Instead, the practical step would be to set out in writing (preferably not on a napkin and witnessed by an adult with no vested interest in your estate) the manner in which you wished your body to be disposed of. In some jurisdictions, in the absence of any instructions, the spouse then the children (assuming they are not minors) then the parents of the deceased can decide. Please consult a lawyer if you live in one of these jurisdictions.

However, there is a catch. There is long standing common law that the executor/estate trustee may over-ride both the deceased and its next of kin’s wishes for burial instructions. Given one of the executor’s largest responsibilities is to settle the estate financially,  the executor may ignore burial instructions if the carrying out of such instructions would place an undue financial burden on the estate (just so you know, estates can declare bankruptcy if the deceased passes away with debts greater than assets on a liquidated basis).

For example, a deceased with young minor children and a modest sized estate passes away in Maine and wishes to be cremated and his ashes scattered off the coast of Hawaii having being born there. The cost of this type of funeral arrangement can be quite substantial and the executor may have to make the decision that it is better to leave more for the minor children rather than draining the estate’s assets to carry out the deceased’s wishes.

In light of the foregoing, the practical step, if funeral arrangements are very important to all concerned, is to set aside money or pre-pay for the arrangement. For example, if an elderly person has been moved to a long-term care facility far from where their beloved and late spouse is buried, financial arrangements should be made now so that they lay together at death. While a morbid topic to discuss, it is better to plan now from both an emotional and financial perspective.

No matter how big or small the estate, the executor has a laundry list of duties to attend to including arranging for burial, probating the will, dealing with financial institutions and insurance companies, paying debts, filing taxes and finding and transferring assets to the beneficiaries of the estate.

For middle class estates (for lack of a better term), there is a modest amount of assets to divide after paying off debt and taxes. However, executors should be compensated for their services. In many jursidictions, there is no prohibition against setting out an executor’s compensation in the will. But how much is too much and what is the fine balance between compensating the executor properly without depriving the estate?

A general approach is to establish a set percentage based on general convention and then adjust based on contextual factors. Based on a non-exhaustive review, Ontario Courts seem to have set the floor on compensation indicating that a compensation scheme of  2.5% of capital receipts and disbursements, 2.5% of income receipts and disbursements and annual care and management of 0.4% per year is reasonable. British Columbia’s Trustee Act seems to set the high water mark since it states the maximum compensation should be 5% of the gross aggregate value of the estate with a similar 0.4% annual care and management fee per year.

Certain jurisdictions like New York State have sliding scales starting at 5% (5% on the 1st $100,000; 4% on the next $200,000; 3% on the next $700,000, 2.5 % on the next $4,000,000 and 2% on any amount above $5,000,000 with trust companies having the ability to charge more). But, again, 5% appears to be the maximum reasonable compensation keeping in mind that the 2.5%-5% range should also take into account anything you are leaving the executor as a beneficiary.

In the absence of a clause in your will specifying compensation in detail, a Court may adjust the above figure by considering the following general and non-exhaustive factors:

1. the magnitude of the trust;
2. the care and responsibility springing therefrom;
3. the time occupied in performing its duties;
4. the skill and ability displayed; and
5. the success which has attended its administration.

To add one more wrinkle, some jurisdictions, like California, must approve of executor compensation even if it set out in a will to ensure it is reasonable.  Thus, they could apply a test like the above even if you set out compensation in the will in the generally acceptable range.

Even if your will specifies compensation based on the above benchmarks (and assuming no Court approval is required), consideration should be made as to whether to adjust up or down based on these factors as well. A simple estate with far-flung beneficiaries and a myriad of bequests (a transfer of property which is not real estate) could occupy your executor’s time much more than a larger estate with a single beneficiary.

Weighing all the above, the following are some key factors to consider:

1. Put some real thought into this issue. Being an executor is a very tough job. There is a large emotional, administrative, legal and book-keeping burden you are placing on someone who could be grieving. Even if you were frugal in life, it can be a poor legacy to tell your executor you don’t value them that much by compensating them relatively little (and see below on why this could back-fire as well).
2. How complex is the estate? The less complex the estate, the more one should consider compensation on the lower end of the scale as specified in a will. However, going too low could result in an executor simply declining to act as an executor and, in the absence of an executor, the state will have to step in (cue the bureaucracy). Thus a fine balance must be sought.
3. The general trend is to avoid lawyers as executors unless they are close family friends or are both the personal and business lawyer for the deceased and possess vital institutional memory. Lawyers are expensive options for simpler estates and should be used to provide guidance rather than all the administration in this context.

Think carefully about this issue and seek qualified legal advice on the matter.

Fundamentally, all wills should start with the question of who takes care of your estate and minor children before moving on to what the estate is giving to whom. Who acts as  executor(s) (referred to as estate trustee or liquidator in some jurisdictions) and guardian(s) for children (both custody and property) can be critical decisions which need to be made for the well-being of your family after your death.

Typically, most wills set out that the residue of the estate (the portion remaining after your estate has paid all funeral expenses, taxes and debt) is transferred to the surviving spouse who also, in most cases, continues to be maintain custody and are guardians of property for minor children.  But what happens when both parents/spouses pass away?

The following is some information to consider when making these decisions. As usual, please consult a qualified lawyer for advice specific to you.

