At some point you may be approached by a family member or friend to act as the executor of their estate. Do you know what to do?
Some people consider it an honour and personally gratifying to take responsibility for ensuring that their loved one’s final wishes are carried out.
But serving as an executor can be onerous and time consuming, even for those with a strong financial or legal background. In fact, many who have been in this role never want to do it again. I am strongly in the latter group as I have had this experience twice before.
Your Responsibility as an Executor
A will is a legally binding expression of a person’s wishes for the distribution of his or her property. Your responsibility as an executor is to administer the legal and financial requirements of settling the estate to carry out those wishes.
You control all aspects of the estate’s administration – from identifying, managing, and protecting the assets – until they are distributed to the beneficiaries, or placed in a trust.
You are legally responsible to the beneficiaries. In a worst-case scenario, the beneficiaries and creditors can sue executors who act imprudently, or in violation of their duties. But, if you act honestly and to the best of your ability, you will generally not be held accountable.
Related: How To Assess Your Estate Plan
Before you heartily agree to being someone’s final representative make sure you understand what will be required of you and that you have an adequate amount of time and ability to devote to the task.
Preparing for the role
Sit down with the person who appointed you and go through the will to get a better insight into that person’s wishes.
Inquire about burial and funeral preferences.
Suggest an inventory of assets and liabilities be prepared as well as the location of the assets.
What is your knowledge in investments and tax matters?
You may be called upon to make investments on behalf on the estate. You may need to sell some securities to raise cash required for legacies, taxes and other costs. You will need to prepare estate tax returns.
Related: How Estate Planning Can Protect Your Assets
You should be comfortable dealing with such matters even if you retain the services of legal, accounting and tax professionals to assist you.
Major responsibilities
This is a general list of some of the more common duties an executor must deal with.
- Locate and review the will. Determine if the will should be probated. If the estate is small and uncomplicated, probate may not be necessary, for instance if assets are held jointly and/or beneficiaries are named in such things as RRSPs and insurance policies.
- Make funeral arrangements. Estate funds can be used to pay for funeral expenses. The funeral home will provide copies of the death certificate. Get lots of copies. You’ll need them to close accounts, claim insurance and other death benefits, and change ownership.
- Determine if any family members have immediate financial needs.
- Meet with an estate lawyer who will represent the estate in all legal matters. Among other duties, the lawyer will arrange for probate of the will, which will give you the legal authority to act on the estate’s behalf.
- Notify all interested parties of the death. Notify government agencies, financial institutions, creditors, investment firms, insurance companies, utilities and landlord, if applicable.
- Inventory and take custody of estate assets. Establish value of assets from bank and investment account statements and real estate deeds, file life insurance and death benefit claims, apply for CPP benefits, list contents of safe deposit boxes and keep detailed tax records. Update home and car insurance. Collect any money owed.
- Open estate accounts.
- Pay financial obligations. Pay outstanding debts – loans, credit cards, utilities, etc.
- Complete final tax returns and obtain clearance certificate.
- Distribute the inheritance to the beneficiaries according to the will. Pay any legacies and charitable bequests.
- Make trust arrangements, if any.
- Close estate accounts. Prepare a full accounting of the estate’s administration and submit it to the beneficiaries.
Dealing with beneficiaries
Be prepared to act in an impartial and objective manner to best balance the needs of all the beneficiaries to reduce potential conflicts.
Related: How To Minimize Your Estate Costs
Executor fees
Because executor duties can be very time consuming (months or even years), you are allowed to charge the estate a one-time fee for your time – usually a percentage (2-5%) of the estate’s value.
Note, however, that any bequest made to you in the will may also be presumed to be your whole, or partial, compensation.
Final thoughts
While it’s flattering to know that you are so highly regarded, you should think carefully before you accept the important role of executor, especially if you have never done it before. It’s a big responsibility.
Related: Talking To Your Elderly Parents About Money
Seek professional assistance to help you carry out the duties, particularly if you don’t have the time or skill for the complicated tasks.
Don’t feel guilty if you feel you can’t take it on.
We’re always hearing dire warnings about how woefully unprepared boomers are for retirement. An Ipsos-Reid survey done for CGA-Canada reports that 25% of their respondents have never made a savings contribution and 29% said they had no money left over to save after paying expenses.
So, what if you’re now in your 50’s, still have a mortgage, and have a measly retirement fund? You held off with your savings for whatever reason and chances are you’re now thinking more about retirement and how you want to spend your time.
