Capital Investment Advisors

It’s as Inevitable as Death and Taxes. Are You Ready?

Have you been named an executor yet? Odds are that more than half the population will one day serve as an executor for a parent, a spouse, a sibling, or even a friend, yet most people know almost nothing about the effort and rewards involved, or how to minimize the associated risks.

Being named an executor is simultaneously an honor and a tremendous burden. The work is extensive, time-consuming, and fraught with potential pitfalls. Most people feel compelled to accept the position, but few people truly understand all that the job entails.

Below is a brief overview of the tasks an executor is required to complete for an estate:

– Locate and File Will: The executor must acquire a copy of the will and file it with the probate court. The executor is in charge of locating, reading, and understanding the will and determining who inherits the property outlined in the will.

– Inventory and Protect Assets: The executor will need to do a complete inventory of the assets of the estate, usually filing the results the court. The maintenance and care of these assets, including the home, cars, etc., is the sole responsibility of the executor until the property can be passed to heirs or sold.

– Notify Relevant Parties: The executor needs to obtain a copy of the decedent’s death certificate and notify relevant entities such as banks, heirs, and government agencies of the decedent’s death. This includes time spent calling these entities, mailing and faxing copies of the death certificate, and in some cases, appearing in person to represent the estate.

– Manage Finances: The executor must obtain a federal EIN to open a bank account for handling any estate income and expenses (such as ongoing mortgage and utility bills during the probate process). Executors must follow state-mandated procedures for notifying creditors and attempt to pay all qualified debts. The estate executor must also file income tax returns on behalf of the decedent, on behalf of the estate, and when relevant, estate tax and inheritance taxes as well.

– Distribute to Heirs: The executor must divide and distribute the estate to the heirs in accordance with the terms of the will, after first resolving any debt and tax obligations.

– Court: Depending on the property involved or the size of the estate, probate court may be necessary. The executor will be required to represent the estate in court.

While the above list may seem straightforward, it is a simplification of a very involved process. An estate often covers years of accumulation by the decedent, and things quickly get more complicated when actually starting to deal with it. How does one even find all the estate assets?  Without specific instructions, how does one figure out which family member gets which items? How can a single person represent the interests of the estate while making sure grieving family members are treated fairly, too?

Sadly, disagreements over estates have been responsible for the deterioration of family relationships time and time again, and most people have heard horror stories about bitter family inheritance disputes. Even celebrities are not immune: in just the last few years, the news has highlighted long-running disputes involving the estates of James Gandolfini, Robin Williams, Prince, and others.

An executor must not only be highly organized, and he or she must be emotionally prepared to deal with a wide range of personalities. To keep peace and create trust, it’s important that the executor settle the estate’s affairs transparently: open lines of communication with all stakeholders are essential for a smooth process.

Emotions aside, executors need to follow the law strictly. An executor is personally liable for the proper administration of the estate. A misrepresentation of the value of any assets, even if by mistake, could result in an executor being held accountable by the IRS or by the beneficiaries. If an executor is perceived to have treated the heirs unfairly, he/she could be required to reimburse those heirs or pay fines out of his/her own pockets.

And then there is the hotly debated issue of executor compensation. In some states, executors are entitled to take a percentage of the estate’s value, in some states the executor fee is dependent on funds received and funds paid out, and in others the standard is more fluid and depends on a large variety of factors. However, even with those legal guidelines in place, executor fees are a common source of contention with heirs. Although serving as an executor is akin to having a second job, heirs often don’t really understand the effort involved, and can perceive the executor fee as money being taken from assets owed to them.  EstateExec, an online software tool to help executors, reports that the number one query that leads visitors to their site involves executor compensation.

So, what should one do if named as an executor? Here are some suggestions to keep the process smooth and successful:

– As soon as possible, collect the will or trust documents. After reviewing, an executor should have a clearer picture of how complicated the estate will be.

– Find a resource that helps manage the estate settlement process. There are very useful books and lists available to help an executor understand the process. Inexpensive and simple software like EstateExec goes further and helps executors facilitate the process from start to finish. This software also allows for executors to share the activities of the estate in real-time with other stakeholders, allowing for transparency and avoiding the lack of trust pervasive in estate settlement.

– If required, an executor should engage a professional whose expertise is required to complete the process. An estate attorney can advise on legal steps and help direct executors to the right probate forms. A CPA can assist with the final tax returns and any issues involving inherited assets, such as a home, investments, retirement accounts, or a family business. An appraiser can help by applying fair market value to antiques and other valuables.

– Of course, even if employing experts to assist, the executor is ultimately responsible for the bulk of the work involved, so being organized from the beginning can prove very helpful later when it comes time to do things like automatically generate a list of expenditures or calculate executor fees.

Being an executor can be a tough job, but with the proper guidance and tools, it can be manageable and even rewarding, bringing closure and financial rewards to everyone involved.

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