Choosing an Executor

The estate (which is what your possessions and debts are called after your death) must be administered by someone in this scenario. To be clear, the executor does not have to physically carry out all the steps necessary to carry out the wishes of your will. A well-drafted will grants to the executor the ability to retain professionals to assist the executor in doing so.

For most uncomplicated estates, some options for the executor’s role would include siblings who live close to the deceased, a close family friend or the family’s lawyer or a combination of these people (most jurisdictions allow you to have multiple executors). Generally, siblings or friends who live in far-off places, elderly parents and distant relatives tend not to be good options. The other factor to consider is if siblings and non-elderly parents become guardians of young children, would you what to burden them with additional responsibilities? The compromise in this case may be to appoint multiple executors and/or separate guardians for the children.

For the complicated estates (self-employed individuals with businesses to tend to, estates with property in multiple jurisdictions, large estates, many beneficiaries), the question becomes not just appointing a sibling, close friend or family lawyer but whether these individuals have the time, knowledge and skill-set to administer a complicated estate (remember that both spouses are deceased so there is little family memory to rely upon).

For many executors of owner-managers, they may end up having to make key decisions for the business for a period of time before the business is handed off to children who come of age or sold to third parties. Thus, it is doubly important to ensure the executor lives close the deceased and the business and understands how to operate a business.

As a result, many people with complicated estates end up choosing a sibling or friend with professional qualifications, even if they are closer to another sibling or friend or a lawyer (and care must be given on whether the lawyer herself is of an age that they may predecease you or retire before your death) or a trust company (a very costly last resort).

Choosing a Guardian

As a crash course on children’s law in Ontario, the appointment of a guardian for a child’s property and the person obtaining custody have 90 days after death to act in such capacities and must apply to the Courts to continue both custody and guardian of a child’s property after this period.  The Courts typically defer to the wishes of the will unless the guardian is unsuitable for the position. Please note that if you have joint custody of a child, awarding custody or guardianship of a child’s property is invalid for the obvious reason the other person having custody of the child has a say.

The question of guardianship is much more emotionally vested than that of an executor since it becomes a question of who can meet the emotional needs of a child as well as managing money properly (either money given to the minor child in trust or to the guardian) given both parents are deceased.

Nonetheless, the same practical considerations exist: is the guardian close by (unless you do not object to moving your children), are the guardians of the same relative age or younger than the deceased when the will was drafted (a 72 year grandparent obtaining custody of a 10 year old child is most likely unfair to both parties), are the guardians suitable parents?

It is possible to appoint joint guardians. Thus, your brother and sister-in-law could be wonderful parents but terrible at money. In which case, it may be prudent to appoint your other sibling who is good with money to be guardian of your child’s property to ensure any money they inherit will be invested wisely. For people who appoint a married couple as guardians, the risk is always the couple is divorced or separated when they are supposed to take custody. Thus, many lawyers ask their clients to only appoint the more appropriate person among the couple.

Should the Executor and Guardian be the same person?

It depends. Technically, most jurisdictions have no prohibitions against the executor and guardian being the same person. However,  a complicated estate can literally take years to close. In such a case, do you want your guardian to focus on taking care of the children and providing a loving environment without the “distraction” of making multiple decisions about the estate (especially if the guardian is fit to be a parent but not necessarily the best money manager)?

The analysis becomes contextually. For example, some people with larger estates, uncomplicated or not, like to split the functions to create checks and balances. The guardian will want to maximize the residue of the estate for the children (assuming they are inheriting the bulk of the estate) and will keep a close eye on how the executor is using the estate’s resources.

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These are all difficult questions with no easy answers. Thus, even the most ardent of DIY’ers should seek legal advice for their situation. Good luck.

Visit a lawyer. Tabulate your net worth. Determine who will be your child’s guardian. Argue with spouse.  Ask your brother to be the estate executor. Argue with spouse. Examine your mortality.  Capitulate to spouse. Visit lawyer. Sign will.

Done right?

The popular perspective is that the signing of your will is a “one and done” step in settling your estate. However, equally important, it is crucial to ensure that the beneficiaries for your RSP/401K, insurance policies and non-registered accounts match up with the beneficiaries of your will.

In most jurisdictions, a named beneficiary prevails over the wishes of a will.  Thus, whomever is your named beneficiary receives the proceeds even if your will states differently.  For example, if you get divorced but forget to take your ex-spouse off as the beneficiary of your life insurance policy, your ex will receive the proceeds of insurance even if you get re-married or drafted a new will to ensure your new spouse receives your estate (sadly, this is not a made up example but case law).

If you have named your spouse as a beneficiary consistent with the will, it is also important to update your contingent beneficiaries on your life insurance policies. For example, you could have another child but forget to add them as a co-contingent beneficiary. If you and your spouse pass away, even if the will states the kids should split the estate equally, the insurance proceeds will be paid to one child only (sadly, another true story).

Whether you are newly married or been married for what seems like forever (hey, they feel the same way too…), it would be prudent as part of a periodic analysis of your personal finances to ensure that your named beneficiaries and will is consistent.

As you may have noticed, I have stated an estate planning section. I will begin posting periodically on this issue.  Suggestions as to topics are always welcome.