How to distinguish yourself during estate administration

Obligations include but are not limited to:

• locating and, if necessary, probating the will
• identifying, valuing and safeguarding assets
• determining and paying estate-related debts and taxes
• distributing assets to beneficiaries in accordance with the will
• preparing a final accounting

While the legal obligations are clear, communication protocols aren’t. Best practice guidelines for estate administration highlight the need for communication between an executor and beneficiaries but rarely describe an effective approach. They outline that beneficiaries complain about delays in distribution of estate assets; lack of formal accounting; perceived mismanagement of estate investments, property and funds; or unfair treatment. Thus, communication protocols should address these themes. With a modest estate potentially taking a minimum of 12 to 18 months to settle, angst and resentment have plenty of time to fester.

My own experience is that beneficiaries may be predisposed to hostility toward an executor because of family dynamics, anger and frustration with the deceased, and general mistrust of the estate administration process. Unfortunately, executors don’t help their cause when they fail to consistently communicate with beneficiaries, explain estate-related milestones and objectives, and anticipate and resolve perceived or actual conflicts of interest.

I recall a situation when an executor, who was a beneficiary and had siblings who were also beneficiaries, was accused of receiving estate-related kickbacks on the disposition of estate assets. The siblings alleged, despite a lack of evidence, that the executor was “on the take” with the realtor chosen to sell their mother’s house. When I was engaged to help, it was obvious that the anger the siblings aimed at the executor was less about the allegations and more about a lack of communication and consultation.

The resulting litigation left permanent scars on the family, delay in distribution and management of estate assets, and diversion of estate funds to pay legal costs.

Advisors can take a proactive approach in the development of communication protocols, supporting the executor. While you must be mindful of your firm’s policies and procedures and the regulatory requirements associated with estate administration, at the minimum advisors can do several things:

• Encourage the executor to communicate directly and frequently with beneficiaries.
• Support the executor by gathering information associated with the assets you manage, as well as help set objectives and expectations for current and projected performance of these assets.
• Provide context, information and guidance on the “golden nuggets” embedded in the portfolio and explain to the executor and beneficiaries that in lieu of selling the stocks or bonds and distributing the proceeds to the beneficiaries, they may want to consider transferring them in kind to their own portfolios.
• Help the executor consider the beneficiary audience. Not all beneficiaries are the same; some are more sophisticated than others. The communication plan should reflect this.
• Explain to the executor that not all beneficiaries have the same entitlements. For example, in certain provinces beneficiaries who are entitled to specific bequests/gifts aren’t entitled to a copy of the estate summary. Communication should focus on beneficiaries entitled to the balance of the estate (residual beneficiaries).

When I act as an executor — and you can do this too as an advisor — I develop a communication template for beneficiaries with some of or all the following items:

• Estate administration project plan denoting key dates, milestones and answers to these queries:
  • Who does the task?
  • What will they do?
  • When will they do it?
  • How much (if anything) will it cost?
• External environment scan to identify external opportunities and threats that could influence decisions about estate assets (e.g., interest rates, foreign exchange rates, real estate fluctuations, inflation rates, etc.)
• Internal environment scan denoting estate assets, current balances, balances at the commencement of the administration, asset performance against objectives, estate-related key performance indicators such as liquidity ratios and debt-to-asset ratios, and reconciliation of asset balances to market values
• Cash flow specifying account balances, and reconciliations identifying significant capital and income receipts and disbursements; cash management performance against anticipated cash balances
• Open forum, similar to an executive summary, allowing the executor to specify key factors that affected the estate since the last communication and that may do so prior to the next communication submission

Beneficiaries are highly sensitive (understandably) to the distribution phase of an estate administration, and advisor support to the executor and beneficiaries during this time is beneficial.

And using the aforementioned communication protocols, advisors can suggest to beneficiaries, “Let me set up an account for you with our firm to ease and simplify the transition and transfer process.”

The communication document will provide you with the opportunity to demonstrate your credibility, advisory skills, firm’s attributes, reporting capabilities and professionalism — as well as provide exposure to a group of beneficiaries you may not have contemplated as potential clients.

Your support of clear communication should encourage the beneficiaries to retain you and keep the assets under your administration. The beneficiaries will inevitably compare you to their own advisors, but your preparation and execution of the communication document might tip the scale in your favour.

Michael Kulbak, MBA, CPA, CMA, TEP, is principal of Kulbak Trust Solutions in Mississauga, Ont.