Estate Planning Blog

What Does the Executor of an Estate Do?

Being named the executor of an estate usually means you’ve lost someone close to you, and it’s a challenging time. The article “What to do when you’re the executor of an estate” from Bankrate explains what you’ll need to do and outlines the steps to stay on track.

The executor is the personal representative of a deceased person’s estate until the probate process is completed and all assets have been distributed. One of the key tasks is distributing assets according to the terms of the decedent’s will.

You can say no if you are not able or willing to serve as the executor. A secondary executor may be named in the will, or the probate judge can name a replacement. However, this task is doable if you set up a detailed checklist and work with an estate planning attorney.

Obtain the death certificate. The funeral home issues these; you’ll need them to notify banks, investment firms, life insurance companies, the Social Security Administration, the Department of Veterans Affairs and others. You’ll also need them for filing final tax returns. You’ll also need to notify Social Security to turn off payments going directly into the person’s bank account.

Locate the will and any trust documents. Hopefully, the person who notified you of the death will know where these documents are. Depending on the state where the decedent was domiciled, the last will needs to be filed within a few days to a month to a year after the death. If there are trusts, the trust documents name the trustees in charge of distributing assets owned by the trusts. Trust assets can be distributed immediately by the trustees without court approval.

Seek professional advice. After reviewing the will and trust documents, you’ll better understand how complex the estate is. You may want to consult with an estate planning attorney, CPA, appraiser, or other professionals whose expertise can help you avoid any mistakes. Trying to do it yourself could leave you personally responsible for mistakes, and the process may take far longer.

File “letters testamentary.” If the estate goes through probate, the court will legally confirm your appointment as executor with letters testamentary, sometimes referred to as surrogate certificates. These are legal documents proving your authority to act on behalf of the estate, pay bills, file tax returns, manage and distribute assets, deal with beneficiaries and open or close bank accounts.

Locate and protect assets. In the best scenario, the executor is given a complete list of assets and related information. This would include wills, trusts and paperwork related to insurance, investment accounts, prearranged funeral plans, bank accounts, real property, artwork, business interests and partnerships. A complete list of digital accounts is also needed.

Pay bills and taxes. The estate is responsible for paying debts, including income and estate taxes. If the debts exceed assets, beneficiaries are not responsible for paying them. The executor opens an estate bank account, which pays bills for the estate. Before paying debts, the executor must confirm the estate’s ability to pay. If a list of monthly bills, income and debts were not left for the executor, they’ll need to figure this out.

Don’t rush. It’s common for the executor to want to get the tasks done, distribute any inheritance to beneficiaries and have done with the process. However, if you rush and miss some important tasks, you could be found personally liable. It can take six months to a year to work through an estate. Keep careful records of all transactions and a copy of everything sent and received from creditors, beneficiaries, financial institutions, the IRS, the Social Security Administration and others.

Having an estate planning attorney can help. An attorney can also mediate between the executor and beneficiaries if things take a turn for the worse.

Reference: Bankrate (Nov. 17, 2023) “What to do when you’re the executor of an estate”

How Does a Living Trust Protect Your Legacy

Want to leave assets of any kind to loved ones? You’ll need to plan ahead. There are a number of options used to pass wealth to the next generation, including a last will and testament. This is a legal document designating someone to be in charge of your estate after you die and telling them how you want your assets to be divided.

Another means of passing assets along is explained in the recent article from The Motley Fool, “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family.” A living trust is a legal entity created while you are living to hold assets and designates someone to manage and disburse them based on specific directions in the trust document. You don’t have to be wealthy to have a trust.

While these two instruments sound similar, they have unique elements, making one better than another in certain situations. For many people, a living trust can benefit the individual making the trust (the grantor) and their families. Here are a few to consider.

Maintaining privacy. Wills must go through probate, a court-supervised process to review the decedent’s assets, approve their executor and rule on the will’s validity. Because the will is under the court’s review, it becomes public information. In most jurisdictions, anyone who wants to see your will can. They can also see who received what assets.

If you have concerns about maintaining your privacy or the privacy of your heirs, it may be worthwhile to create a trust. This will keep your assets and your heir’s receipt of assets private. The only people who know what’s in a trust are the grantor, the trustee who manages the trust and the beneficiaries.

Avoiding long delays. Since a trust doesn’t go through probate, it may be possible for the trustee to make distributions of assets much faster. The executor typically needs to file the will for probate and wait for the process to be concluded. Only then can they carry out the directions of a will.

When assets are in a trust, the trustee can implement the terms of the trust more quickly. This can significantly help loved ones, especially if they have paid for long-term care, hospital bills, funeral expenses, etc. If they were relying on an inheritance to cover these costs, the faster the trust can reimburse them, the better.