Related: A simple way to boost your retirement savings
What do you do now?
If you’ve arrived late to the retirement savings game then you have your work cut out for you. This is a critical time for retirement planning.
For many Canadians, their 50’s are the peak earning years and they could still have 10 – 15 years left in the workplace.
Typically there is a decline in spending as many larger financial commitments are hopefully behind you, or are winding down. There should be a big push to optimize this and work to accumulate your nest egg. You’ll have to set aside more of your earnings and consider some cost-cutting options.
For most people, learning to spend less is about breaking bad habits. This may be the last shot you have to impose some meaningful discipline on your finances. Stop throwing away money on stuff you don’t really want or need.
Pay down high interest credit card debt as soon as possible. Pay off your mortgage. Take the money spent on mortgage payments and providing for your children and whisk it away into your savings. You probably have loads of unused RRSP contribution room, which can generate huge tax returns.
Make the most of new money. Consider putting any bonuses, tax refunds or other lump sum payments directly into savings.
You may have to reduce your style of living. Consider downsizing to a less expensive-to-operate home. Tell grown children still living at home to start fending for themselves.
Basically – spend less.
If you and your spouse can do that for 10 – 15 years while earning average salaries or better, it should provide enough for a typical middle-class retirement.
Where do I start?
Figure out where you stand financially.
Assume you don’t sell your house and you receive $25,000 to $30,000 a year per couple from CPP/OAS and you have no employer pension.
Ask yourself what you want to do and where, because only then can you know how much you will need.
Related: What’s all this retirement planning for, anyway?
Based on your anticipated expenditures, what would be your annual shortfall?
Do some serious number crunching and figure out what it would take to live comfortably in retirement. Play around with online calculators, but use caution with these – they generally ignore tax situations and are based on the assumptions you enter.
Keep working
You’ll probably have to keep working, at least part-time after you reach 65 instead of kicking back and taking it easy.
Consider your options and keep your skills fresh. You may be able to work part-time for your current employer. Perhaps you are in a field that would allow you to do consulting work one or two days a week. Start a side business.
You might want to start strengthening your network, or consider some continuing education.
Investing in your 50’s
Believe or not, there’s still time to provide for a decent retirement for yourself.
Related: Some thoughts on turning 50
Investors tend to be more risk averse at this age, but growth stocks should still be part of your portfolio today. Well-established companies suit a conservative buy-and-hold approach, whether with individual stocks or ETFs. Dividend stocks continue to attract investors seeking income. Bonds (consider higher interest corporate bonds) will act as a cushion. Some people are attracted to rental income.
This is not the time to speculate. Learn what it means to build a portfolio – then build one appropriate for your needs. Create a mix of investments. Rather that looking for the “best” investment, you should think of strategies that help you maximize your lifetime income.
Invest in what makes sense to you to enable you to grow your money and earn a reasonable return. Make sure you’re comfortable with the risk and rewards of each investment type.
Final words
These days, individuals are responsible for saving enough money for their own retirements. Most people will tell you they wish they had started earlier.
Related: When is the best time to invest?
The biggest problem with starting a retirement plan later in life is the loss of a significant period of time over which earlier investments could have compounded and grown.
Despite their best intentions, many people don’t get serious about retirement planning until they reach their 50’s.
The only way to create wealth is to save. The key is to begin – and begin now.
The number of financial responsibilities facing Generation X – those ages 37 to 52 today – seems overwhelming. Getting married, having kids, and raising a family can be expensive enough. Now factor in building an emergency fund, paying down the mortgage, setting aside money for retirement, saving for your child’s education, and everything else that comes along with improving your finances. It’s a tall order – I’ve been there! In fact, I’m living it.
But let’s skip the scaremongering and over-generalizations and get to some common sense advice.
How do you balance paying off debt, saving, and investing with the everyday costs of supporting a family? Let’s start by setting up a simple plan for each of these categories to ensure that you are on the right financial path. Here’s how to fix Generation X finances:
Treat Consumer Debt Like A Financial Sin
You can’t move the needle forward financially if you’re constantly spending more than you earn. But when your mortgage payment, car payment(s), daycare costs, groceries, and gas take up your entire available budget then you have no wiggle room to plan for unexpected costs.
