An important part of your estate plan is to name an executor. The executor of a will is responsible for handling the probate process and dividing the assets amongst your beneficiaries. Can an executor of a will also be a beneficiary? In most situations, the answer is yes. But is that always the right choice?
It is not uncommon to name a surviving spouse or the oldest or most responsible adult child as the executor, and there can be benefits to doing so. Family members will often know and understand your wishes for managing and distributing your estate. And if the will is fairly uncomplicated, this can be a cost-effective and efficient choice.
Important considerations when choosing an executor
There are, however, a few important considerations to keep in mind when selecting any executor. First, make sure that the person you select is capable and willing to take on this responsibility. Many people are inexperienced when it comes to estates and they may be uncomfortable taking on this role.
Most executors will rely on a hired estate attorney for help. In this case, the attorney does not act as the executor, but rather will guide the executor through the process, and, if asked, will do a lot of the required work on behalf of the executor. The cost of the attorney will be paid for by the estate.
A related issue is the complexity of the estate itself. Your beneficiary may not have any background or experience dealing with real estate, investments, life insurance, business holdings and state and federal laws associated with these other aspects of a more complex elaborate estates. If an estate is complex, it probably makes sense to enlist the help of an estate attorney to assist the executor in fulfilling all their responsibilities and provide advice on the handling of the estate. Identifying an attorney or firm that can act in this capacity in advance could provide comfort to your chosen executor.
While an executor should be someone you trust, it may or may not be ideal to also have an executor be a beneficiary. Another important consideration involves the possibility of disagreements between beneficiaries. Families can be torn apart by bickering, jealousies and rivalries.
Alternatives to naming a beneficiary
Keep in mind that some parties may choose to litigate, and that, in some cases, an executor might be sued. So it may make more sense to name someone who doesn’t have a beneficial interest in the estate as the executor. This could be a family friend or a relative outside the immediate family, or a professional, such as one from a trust department of a bank or other financial institution.
If you determine that your beneficiary lacks the knowledge to also serve as your executor, or if there is the possibility of conflicts with other beneficiaries, you may want to explore some alternatives. You might have a friend or nonbeneficiary family member act as your executor.
However, naming a nonbeneficiary as executor is not a silver bullet as this person might be just as inexperienced as the beneficiaries. Also, there are some beneficiaries who will argue with whomever is serving as executor, which might make a nonfamily member a better choice.
You might also consider hiring a third party such as a bank or trust company. But doing so raises its own issues. Not all such firms will offer these services, and those that do can charge hefty fees. Additionally, you want to make sure that you feel confident with the entity you’re naming to execute your estate plan.
Avoiding probate all together
As we mentioned, the primary role of an executor is to shepherd your estate through the probate process, often with the aid of a qualified attorney. But there can be ways to avoid probate altogether. In many states, small estates do not need to go through the probate process, which can be slow, costly and public. You can set up certain accounts as “payable on death,” so that the assets will transfer directly to the stated beneficiary. And you might also consider creating a trust, which, unlike a will, is not subject to probate.
Talk it out
While the answer is yes, an executor of a will can be a beneficiary, there are several factors to consider before you make that decision. Estate planning can be a complicated matter, and if you have a complex estate, you probably should discuss your options with both your financial advisor and a qualified estate attorney. You should also discuss your decisions with your executor and the rest of your beneficiaries to try to alleviate any future misunderstandings. This gives the beneficiaries a chance to hear from you as to why you have made your decisions and it enables beneficiaries to ask any questions they may have.
Neither Edelman Financial Engines, a division of Financial Engines Advisors L.L.C., nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.