Managing assets if you become incapacitated. One of the biggest advantages of having a trust over a will is its value during your lifetime. A will doesn’t take effect until you die. On the other hand, a living trust with a successor trustee allows the successor to manage the trust if you become incapacitated and cannot serve as the primary trustee.

Whether you have a trust or not, you will want to name a Power of Attorney who will manage your financial and legal affairs if you cannot do so. However, financial institutions can be challenging when dealing with a POA.

Changing the trustee does not impact the trust’s status as a separate legal entity. The successor trustee steps in, and financial institutions will generally be on notice as long as the initial trust documents specify who the successor trustee will be.

Talk with your estate planning attorney about using a living trust as part of your estate plan. It may be wise to use a combination of a will and a trust to achieve your desired outcome. Do remember estate planning is not just for what happens after you die but for preparing to care for yourself and your family while you are living. A living trust could serve you and your family well, during life and after death.

Reference: The Motley Fool (Oct. 31, 2023) “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family”

What Is the Purpose of an Executor?

It is flattering to be named the executor for a loved one. It demonstrates an extremely high level of trust and respect, as the person considers you capable enough to fulfill their wishes when they have passed. However, just because you have been named executor does not mean you are obliged to serve, says the recent article, “What are the responsibilities of an executor?” from Daily Local News.

Suppose you decide the responsibilities of being an executor are more than you’re willing or able to handle. In that case, you can renounce your position as executor, and a successor executor named in the will becomes the executor. If the person who named you executor did not name a successor, the court will select a person for the role.

If you have any doubts about this role, please tell the person who asks you to serve, so they can make other arrangements.

If you choose to serve, you’ll want to understand what the job entails. Each estate is unique, and its administration depends upon the assets owned by the deceased, what debts they had and their wishes for distribution.

Some duties are the same regardless of the complexity or simplicity of the estate. For example, the executor often makes arrangements with the funeral home and provides information for the death certificate. Once the death certificate is issued, the executor probates the will with the local court in the county where the decedent last lived. Most people retain an estate planning attorney to guide them through probate and estate administration.

Once the petition for probate has been filed and the court issues Letters Testamentary empowering you to serve as the executor, the administration begins. Some, but not all, of the tasks, include:

• Gathering assets
• Notifying beneficiaries named in the will
• Obtaining an EIN federal tax number for the estate
• Opening an estate checking account
• Verifying and paying the debts of the decedent
• Liquidating and transferring estate assets into the estate checking account
• Filing a final personal income tax return
• Providing an accounting to beneficiaries and distributing the estate in accordance with the decedent’s will
• Filing an estate tax return.

The executor also handles other tasks, such as selling the contents of the person’s residence and home.

The executor is entitled to reasonable compensation for their services. The amount is treated as taxable income. Determining the fee depends on the value and complexity of the estate and the amount of time it took to settle the estate. Some family members waive a fee, while others feel their time deserves compensation.

An estate planning attorney can provide invaluable assistance and prevent expensive mistakes from occurring. If the estate involves businesses, complex ownership structures, trusts, or other sophisticated assets, it is worthwhile to have the help of an experienced professional.

Reference: Daily Local News (March 22, 2023) “What are an executor’s responsibilities?”

When Can I Sue an Executor?

When someone dies, an executor is charged with overseeing the distribution of someone’s assets according to the will or state inheritance laws if they die without a will, explains, AOL’s recent article entitled, “When Can a Beneficiary Sue an Executor?”

An executor is someone who is appointed either through a will or by the court to oversee the probate process.

An estate beneficiary is a person named in a will to inherit assets from someone else. Beneficiaries and heirs may be the same individuals or different people. A beneficiary is typically named in a will or trust. An heir is a person identified by state inheritance laws as having the right to receive assets from an individual’s estate. Heirs are typically the decedent’s spouse, children and other relatives. A beneficiary’s rights include the following:

• Receive assets from the estate of the deceased person that they’re entitled to according to the terms of their will or state law promptly;
• Request and receive information about the administration of the estate, including financial details; and
• Ask for the removal of an executor.

Beneficiaries also have the right to sue the executor if they think there’s a breach of fiduciary duty, which requires executors to act in the best interests of the beneficiaries or other persons they represent in financial matters. For a beneficiary to sue an executor, they have to have grounds for doing so. This includes:

• Failing to provide beneficiaries with financial statements regarding the estate when you request them
• Delaying in the distribution of assets without any legal reasoning for doing so
• Appearing to favor one beneficiary over another when distributing assets
• Mismanaging or misusing estate assets for their benefit
• Making risky investments with estate assets
• Failing to meet financial obligations associated with the management of the estate; and
• Having an obvious conflict of interest because they’re also a beneficiary of the estate.

