As a financial advisor, you can make the unmanageable manageable for the family of a deceased client and for the executor of that client’s estate.

“Your role is often that of a translator,” says Murray Pituley, director of tax and estate planning with Investors Group Inc. in Regina, “because they may not understand what is going on.”

When a client dies, his or her family is faced with the complex problem of tying up loose ends and settling the estate — on top of their grief. You can be a valuable resource in guiding the survivors through this process, helping them to avoid costly mistakes.

Your principal function will probably be coaching the executor. As the deceased client’s trusted advisor, you should already know who he or she named as executor. That person may be a son or a daughter whom you’ve met and perhaps now work with. And if this person lives in another city, you might have asked your client to pass your card on to him or her.

So, let’s assume the deceased client was an elderly, married man and the executor is his adult daughter.

Upon receiving notification of your client’s death, you’ll need to contact the executor and ask about funeral arrangements. You may need to ask whether your client had issued specific funeral requests, and whether the funeral was prepaid.

“If it wasn’t prepaid, you can tell the executor to make arrangements with the family and bring you the bill,” says Carol Bezaire, vice president, tax and estate planning, with Mackenzie Financial Corp. in Toronto. “Then, you’ll have to change the name of the client’s account to ‘Estate of John Smith.’ It now becomes a trust account.”

Although assets registered solely in the name of the deceased cannot be accessed until the estate has been granted probate or court approval of the validity of the will, the investments will continue to grow in the account. However, funds can be released to pay funeral expenses.

JOINT OWNERSHIP

“If there is a dependent surviving spouse or other dependents, the executor should determine whether the spouse will have enough money to live on,” Bezaire says. “You may have to make financial arrangements for interim living expenses. But the spouse may be the beneficiary of the deceased client’s life insurance policy, and this will pay out within weeks. And if your client and his [wife] had a joint bank account, have the executor visit the bank with the surviving spouse and remind the staff that his account will now be registered in the survivor’s name. That’s the beauty of joint ownership with right of survivorship.”

You’ll also need to obtain copies of the deceased client’s death certificate from the funeral home, and a notarized copy of the will. The executor or a family member must locate the original will because it will accompany the probate application. (Probate is not required in Quebec for wills that have been prepared by notaries.)

At your initial meeting with the executor, which will probably take place right after the funeral, you’ll need to determine the executor’s financial background and how much she knows about the deceased’s finances, Pituley says: “If [she’s] the person who held power of attorney for your client, [she’ll] know exactly what the assets of the deceased are. But [she] may have been parachuted into the role and have no financial background at all. As the deceased’s financial advisor, you will be in a good position to help.”

The executor will need to notify all financial institutions with which the deceased had dealings, and cancel credit card accounts. She’ll also need to ensure that the deceased’s real estate holdings are secure; this will mean checking that property insurance is in place and could mean hiring a property manager. She’ll have to cancel newspaper and magazine subscriptions and have mail redirected. The executor will also need to apply for the Canada Pension Plan death benefit — the one-time payment of $2,500 to the estate of a deceased CPP contributor — and the survivor’s benefit for the surviving spouse.

You should make sure the executor has contact information for all the beneficiaries of the will, says Bezaire: “At this point, the executor can tell them they’ve been remembered in the will, and that [she] will talk to them again when [she] has all the papers needed to settle the estate.”

Some beneficiaries think they’ll receive their bequests as soon as the funeral is over, Bezaire says. The executor will have to tell them it usually takes at least a year to settle the estate.

From the outset, you will need to remind the executor to keep records of everything she does in settling the estate. She should remember to record even the small things, such as any refunds from cancelled subscriptions. “The executor should keep a diary listing all the people [she] talks to,” Pituley says, “because [she’ll] be accountable to the beneficiaries. And there may be an extended network of them.”

Adds Cliff Taylor, partner in Pricewater-houseCoopers LLP’s tax practice in Calgary: “The executor could be called into a court of law by the beneficiaries for an audit of the account, which can be a very expensive process.”

If the job seems too much for the person named as executor, Bezaire says, she can bring in a trust company or a law firm to work with her as a corporate trustee, but the executor will still be on the hook for liabilities. RBC Wealth Management, a division of Royal Bank of Canada, for example, offers agent-for-executor services to executors of its deceased clients’ estates.

“The executor can hire us to take care of everything from start to finish, including putting the client’s home up for sale, or just for certain things,” says Ian Lewer, estate and trust advisor with RBC Wealth Management in Halifax. “The executor could be dealing with trusts and property outside the country and beneficiaries who live in different jurisdictions. And there may be problems with family dynamics. We can take over full communication with the beneficiaries.”

You may be able to offer similar services to the executors for some of your top clients. “If you help the executor do a good job,” Bezaire says, “the beneficiaries may well come you to manage their money.”

