My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog do not reflect the position of Cunningham LLP. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, April 4, 2011

So You Want to be an Executor?


Today’s blog will be the first in a series of three blogs dealing with executors. In this blog, I will briefly discuss the estate of Paul Penna, the details of which were recently reported by the Globe and Mail; but I will delve into one issue that the reporters did not pursue. In the second blog instalment, I will deal with the duties and responsibilities of being named an executor and in the third and final blog; I will post a guest blog by a former corporate executor discussing the advantages and disadvantages of naming a corporate executor.

The Globe and Mail recently published an article by Jacquie McNish and Paul Waldie titled The dark side of Canada’s inheritance system which recounts the fascinating betrayal of Mr. Penna by a close friend who was named executor of his estate.

As a three time executor, I was mesmerized by the Penna story relayed by Ms. McNish and Mr. Waldie.  If you have not read the article, please click the above link. The article revolves around the will of Paul Penna, founder of Agnico-Eagle Gold Mines Ltd. Mr. Penna left an estate valued at approximately $24 million to charity (except for $1-million set aside for his wife).  Mr. Penna named three executors to manage his estate, a trusted long-time colleague Barry Landen, Agnico Eagle Chairman Charles Langston and his wife Lorraine.

There is no point in regurgitating the article, so I will quickly summarize. Following Mr. Penna’s death, the lawyer for the estate called a meeting of the executors, where it was supposedly decided, to not probate the will. By avoiding probate, an estate does not have to pay the significant probate fees in Ontario and  supervision of the estate becomes less than transparent. It is alleged that Mr. Landen with no supervision and very little, if any, oversight by the other executors and professionals surrounding the estate, plundered the estate for his own purposes and the charities have not received their bequests.

The article, besides relaying a fascinating story, offers a warning about the weakness of the estate system and a caution against naming friends as executors. While I agree with these warnings and cautions, very few estates where assets are not “staying in the family” are not probated. In my opinion, the only omission in the article was glossing over the fact the estate was not probated, yet somehow, Mr. Landen had access to Mr. Penna’s funds.

In two of the estates for which I was an executor, I obtained probate, since I was advised by the estate lawyers that the banks and brokerages would request such (although it may not be a requirement depending upon the institution). In dealing with the banks and brokerage houses, they were exceedingly fastidious in ensuring I provided a copy of the letters of probate (technically called a“certificate of appointment of estate trustee with a will), and death certificates amongst a plethora of other documents to satisfy them of the legality of the estate and the executors. It is therefore curious that Mr. Landen seemingly was able to access the estate's funds so easily. I have canvassed various estate professionals and the best guess is that Mr. Landen most likely had a power of attorney already in place prior to Mr. Penna’s death, or he used a corporate veil/network of some kind. I had some other guesses, but they are best not speculated upon.

So while I agree with the authors warnings and concerns about the estate system and I agree there is room to strengthen the system, it has been my experience that once you get into the probate system, it is a fairly strong system. In my opinion, most of the issues highlighted in the article would be solved by requiring a mandatory notice of a gift to all beneficiaries. Whether this notice would be triggered by the estate's lawyer, or by an institution that receives a request for funds, is a matter for regulators to determine; whatever the mechanism, it should be required.

A mandatory notice would most likely result in transparency for most estates. The lingering question would be how do you protect an estate where an executor has a power or attorney or some kind of financial access already in place prior to the death of the individual? This situation would prove more problematic. My first thought is that there should be some kind of yearly documentary process, but I don't think that would be practical; possibly a maximum cumulative withdrawal limit on power of attorney withdrawals could be utilized. In any event, I raise the issue; the regulators would have to institute the safeguards. 

This series will continue next week, when I examine the duties and responsibilities of being named an executor.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

4 comments:

  1. Great blog! I am a co-power of attorney for my Father. He is in a home suffering from demetia/Alhzeimers. He has a large estate. Am I and the other co-power of attorney allowed to transfer capital funds from my Fathers investment accounts into my Mothers investment account. (they are not jointly held) Currently only the income from Fathers accounts are paid into a joint bank account with my Mother. Does this pose any issues. For further clarification both of us with the power of attorney are also the co-executors of Fathers estate.

    ReplyDelete
    Replies
    1. Hi Anon, thx for the compliment.

      Since I am an accountant and not a lawyer, I do not wish to mislead you. Thus, unfortunately I will have to pass the buck and tell you to check with your lawyer as I cannot answer that question with 100% certainty.

      Once you get the answer, if you dont mind, I would like to know it, since I think I know the answer, but again, I am not certain.

      Delete
  2. Hi Mark,

    If LPP items are not listed in the will, will they be subject to probate fees upon death?

    ReplyDelete
    Replies
    1. Hi Anon

      I am not an estates lawyer, so you would need to confirm with your lawyer; but my understanding is probate is based on the total value of all property that belonged to the deceased at the time of his or her death, not just what was in the will.

      Delete