By C. Yvonne Chenier Q.C.
Recent conversations with friends and clients in the charity and non-profit world have given me cause to ponder and investigate the question of whom or what can act as an executor of an estate. This question is an important one today. In generations past, many did not live long enough to amass the kind of wealth that many have today and worry about who to leave it to let alone who has to important job of executor when one passes on. A quick review of the legal textbooks from the olden days of the common law reveals that the discussion was more likely to be whether or not married women, infants, corporations or aliens could legally act as the executor of an estate. We have come a long way from those days. Today the discussion often leads to asking whether charities and non-profit organization can facilitate or act as executors.
Many of these conversations are initiated when a donor to a charity is looking for someone to act as executor. They may want to leave the bulk of or all of their estate to charity instead of to their family or friends. The rationale is usually that their family already has enough or has long been estranged. Their friends are all wealthy in their own right. Some genuinely feel that the selected charity, that may have helped them in their time of need, is like their family. So with those feelings in mind it is logical for them to reach out to the charity and ask the question: Why can’t the charity be the executor of the estate?
Any good charity that hopes to reap the benefits of such generosity from their donors should be prepared to answer this question. This is similar to the situation a few years ago when the capital gains inclusion rate for gifts of publicly traded shares and stock options was reduced to zero. Charities were advised to prepare for the deluge of gifts of publicly traded shares then. Now charities should be prepared to accommodate the donor who is genuinely seeking the charity’s assistance to execute on a bequest by being prepared with the right answers.
Over a series of articles in the next few newsletters I will examine this issue. I suspect that most charities would be reluctant to say that they are free to take an appointment as executor in the way that a donor might be pondering but a few ideas to get around that are worth exploring.
Appoint a trusted friend
The donor could appoint a trusted friend to act as executor for the sole purpose of ensuring that assets transfer smoothly from the donor’s estate to the charity. There are pros and cons to this option but most importantly one would hope that such a friend will outlive the donor.
Appoint a trust company
This option has costs associated with it as well as benefits. Trust companies are in the business of being executors and have processes to deal with these situations. If the estate is merely a pass through of funds from the donor to the charity the question will arise as to whether the trust company would want to accept the appointment and if so whether there would be any effect on fees.
Appointing a lawyer or an accountant to act as executor
That is how the calls usually come to me. Would I be willing? The answer is usually a flat no. This is not only due to the liability issues but the time involved and potential missteps unless one can give the task the proper focus. And what if any litigation is threatened from the family? I am sure any accountant who thinks the thing through would feel the same way.
Create a corporation for the sole purpose of acting as executor
One may consider setting up a corporation for the sole purpose of acting as executor in this situation. The new Canada Not- for-Profit Corporations Act comes to mind. We note that these new corporations (and some provincial counterparts) have the powers of a natural person and so the argument goes, if a natural person can be an executor then why can’t a Corporationbe set up to do just that. There are other legal and regulatory issues in some jurisdictions that might impact that line of reasoning but it is worth looking into.
Appointing an employee, director or officer of the charity as executor
When any individual is appointed, the issue of liability will definitely come up. There is a new insurance product on the market, however that night help. According to the marketing materials for one of them, ERAssure® (the exclusive Preferred Supplier of Executor Insurance for Canadian Bar Association members) many of the common causes of claims against executors can be insured against. We will explore the cost of that as well as the pros and cons. If any individual is appointed you still have to consider factors such as their age, interest, etc. regardless of whether insurance is involved.
Suggest the donor’s financial advisor act as executor
There is one other option that potentially might work for the donor testator. Recently the Investment Regulatory Organization of Canada (IIROC) has asked for comments on whether or not those who they regulate should be permitted to continue to act as a trustee or executor of one of their clients’ estates. They pose the question whether to “allow Registered Representatives and Investment Representatives to act as a client’s trustee or executor, for non-Related Person clients in addition to the existing exemption for Related Person clients, subject to specific conditions such as re-assignment of the account and additional supervisory controls.”
This could be a perfect solution – except for the potential conflict of interest that may arise. The charity after all may simply want the cash not the investments and the sooner the better after the generous donor passes away. However it is work looking at the proposals from IIROC to see if there is a fit here for donors to charities in some situations.
The bottom line for any choice of executor boils down to the question of whether or not the one chosen is suitable. The chosen executor must certainly be knowledgeable and up to the special requirements of the job. The chosen one must be available and alive and preferably residing in the same province as the bulk of the donor’s assets. Most importantly, however, the donor/testator must have comfort that the chosen one will be impartial and objective about the task at hand and not get caught up in any family dynamics that may be thrown at them. And a final thought: Should a donor who is leaving all of his estate to a charity anyway also try to make arrangements to have that charity facilitate being the handling of a power of attorney as well, if for no other reason than to ensure that the assets are properly handled before as well as after the death of the generous donor? This task may be the more daunting one for any organization to consider. All the more reason to look into it.