It can be an honour to be asked by a client to take on the role of executor but before accepting, accountants should consider the significant challenges it poses.
By Katerina Peiros TEP and Ian Raspin FCPA, TEP
The client-accountant relationship is often the envy of other professionals. People see doctors if they fall ill, seek lawyers if legal issues arise, but almost everyone has tax and other financial affairs to manage, which means engaging the services of an accountant at least annually.
As a result, the relationship is frequently long-standing and can become personally significant. As a trusted adviser, an accountant will have intimate knowledge of a client’s business and family affairs and is a logical appointment as executor of a deceased client’s will.
Being offered executorship amplifies the strength of the relationship and guarantees ongoing retainer with the client. It can also be an honour and a fitting farewell gesture from a client.
Further, the very skills, experience and ethical code of accountants make them perfect candidates for the role, and it is one in which they frequently excel.
However, before accepting, an accountant should carefully examine what is involved, the time commitment, return for effort, costs and, importantly, their individual skills and risk exposures.
Part one of this three-part series, It’s your funeral – the (frequently thankless) role of the executor describes the typical duties of executors. No two executorships are the same, but the role is onerous and is perilous.
Regardless of whether a client chooses to appoint their accountant as executor because of dysfunctional or otherwise unfortunate family circumstances, or simply because there is no one else, all executors will need to step out of their professional comfort zone into unchartered and potentially uninsured waters.
So, when it comes to executorship, what key issues should an accountant consider and why?
Will contents and the deceased’s family
The first is the will itself: how easy is it to understand and implement? Is it a basic transfer or sale of standard assets to natural beneficiaries, or a convoluted web of words and trusts that could give rise to estate litigation?
How were the deceased’s affairs structured? Does taking on executorship also mean taking on directorship of companies or trusteeship of trusts or SMSFs?
Consideration should also be given to whether the appointment is shared. Will a joint executorship work? Will the co-executor be a reliable and trustworthy contributor or a liability, and are there other factors that could negatively affect the partnership?
It is not unusual for executors to spend 20-30 hours a week over the first three to four months after a death administering a standard estate, then another 10 to 15 hours a week over the next three to six months.
For a complex estate involving trading entities, unusual or non-local assets or estate litigation, the time demands will be even more intense and protracted. Executorship is an addition to – not a substitute for – a day job which can have significant impact on professional and personal life.
There is no automatic right to charge fees or in any way be paid for time spent acting as executor. Historically, executors were required to act gratuitously. Nowadays, charging for executorship is only permitted if the will specifically empowers it and must be as stipulated (i.e. lump sum, hourly rate or commission).
If the will has no provision for payment, an executor can seek consent for remuneration from all residuary beneficiaries or apply to the court for a commission payment in recompense for “pains and trouble” suffered.
Whatever the case, an executor must prepare detailed invoices justifying every proposed charge. The beneficiaries or court will closely scrutinise invoices and have a right to dispute or strike out entries.
In applying for commission, the executor is required to set out in detail all the tasks undertaken, time spent, complexity and risk. The court distinguishes between professional and non-professional work performed by an executor and will determine whether payment has been justified and if so, the rate of commission.
The award is never overly generous and often inadequate given the headaches executors endure. Even for executors fortunate enough to benefit from a well-drafted will that contains a favourable charging clause, the court retains a supervisory role to ensure the charging is reasonable and proportionate.
Unfortunately, there is a plethora of case law in every jurisdiction about accountant and solicitor executors unintentionally incurring the wrath of courts for improper charging or charging without basis which, needless to say, does not lead to positive publicity.
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Because the time requirements and disruptions caused by administering even the simplest estates can be significant, it is important to assess not only return (financial or otherwise) on effort, but the hidden opportunity costs of accepting the appointment.
For example, what other client work will be lost or deferred during the estate administration? Is there a conflict of interest in continuing to act for any of the deceased’s family members while also acting as executor? What is the risk of losing these existing clients as a direct result of decisions made as executor, or legal battles among beneficiaries?
Another concern is whether a disgruntled client or beneficiary might post their grievances online. Do not underestimate the power and reach of a single negative review. Even if it is unjustified or untrue, the damage will be difficult to remedy.
Administering the estate will eventually end and with that the client-accountant relationship. Clearly, accountants need to carefully weigh accepting the role of executor against the commercial realities of existing or potential clients possibly going elsewhere as a result of an accountant-executor temporary focus elsewhere.
Clients appoint accountants as executors because of the special skills, experience, commitment and personal qualities they bring. However, being a successful executor has different requisites than being a successful accountant.
Also, because the appointment of an accountant is generally driven by their professional qualifications and accompanying code of ethics, accountant executors tend to be held to higher standards of performance and accountability than those without applicable training.
Regardless, all executors are required to be familiar with the legal obligations of their role at common law and in legislation and to discharge the executorial and trustee duties faithfully. Legal advice should be taken immediately and retained throughout the process.
Executorship is a personal responsibility and once accepted is non-delegable and non-transferable. Once an executor, always an executor; and this means personal liability indefinitely for all decisions, actions, inactions, omissions and errors.
It is not commonly known that executors are fully accountable to beneficiaries for the manner, speed and quality of estate administration, and frequently held to account through the courts.
Moreover, should any claim, debt or tax obligation be overlooked during the process or be discovered afterwards, the executor may be personally liable for the amount.
It is therefore critical that accountants first consult their professional indemnity insurer to ascertain whether any aspect of the executor role is covered under the policy, and the extent of personal exposure.
All of the above need to be evaluated before taking any step towards or becoming involved in executorship; this is known as “intermeddling”.
Once any act of intermeddling – however minor – has been embarked on, executors cannot renounce their role and must seek the approval of the court to retire.
Notably, leave to retire will only be given if it is in the best interests of the estate, not simply because the executor has a change of mind.
There are good reasons why the nature and risks of executorship has become a regular topic at law conferences across Australia, where even trained experts acknowledge it as a complex and treacherous area.
This raises the question: is it a role for you?
This is the second in a three-part series on executorship by Katerina Peiros TEP and Ian Raspin FCPA, TEP. Peiros is the founder of Hartwell Legal and Raspin is the Director of Estates and Trusts at BNR Partners. Peiros is a Law Institute of Victoria accredited Wills and Estates Specialist and runs a specialist boutique practice. Raspin specialises in the taxation of deceased estates and trusts, working with both trustee companies and legal practitioners. Both Peiros and Raspin are published authors in this space.