Have you been named executor of someone’s estate?
Though that may seem like an honor, it’s usually a thankless assignment — and often a difficult one too.
As executor you have the legal responsibility to pay the deceased’s taxes, debts and creditors — in the proper order — from estate assets and then to distribute the remainder according to the decedent’s wishes as expressed in a will or trust documents.
That typically involves a great deal of paperwork and deadlines — and all the while you might have to walk a tightrope to avoid getting embroiled in family squabbles. Worse, you could even be sued if you don’t handle everything correctly.
So if you’re an executor (some states use the term personal representative), you have my sympathy.
Some 25 percent of wealthy families who responded to a 2014 U.S. Trust survey said they have had family disagreements about money. Disputes over asset distribution are among the top five risks to family wealth, the survey concluded.
The core responsibilities of executors haven’t changed much over the past century, but meeting them has grown more complex. In the past, an executor would typically find estate documents in the deceased’s filing cabinet or safe deposit box. But today, such items are increasingly stored digitally. Even if you know the digital locations, do you have or can you get usernames and passwords to access the documents?
Laws in many states are unclear as to an executor’s ability to gain access to a deceased person’s digital property. Email providers often have terms that make it difficult for friends or family members — with or without executor authority — to open email accounts. Some email providers, once they find out that an account holder has died, will delete the account.
Therefore, if someone has named you his or her executor, obtain usernames and passwords now. And if you have an estate plan or are preparing one, make sure your executor has your digital information. Failure to do so is a common mistake involving executors. Here are four more:
Paying creditors too soon or in the wrong order
Don’t assume that you (as executor) must pay the deceased’s bills, such as credit card and utility statements, as soon as they arrive. Other obligations — including federal and state taxes and funeral expenses — take priority. Paying routine debts before others can be a breach of fiduciary duty for which an executor can be held liable.
For example, an executor might not know that the estate owes federal income taxes. If he or she pays other expenses, there might not be enough money left to pay the taxes, and the executor could be required to pay them personally.
So before paying any creditors, consult with an estate attorney to learn the priority of payments, and get an estimate of all tax liabilities from the estate’s accountant. Even after you’ve set aside enough assets to satisfy the highest-priority creditors, consider paying lesser-priority debts only after the entire estate administration is complete, tax returns are filed and taxes are paid.
Depending on the estate’s size and complexity, the process could take many months. Although heirs are likely to pressure executors to rush the process so they can get their inheritances, don’t succumb to them. Explain that your job as executor involves much more than merely distributing money and other items. Tell them you’re working expeditiously and will get to them in the proper order. And never pay one heir sooner than other heirs. You must treat them all equally.
Losing control of assets
Executors are charged with keeping all estate assets safe prior to distribution. In the days immediately following death, visitors come and go, and household items can disappear. The executor needs to secure all property and monitor its safekeeping. It’s often wise to hire a security firm to protect the home and its contents during the settlement process, experts say.
Problems involving real estate
Disposition of real property can be a difficult task. One beneficiary might want to sell the deceased’s house quickly, while another might want to keep it in the family — and may even
be living in it. If there’s an agreement to sell, the executor must decide the listing price and the amount of sales commission the estate will pay. If a real estate agent recommends making improvements to a property to help sell it, the executor needs to reach an accord with heirs before spending money on improvements. A financial advisor and/or estate attorney can help an executor resolve such issues amicably; otherwise the executor might need to seek assistance from probate court.
Executors should maintain the homeowners insurance on the deceased person’s house until it’s sold, but be aware that insurance companies don’t like to cover vacant properties for extended periods because of the risk of fires, vandalism and other damage.
Risking estate assets in the market
Tempted to invest the decedent’s assets in the stock market until you’re able to distribute the money?
Don’t. You could be held liable for any losses. Remember that your job is to protect the assets — not attempt to increase them. If the decedent has money invested in one or more
accounts, contact a financial advisor for help.
A Checklist for Executors
Before you begin serving as executor, you should understand that most major legal and financial tasks don’t have to be handled immediately. Step back. Dealing with such matters at a time when you might be coping with a personal loss is difficult. In the days following death, you could be involved in helping arrange the funeral, collecting information for an obituary, contacting clergy and other urgent tasks.
When those tasks are completed, take time to get a clear understanding of the estate. And realize that you don’t have to do everything by yourself. But don’t ask other family members or friends to help. Instead, enlist the aid of three specialists: an estate attorney, your financial advisor and the deceased’s accountant. (Contact us if you need a referral to an estate attorney.) Some states let you appoint co-executors who have special expertise to serve alongside you.
It’s impossible to provide an all-inclusive checklist for executors. Each family situation is unique, and legal requirements vary from state to state. So here is a basic list to help get you started:
- Gather all the deceased’s important documents — starting with the will, if any. Ideally, the decedent would have told you where to find all the legal, tax and financial documents you need, as well as usernames and passwords for digital material. Don’t assume the decedent told you everything — look for bank safe deposit boxes, insurance policies and other items that can lead to unknown assets. Interview family members to help your search.
- File the will with the probate court. Make yourself a few copies first.
- Get several certified copies of the death certificate, typically signed by the physician who verified the death and issued by the county of residence. You’ll need one every time you must provide proof of death (although you might find that a few institutions now accept copies).
- Notify the post office, utility companies, credit card companies, banks and other businesses of the death so that recurring charges are stopped. Have the deceased’s mail forwarded to you.
- Notify the Social Security Administration, unions and any other organizations that had been providing benefits to the deceased. Payments made after the date of death will have to be returned.
- Inventory all assets and have valuable items appraised. The inventory is needed for probate court. It will also show you how assets are titled, making distributions easier, and help you determine whether estate taxes are due.
- Determine whether probate is necessary by totaling the value of property subject to probate, seeing how title is held and checking your state’s rules on what estates qualify for simplified procedures. An estate attorney can help you conduct a probate court proceeding if one is needed.
- If there’s a living trust, work with the trustee(s) to coordinate many tasks. Executors are not always the trustees, so know where your responsibilities (and rights) stop.
- Notify the heirs and beneficiaries. The estate attorney and probate court can help you. Stay in touch with them. See if the deceased’s state requires that they receive a copy of the will or trust.
- Safeguard estate assets until you distribute them. Never commingle estate assets with your own.
- Get the consent of beneficiaries before taking major steps. Otherwise they may suspect wrongdoing. Even during a lull in activity, let them know the status. Don’t startle them with surprise announcements.
- Collect all money owed to the estate, such as the deceased’s final wages and insurance benefits. Deposit these funds in the estate bank account. (Yes, you need to create a bank account for the estate. Close the deceased’s accounts — once you’re sure that all recurring deposits and withdrawals are ended — and transfer the funds to the estate account.)
- Pay the estate’s bills in proper order. You are not obligated to pay any of the deceased’s debts personally. If you think there won’t be enough money to pay all debts, stop paying bills and ask your attorney or the court for guidance.
- File the decedent’s final income tax returns. Consider hiring the deceased’s tax preparer to help.
- If the estate exceeds $5.49 million in value, file an estate tax return. Smaller estates may owe state estate taxes. Check with your attorney.
- Distribute the assets. After all creditors are paid in full, pay remaining funds to the heirs and beneficiaries, including distribution of such items as furnishings, jewelry and other valuables.
- Congratulate yourself and breathe a sigh of relief. And decide who your biggest enemy is — and name that person to serve as your executor.