Reference: AOL (March 20, 2023) “When Can a Beneficiary Sue an Executor?”

You Can Avoid Unintended Consequences

The mistake can be as simple as signing a document without understanding its potential impact on property distribution, failing to have a last will and testament properly executed, or expecting a result different from what the will directs. Unfortunately, these unintended consequences are relatively common, says the article “Advice for avoiding unintended issues in estate planning” from The News-Enterprise.

The most common mistake that leads to unintended consequences is leaving everything to a spouse in a blended family. Even if children don’t have a close relationship with their stepparent, they’re willing to get along for the sake of their biological parent. However, when the first spouse dies, the decedent’s beneficiaries are generally disinherited if the surviving spouse receives the entire estate.

If the family truly has blended and maintains close relationships, the surviving spouse may ensure that the decedent’s children receive a fair share of the estate. However, if the relationships are tenuous at best, and the surviving spouse changes their will so their biological children receive everything, the family is likely to fracture.

Using a revocable living trust as the primary planning tool is a safer option. An experienced estate planning attorney can create the trust to allow full flexibility during the lifetime of both spouses.  Upon the first spouse’s death, part of the estate is still protected for the decedent’s intended beneficiaries.

This way, the surviving spouse has full use of marital assets but can only change beneficiaries for his or her portion of the estate, protecting both the surviving spouse and the decedent’s intended beneficiaries.

Another common mistake occurs when married couples execute their last will and testaments with different beneficiaries. For example, if they’ve named each other as the primary beneficiary, only the survivor will have property to leave to loved ones.

An alternative is to decide what the couple wants to happen to the estate as a whole, then include fractional shares to all beneficiaries, not just the one spouse’s beneficiaries. This protects everyone.

Many people assume that if they die without a will, their spouse will inherit everything. Unfortunately, this is not always the case, and a local estate planning attorney will be able to explain how your state’s laws work when there is no will. Children or other family members are often entitled to a share of the estate. This may not be terrible if the family is close. However, if there are estranged relationships, it can lead to the wrong people inheriting more than you’d want.

Failing to plan in case an heir becomes disabled can cause life-altering problems. If an heir develops a disability and receives government benefits, an inheritance could make them ineligible. The problem is that we don’t know what state of health and abilities our heirs will be in when we die, and few will want their estate to be used to reimburse the state for the cost of care. A few extra provisions in a professionally prepared estate plan can result in significant savings for all concerned.

Estate planning is about more than signing off on a handful of documents. It requires thoughtful consideration of goals and potential consequences. Can every single outcome be anticipated? Not every single one, but certainly enough to be worth the effort.

Reference: The News-Enterprise (March 25, 2023) “Advice for avoiding unintended issues in estate planning”

What Exactly Is Probate Court?

Probate is started when a person files a petition for probate with the state’s probate court. The petition is normally filed by the executor of the deceased’s will or by a member of the deceased’s family.

Investopedia’s recent article entitled, “What Is Probate Court?” explains that the individual filing the petition must also file the original will and a copy of the certified death certificate.

In the first hearing, the probate court appoints the executor for the deceased’s estate. The executor (or administrator, if there’s no will) is responsible for distributing the deceased’s estate to the proper beneficiaries, among other administrative duties.

The judge will provide the executor with Letters Testamentary (or Letters of Administration), which give the executor the authority to pay bills, sell assets and perform other duties.

Before accepting the Letters and performing their duty, the executor may need to post bond (to protect the estate from any adverse consequences of their actions). However, this is fairly rare.

The executor then will do the following:

• Notify those to whom the deceased owed money (creditors)
• Notify beneficiaries
• Inventory the deceased’s assets
• Pay outstanding bills
• Sell assets if necessary to pay what’s owed; and
• Pay taxes and file a final tax return.

Once those tasks are completed, the executor distributes the remaining assets to the beneficiaries, according to the will’s provisions.

The probate court monitors the executor’s activities and handles issues that may arise. For instance, if the executor objects to a claim, the court will hear the evidence and make a decision.

The executor must usually provide an accounting of how the estate was handled. Once the court approves this, it closes the probate process.

An informal probate process, also called summary probate that requires less court oversight can be used if it’s a small estate, the will is simple, all parties are in agreement with it and no objections are made.

When a person dies with no will—known as intestacy—the court will distribute the decedent’s property to their next of kin, according to the state probate laws.

Investopedia (Sep. 21, 2022) “What Is Probate Court?”