October 20, 2016: Entrustment by Power of Attorney for Finance and/or Estate Executor
Many different circumstances result in a wide variety of Trusts and Estates, each with its unique needs. The Ontario law so far as guidelines for managing the trust is set out in the Substitute Decisions Act (for Power of Attorney) and Estates Act. This blog will also touch on the Estate Administration Tax Act of Ontario, recently updated.
As I am not a solicitor, I am not passing judgment on the legalities of abiding by the Trust law. Rather, the following comments are common-sense ideas which one should consider early in the process of accepting the duties when acting as POA or Executor. These considerations are explained in point form in this document. Some or all may be taken to apply in advance, during, and after the period of the Trust, dependent on the circumstances.
In the case of trusts for deceased or infirm adults, one may say that the majority of trusts, are managed by financial institutions. Many other trusts are managed by solicitors, by accountants, or frequently, by one of these in conjunction with the other. The remainder of trusts are undertaken by related individuals, couples, or children.
For newcomers to this subject, and you are expecting to take on the important tasks of POA or Executor, or both, please consider the following.
In taking on the responsibility, be sure you are up for it, and that you have, up-front, strong comfort in the lawyer and accountant you will need rely upon for support, clarification, and direction! This applies not only “in advance” but also throughout the entire period of your empowerment.
The majority of individuals may take on the role of POA or Executor role only once or twice in their lifetime. For these individuals, I recommend that, at the very earliest moment, one asks some serious questions of the professionals you engage, to enlighten yourself in the “requisite” skills, steps, risks involved, etc. An added dimension occurs where siblings are appointed as co-executors, and each of whom may not be 100% compatible with the other.The enhanced Estate Administration Tax Act of Ontario requires a large commitment from the Executor within 90 days of death, including an “inventory and valuation of assets”, and the Estate tax thereon. This submission is subject to audit;
An application for a Certificate of Appointment of Estate Trustee, by the Court is also an early-stage requirement.
If there are third-party beneficiaries, such as siblings or cousins, be sure to realize that their opportunity for a stake or entitlement in the Estate will be well-protected by the Law, but also by their natural sense of entitlement, whether biased or not! The point I am making is that the need for even-handed discipline throughout is necessary.
During the period of the POA or Estate, due care must be taken to ensure individual outlays and income items are duly processed, documented and justified relative to the liquidation of assets and discharge of debts of the Estate. You should fully consider and understand the importance of these:
i) All outlays need be justified as “on behalf of the deceased person”, and one needs provide clear explanations for the outlays, for the beneficiaries;ii) Keep all receipts, codified and legible.
iii) There is a standard method of documenting transactions. Because memories are often short, I recommend that, ideally, the documenting activity should start from Day 0ne to minimize possibly a downside when the Accounts are presented to beneficiaries;
d) Executor or POA fees justified under a POA arrangement need be approved in advance of payment by the beneficiaries Thus such fees would be paid in the final stage of the duties.
e) Clear thinking and even-handiness is a must, in making distributions to beneficiaries.
i) A formal release must be obtained in exchange for each proportional distribution to be made to each beneficiary;
ii) Such proportional distributions should be made as early as practical, and are made recognizing due care for Estate liabilities;
iii) However, the Executor carefully manage and retain funds to cover all taxes and fees to lawyer and accountant. Refer to d) above for executor or POA fees
f) There is little latitude within the Trust so far as duties. Discuss any doubts with the solicitor, and request a written confirmation.
There is an additional responsibility in taking instructions under a POA from a living person, so long as the person is medically determined to be of sound mind. I recommend that such empowerment is documented in writing and signed by the grantor of the POA.
g) Professionals may utilize software such as “Do Process”, which simplifies the accumulation of data respecting Estate receipts and outlays incurred on an ongoing basis. Frequently, an accountant skilled in excel may make aggregating more readily, in suitable circumstances, such as data being greatly fragmented, or located in a patch-work way! A time factor may also be a determinate issue.
Author: Charles Russell CPA