LEGAL LIMBO

You’ll need to work quickly, notes Jerry Halma, director of trust services for British Columbia for BMO Harris Private Banking, a division of Bank of Montreal, in Vancouver. “The client’s assets are in legal limbo until probate has been granted,” he says. “There can be problems if probate is not applied for in a timely manner, which is usually two to four months after the date of death, although this can vary according to province. If the market value of the assets drops, there could be liability on the part of the executor — and angry beneficiaries.”@page_break@The first thing to do is identify the assets. You are probably well aware of your deceased client’s investment assets, but he may have acquired other assets you will not know about. “A good way to track them down is to get a copy of the client’s most recent tax return,” Pituley says. “The T slips will be part of it. And in more complex situations, such as when the deceased client had holding companies and held shares in private corporations and foreign real estate, his accountant may be able to help.”

You’ll also need to put a value on all the assets, as this must be reported in the probate application and on the final income tax returns. The deceased is deemed to have disposed of all his capital property immediately prior to his death for its fair market value. You can look up the prices at which the client’s stocks were trading on the day he died, and check the balance of his RRIFs, tax-free savings accounts and bank accounts on that day. “For real estate and shares in private companies,” Pituley says, “you may have to bring in real estate agents and company valuators.”

And you’ll need to determine which of these assets flow through the will. “These are usually the assets in the sole name of the deceased,” Halma notes, “and they will be subject to the probate process.”

Assets that pass outside the will, such as those under joint ownership — a family home that is jointly owned by the spouses, and joint bank accounts — will be rolled over to the surviving owner and not be subject to probate. Assets that have designated beneficiaries, such as RRIFs, TFSAs and insurance policies that name individuals, not the estate, as a beneficiary will go directly to those individuals.

“Paperwork is usually called for here,” Halma says, “and the advisor can be a big help to the executor.”

Some of your deceased client’s property can go to the beneficiaries soon after his death, such as rollovers to a surviving spouse and payouts from insurance policies. But, Bezaire says, minimizing the tax hit to the estate should be a top consideration: “If, for example, the deceased [is a woman who] had no income, instead of transferring her RRIF to her surviving spouse, it might be smarter to cash in the RRIF, trigger the taxes in her estate and have the husband get the non-registered assets.”

Adds Pituley: “If the client died early in the year or had little income in the year of death, it would be advantageous to have the registered investment taxed as income for that year rather than being taxed in the surviving spouse’s name on top of their income.”

For assets that are subject to probate, Pituley suggests explaining the probate process to the executor and turning the application over to a lawyer of the executor’s choosing. “Some executors want to deal with probating the will themselves,” he says, “but I remind them that their time is worth money. I believe lawyers generally earn what they get paid.”

It usually takes two to three months for the provincial government to process a probate application. When the will has been confirmed by the court, the executor will pay the probate fees and receive the probate documents. The executor or the financial advisor can then contact the relevant financial institutions about the deceased’s assets to be transferred to the beneficiaries. As well, the deceased’s final tax returns — including returns for his businesses, outstanding returns from previous years and any U.S. or foreign tax returns — will have to be prepared and filed, and all taxes owing need to be paid.

Your deceased client’s assets cannot be completely disbursed to beneficiaries until all the expenses of the estate and any debts have been paid, and the executor has received the tax clearance certificate from the Canada Revenue Agency or Revenu Québec confirming that the deceased’s taxes have been paid.

Adds Taylor: “If an executor makes distributions and doesn’t leave enough money for taxes, [she] can be personally out of pocket. Many executors make partial distributions before the final tax clearance, but they need to understand the risk they’re running.”

If early distributions are made, consideration should always be given to protecting the estate from tax liability. “If there’s a charitable bequest in the will, instead of cashing in an investment, donate it in kind to the charity,” Bezaire says. “You’ll avoid paying capital gains taxes because there is no capital gains tax to pay on investments donated directly to charity. And a credit for the full market value of the investment can be claimed by the deceased in the final tax return.

“You might also consider selling off some stocks,” she adds, “to trigger capital gains to offset capital losses resulting from the deemed disposition of the client’s assets on the date of death.”

Bezaire suggests filing as many as three personal tax returns for the deceased in order to make use of the basic personal tax exemption ($10,500 for 2011) in each:

1. the final tax return includes everything the deceased earned from Jan. 1 up to and including the date of his death in the year of his death, as well as the deemed disposition of his assets on the day he died.

2. the “rights or things” return captures any dividends, final RRIF payments and vacation pay that were paid after the date of death.

3. the testamentary trust or estate return captures growth in assets from the date of death until all estate taxes are paid and disbursements are made to the beneficiaries.

The spousal tax credit, the equivalent-to-spouse tax credit, the tax credit for infirm dependents aged 18 and over, and the age credit can be claimed in all three.

When the CRA has issued tax clearance, you can then help the executor ensure that the beneficiaries receive their bequests in the most tax-advantageous way. If there are minor dependents or disabled dependents among the beneficiaries, Bezaire suggests, you might recommend transferring registered investments to them.

“If withdrawals are made from these investments,” she says, “they will be made at the lower tax rate of those individuals.” IE