While many people have heard of these terms, there’s often some confusion around them and whether they’re interchangeable. They’re both important positions for people to take on and can ensure that the older person’s wishes and needs are looked after.
So, what does an executor of a will do, exactly? And what does power of attorney mean? How are they different? Let’s look at each of them in turn.
What is an executor of a will?
One of the easiest ways to think of the key differences between an executor and a power of attorney is that an executor helps someone to carry out their wishes after they die, while a power of attorney enables the chosen person to make decisions on their behalf while they’re still alive.
When making a will, you need to name an executor. This is usually a close friend or family member, though some people decide to go with a professional executor, such as a corporate trustee or lawyer.
The executor is charged with the task of carrying out your wishes, as they’re laid out in your will, as well as closing out your financial obligations. Executor responsibilities include:
- Filing the deceased person’s taxes and paying any taxes owed.
- Paying all outstanding debts.
- Paying for the funeral.
- Distributing money and/or assets to the beneficiaries of the will.
- Setting up any trusts mentioned in the will.
- Maintaining accurate records of every transaction.
Questions to ask yourself when choosing an executor for your will
As you can see, being an executor is a challenging job, so you need to be really careful about choosing the right person. These questions can help you make the right decision:
Does your executor live nearby?
It’s really helpful to appoint an executor who lives in the same province, city or town as you. This makes it much easier to deal with your beneficiaries and your assets.
Is your executor good at getting things done?
Making immediate arrangements, distributing the estate, filing tax returns, working with lawyers and accountants as required, and gathering, protecting, evaluating and selling assets are some of the varied responsibilities of an executor. This is not a job for a procrastinator.
Do you need more than one executor?
If being an executor is so challenging, should you name two? Typically, having one is thought to be easier, with less time and less paperwork. However, it’s your estate and if you have your heart set on having two executors, you can do so. Some people also choose a professional executor, who can provide their family member with expert advice.
Will your executor likely live longer than you?
It’s grim to think about, but it’s important to consider. Choosing an executor who is younger than you and in good health, helps ensure they’re more likely to be around to act on your estate’s behalf.
What is a power of attorney?
A power of attorney is a legally binding document that gives someone you trust the power to make decisions on your behalf and manage your money, property and assets. In most of Canada, this person is then called your attorney. When you sign a power of attorney document, you have to be mentally capable for it to be valid.
Generally, in Canada, there are two sorts of powers of attorney:
General power of attorney: this allows your attorney to manage your property and finances while you’re mentally capable, but it ends if you become mentally incapable. It can be limited to a specific task or period of time.
Enduring or continuing power of attorney: this allows your attorney to continue to manage your property and finances, even if you become mentally incapable. This power of attorney can begin on your signing the document or only when you become mentally incapable.
Your attorney does not own your money or assets, they’re merely authorized to manage them on your behalf. They can carry out these tasks on your behalf:
- Banking transactions
- Signing cheques
- Buying or selling real estate on your behalf
- Buying goods
They cannot, however, make a will for you, change a beneficiary on a life insurance plan or assign power of attorney to someone else.
Some tips when taking on a power of attorney role
As you can see, being an attorney is a huge responsibility. If you’ve been given power of attorney for a loved one, these dos and don’ts can help you to manage that responsibility successfully:
DO fully understand what your powers entail
Powers of attorney can take many forms. Some allow for limited powers that only deal with certain assets or are in place for a certain time period. Others give total power to deal with all of the individual’s property.
DO get sound advice
Powers of attorney can also get taken advantage of. Remember that accountants and lawyers are not financial advisors. Be sure to ask a financial advisor for advice with respect to protecting financial assets.
DON’T abuse your powers
Financial abuse is a serious issue. If a person has chosen you as their attorney, they’re relying on you to act in their best interests, not your own. Being an attorny doesn’t give you permission to use the donor’s money or bank cards for your own personal expenses.
DON’T forget to keep the donor informed
Give the donor who named you their attorney peace of mind by keeping them regularly informed about how their financial affairs are being managed.
You can turn to IG for help
If you’ve been given power of attorney, your IG advisor can help you to keep your loved one’s investments safe. And if you or a loved one are making a will, they can recommend ways to maximize your estate’s value and minimize its tax obligations.
Talk to your IG advisor today to set up a meeting. If you don’t have an IG advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.