Not only that, when the “I deserve this” moments come up and you want to treat yourself or your family to dinner, a movie night, or a vacation you end up going into debt (just this one time) to make ends meet.
Start with a list of everything you currently spend over a period of three months. Where does all your money go? Find a way to slash expenses so that you’re no longer going into debt just to get through the month.
Make it a rule: No New Debt This Year.
Now it’s time to tackle your current debt, whether that’s in the form of a lingering line of credit or (gasp!) a high interest credit card. If it’s the latter, put all savings and extra spending on hold and throw every extra dollar at that debt until it’s paid off.
A line of credit might require longer-term planning to pay off. It’s not a five-alarm fire, but if you’re using it as an ATM you need to stop now and make a plan to pay it down.
Try the debt avalanche or snowball method.
Streamline Your Mortgage
Those at the tail end of Gen X entered the housing market at the peak of the real estate boom with long amortization periods and little-to-no down payments.
Here are two quick fixes to help pay off your mortgage balance faster and save on interest.
The first is to switch your payments from monthly to bi-weekly. On a $300,000 mortgage at 5% interest amortized over 30 years, switching to bi-weekly payments costs just $133 more each month and saves thousands of dollars and more than five years off the life of the mortgage.
The second tip to help streamline your mortgage for the future is to switch to a variable interest rate, but maintain your payments at the fixed interest rate. Using this strategy while interest rates still remain relatively low will further reduce the principal on your mortgage while still giving you a cushion in case interest rates rise further.
Use Your TFSA for Short Term Savings
A Tax Free Savings Account allows you to contribute up to $5,500 per year and withdraw from the account anytime without paying any taxes on your gains. For someone in his or her 40s with many competing short-term financial priorities, the TFSA is the perfect savings vehicle.
As a couple, make it a priority to contribute and fully fund at least one of your TFSA accounts each year. Create a list of short-term goals that need to be addressed in the next 1 – 3 years and use your TFSA stash to pay in cash.
Your list might include anything from buying a new car, to doing some minor renovations or repairs in the house, taking a family vacation or upgrading your furniture. You don’t want to go into debt for something you could have easily planned for a year or two in advance.
Contribute to an RESP
An RESP (Registered Education Savings Plan) is a great way to begin saving for your child’s education. The two mistakes I see many new parents make:
- Trying to maximize their RESP contributions before they get their own finances under control.
- Failing to open an RESP in the first place.
After your child is born, make sure you get the account open and take advantage of any initial grant money. Simply contribute what you can afford in the beginning.
Use some of the money you receive from the Canada Child Benefit to start contributing to an RESP. Start with as little as $25 a month and increase the contributions as your budget allows.
Once you can comfortably afford it, bump your RESP contributions up to $2,500 per year. That will get you the maximum annual government grant (CESG) of $500.
Don’t Put Off Saving For Retirement
With so many competing financial priorities it’s easy to see why Generation X might put retirement savings on the back burner. But the fact is you must save for your future to secure a decent quality of life in retirement.
The good news is that you’ll have plenty of time to get your retirement on track once your short-to-medium term finances are in order.
Setting up an RRSP is simple and with low cost index funds like TD E-Series you can start contributing small frequent amounts to help build your retirement fund. Like with RESPs, start with what you can afford and then slowly increase the amount until you are contributing at least 10% of your income.
One thing to make sure you take full advantage of is an employer-matching savings program. Some employers match your RRSP contributions dollar-for dollar up to a certain percentage of your salary. Calculate that amount and make sure you can contribute at least that much to get the full match from your employer.
You can’t beat free money, or a 100% return on your investment.
Finally, I can’t stress enough that you need to make savings automatic. That means set up a pre-authorized withdrawal to come out of your chequing account on payday and go straight into your RRSP. You’re paying yourself first rather than trying to scrape together whatever’s left over at the end of the month.
Final thoughts
There are so many financial pressures facing Generation X today that it’s no wonder why the media and so-called experts question what the future holds for this generation.
Buying and paying off a home, maximizing every savings vehicle, and retiring by 55 are probably out of reach for most of us without making major sacrifices for the next decade (or more).
Of course Gen X is feeling the squeeze, but it doesn’t mean this generation is screwed.
The key to handling money at any age is to strike the right balance – where every aspect of your finances can be set-up for small, continuous, measurable improvements.
If you can do this, while taking care of everything else that comes with raising a young family, you can help dispel the rumours of our doomed financial future.