Making Sure You’re Up to the Task
If a good friend or favorite relative asks you to be the executor of his or her estate, make sure you understand the legal responsibilities before accepting the role. Serving as an executor (also known as a “personal representative” in some states) can be an honor, or a burden, depending on the complexity of the deceased person’s financial and family circumstances. Typically, it takes at least a year for an executor to handle all the tasks required to settle the deceased’s estate.
Locating the Documents
One of the first tasks an executor undertakes is to obtain certified copies of the death certificate, last will and trusts, as well as documentation of insurance policies, investment and bank accounts, business and partnership interests, real property, artwork, and prearranged funeral plans. Ideally, all of these documents would be readily available in a safe deposit box.
Hiring a Professional Team to Support You
As an executor, you must carry out fiduciary duties in a diligent, impartial and honest manner, but you don’t have to act alone. Karen Wong, a tax manager at Buchbinder, suggests “The laws regarding executors’ duties are complex and can vary by state, you should consult an estate attorney, tax accountant, appraiser or any other professional who can provide expertise early on.” An attorney can advise you on how to handle beneficiaries who push for quick distributions of assets. A tax professional can help with the final tax and fiduciary returns, or resolve any issues involving inherited assets, such as a family home or business. An appraiser can place a fair market value on antiques and other valuables. Karen advises “The cost of hiring these professionals is covered by the estate, and it can save you from any liability that can be incurred from improper management.”
Applying for Probate
Your work as an executor officially begins when you file the deceased’s will with the probate court. In return, the court will grant you letters testamentary which legally confirm your appointment as executor. If there is no will, you will receive letters of administration.
Notifying Interested Parties
The most gratifying act of an executor is notifying the beneficiaries, as well as any potential heirs, such as children, siblings or parents, who may or may not be named in the will. If the deceased had minor or incapacitated children, you may need to connect them with their guardians. In addition, you need to notify banks, creditors, and government agencies, such as the Social Security Administration, Medicare, or the post office.
Taking Inventory and Managing the Deceased’s Property
An executor must be sure to locate all personal property in the estate and protect it until distribution. If the deceased did not leave a summary list of assets and liabilities, you may need to do some digging. Reviewing the checkbook may reveal regular payments to a retirement account, life insurance policy, or safe deposit box. If the estate includes a business, you need to make sure it can continue its operation. Furthermore, you may need to have fine jewelry and similar assets appraised, maintain insurance on some assets, such as vehicles and real estate. Goods and services, such as the internet, gym memberships, or magazine subscriptions, need to be cancelled in a timely fashion in order to retain as much money in the estate for the beneficiaries. Some states require the executor to submit a detailed inventory of the assets in probate court.
Creating a Detailed Record-keeping System
Keep accurate records of everything you do and update beneficiaries and heirs on the status of the estate. A clear, logical trail of the actions taken can demonstrate that the decisions you made as executor were prudent and in the interest of the estate. This can prevent a beneficiary from contesting the estate’s administration. You will need to create a final accounting, which the beneficiaries must review before the distribution of the estate can be finalized. The accounting should include distributions and expenses, as well as any income earned by the estate posthumously. One way to keep track of all financial transactions is to set up an estate bank account for incoming funds (such as paychecks or stock dividends) and outgoing bills (such as mortgages or utilities).
Handling Tax Matters
Make sure the deceased’s final income and gift tax returns are filed within the time frame set under the law. As the executor, you are both responsible for paying the estate and income taxes, as well as coordinating a tax plan for the estate and the beneficiaries.
Estates valued at less than $5.45 million (for 2016) generally do not need to file estate tax returns. However, a return must be filed if a surviving spouse plans to use any part of the estate tax exemption that the deceased’s estate didn’t use, even if there’s no tax liability at the spouse’s death.
Settling Debts, Selling Real Estate, and Distributing Assets
Once the deceased’s bills and taxes have been paid, you typically can begin distributing assets according to the terms of the will. However, some states require court approval before you take this step. If there is no will, state intestacy laws apply.
Closing the Estate
The estate cannot be closed until all debts and taxes have been paid, and all remaining assets have been distributed. Some states require a court action or agreement from the beneficiaries before the estate can be closed and the executor’s responsibilities are terminated.
Are Executors Compensated?
Generally, an executor is a close family member who undertakes the role out of respect for the deceased. However, in recognition of the difficult tasks and personal liabilities executors assume, wills often include a provision for compensation that can be paid from the deceased’s assets. Some states provide a schedule of compensation that can allay legitimate expenses, which can include estate administration expenses, reasonable fees for legal and financial expertise, as well as fees incurred from maintaining assets, such as the insurance payments on real property or vehicles held within the estate.
Peter Ricci, a tax partner at Buchbinder experienced in trusts and estates, expressed his cautionary views:
“Do not underestimate the challenges associated with the role. Dealing with complex asset holdings, family members, probate matters, and income and estate tax compliance, could prove to be a daunting task to the uninitiated. It is important to select accounting, legal and financial advisors wisely to assist navigating these areas to a successful conclusion.”