This article details matters for you to consider.
We regularly advise Accountants and Financial Advisers on their role in acting as an Executor. Often Financial Advisers and Accountants are appointed to assist with internal family conflict/ manage beneficiary entitlements (ie testamentary trusts) or deal with clients Businesses. It’s through this “lens” that you should consider acting.
Initially it could be seen as:
- Easy fees
- A way to connect with the next generation and preserve client relationships
But be careful – it can be a trap for the unwary.
Below we have summarised the Key Matters for you to consider in deciding whether to be an Executor and Trustee.
Key Factors in Choosing to be an Executor and Trustee
1. Does your AFSL/Authorised Representative Licence permit you to be an Executor or Trustee of a Trust?
- Have you checked your Licence?
- You need to check the Licence to see if there is any specific prohibition against being an Executor or a Trustee of a Trust created under a Will.
- The general rule is that there is no prohibition against being an Executor unless your Licence terms do not permit it.
2. Does your Professional Indemnity Insurance allow you to act as an Executor or Trustee for a client’s affairs?
- You need to check the Policy?
If you have answered yes to the above 2 fundamental questions then you need to consider the following:
3. The role of Executor is a personal role – Your Business cannot be appointed
- It follows that the fees paid in acting as an Executor are personal to the Executor appointed. They are not payable to the Business. How will these be treated internally by the Business? Will you continue to be paid by the Business on top of fees received in acting as an Executor
- Will the fees be allocated to the Business as part of your revenue contribution?
- If the Person appointed dies (ie a senior practitioner in the Business), unless an appropriate backup clause in included in the Will, the Executor’s executor will take on that role (that will most likely be the practitioner’s spouse). Carefully drafting is required to ensure the Will is valid (ie avoid shifting Executorships)
- If you are appointed now – what if client doesn’t die for 15 years? – what if the Adviser leaves the practice (the role will follow them). This would most likely be outside any restraint of trade clauses in employment and shareholder agreements.
4. If you are appointed as an Executor, do you intend to remain in your role as the Financial Adviser for the client?
- This could be seen as a conflict of interest. You are being paid to provide financial advice to a client. You are also being paid to manage the deceased’s estate. These are 2 very distinct roles with 2 every distinct set of obligations.
- The Executor Role is to administer the Estate according to the Last Will.
- Likewise, as Trustee of a Testamentary Trust – your role is to administer the Trust according to the Trust terms and in compliance with the Trustee Act.
5. What is the Conflict of Interest?
- Your job as a Financial Adviser is to preserve and grow the wealth of the client
- Your role as an Executor is wider than this and there is different legislation that can apply (some of which is listed below):
- Administration and Probate Act (to obtain a Grant of Probate)
- Trustee Act (to manage any Trusts created under the Will and any Family Trusts that the clients may have given you control of)
- Income Tax Assessment Acts
- Superannuation Industry (Supervision) Act 1993
- Duties Act (for transfer of property from the Estate)
- Land Tax Act (especially if property is to be retained)
- Settled Lands Act (for the creation of life interests)
- Could a situation arise where your obligations to invest and grow the Estate breach your obligations as an Executor or Trustee? The beneficiaries want their funds distributed but you wish to retain for investment purposes
6. A Valid Consideration is how complicated is the Estate? Is it simple or will it be complicated and protracted?
- As suggested above – the appointment of an independent person such as a Financial Adviser or an Accountant is necessitated for several reasons – some of which you need to be very wary of.
- Relevant factors
- Is the Estate a simple Estate (ie house to be sold and split between children)
- Is a beneficiary excluded from the Will (increases the likelihood of an Estate Challenge)
- Is it a blended family or same sex relationship – these create complexities in the administration of Estate and non-Estate assets (superannuation, family trusts)
- Are you expected to act as a Trustee for any trusts created under the Will? If yes – for how long?
7. Could you be personally liable in acting as an Executor?
- The answer is yes
- Moreover, we see circumstances where the services provided by Professional advisers (especially with complicated and disputes Estates) are challenged.
- There is liability and you may not get paid fully for what you have done.
8. What Needs to Happen to be appointed Executor
- You need to be appointed the Executor (and Trustee) by the Will
- A clause needs to be included as to how professional fees will be charged
- A Letter of Acknowledgement needs to be signed prior to signing where your fees are fully explained – the Will maker needs to sign it
- If the Will maker does not endorse your payment – your fees may be challengeable by the Beneficiaries
9. What Fees Can You Charge:
- There are 3 ways you can charge in acting as an Executor
- Fixed sum of money
- Professional Fees in the way you usually charge
- Commission
- Note that acting as an Executor is different to acting as a Trustee of trusts created by the Estate – different fees can apply.
- The Will can set out a fixed sum that you will be paid to administer the Estate
- You can charge commission – current cases suggest that 3.5% is appropriate (however Beneficiaries can attack the payment of commission)
- You can Charge Professional Fees and Administration Fees
- You need to be very careful in charging – ie you cannot charge professional fees for administration services – This risk can be managed by having an independent person tax your file before issuing your account
- You cannot charge Professional Fees and Commission – it’s one or the other
10. Key Risks
- Liability in the event the Estate is not properly administered – Executors can be personally liable
- Liability for unpaid taxes
- It’s complicated – some points of note
- Do you know how to administer Estates?
- Tax returns for the year of death and for the Estate
- Superannuation taxes – when superannuation and life insurance (held in super) is paid to adult children
- Land Tax – failure to properly advise SRO can result in personal liability
- Disputes
- Significant disputes arise with Estates – can result in significant time being spent – Estate claims – can carry on for several years – ie could get sucked into Estates that don’t grow your Business
- Liability exposure from Beneficiaries
- Professional Indemnity Insurance
- Does it cover you for liability arising as an Executor – unlikely?
11. Is it worth it?
- The time required versus the reward – at best 3.5% commission – but would you may to give up right to charge fees as an Adviser
- How much time will you need to allocate to the administration of the Estate. If conflict is a real factor – are you prepared for what’s involved – conflict, a protracted Estate, challenges to your decisions, potential litigation, working around your day to day job as an Adviser,
- Personal Risk exposure
- What is your core Business?
12. I have been the Executor on 10 plus Estates. Things I have seen:
- Had to clean dirty laundry of deceased
- Arrange for the cleaning and decluttering of 4 properties owned by a hoarder – all were wall to ceiling full of junk
- Acted for 1 of the first Trans gender females in Australia – question on death certificate – male or female?
- Defended Estate claims
- Dealt with disputes in the Estates – you may end up acting for Beneficiaries that are not your core client/appreciate your value
Summary
Acting as an Executor and Trustee of an Estate may be a way to attract additional professional fees and retain key client contacts but as a Financial Adviser and Accountant you need to be aware of the many costs and risks.
The key question for you - Is it worth it?
The Solution
At Danaher Moulton:
- We have 2 Accredited Specialists who advise on Estates, Estate Administration and Disputes every day. We can help you manage the risk.
- We help Financial Advisers and Accountants with clients who have Complex, High Net Wealth and Family Group Estate Planning Matters.
