After an individual’s death, his or her assets will be gathered, business affairs settled, debts paid, necessary tax returns filed, and assets distributed as the deceased individual directed in their will. This distribution of assets will be conducted on behalf of the decedent by a person acting in a fiduciary capacity, either as the executor (in some states called a personal representative) or as a trustee, depending upon how the decedent held his or her property.
The executor plays a very important role after the testator (the deceased will maker) dies as they have a number of duties including the task of tracking down assets, paying creditors, and making sure beneficiaries named in the will receive property to which they are entitled. Being an executor is not a simple role and should not be taken on without serious consideration. To help you gain an informed perspective on the duties of an executor, we have outlined some general information and frequently asked questions that all executors should consider.
What is an executor?
Usually, when you write your Will, you will include a named Executor. if you do not, the courts will appoint one. This is the person who is given the legal responsibility to take care of a deceased person’s remaining financial obligations. This means taking care of everything from distributing property to paying bills and taxes. Most executors are immediate family members, with spouses, children and parents being the most common but it is also possible to name your lawyer or other informed professional.
What are executors typically responsible for doing?
Executors, as part of distributing a deceased’s estate, will often perform the following functions:
- Distributing assets according to the Will,
- Maintaining property until the estate is settled (e.g., upkeep of a house)
- Paying bills for the estate,
- Paying taxes on the estate,
- Distributing funds in accordance with a trust, and
- Make court appearances for the estate.
Common legal terms Executors should know
As a first step, it is helpful to know the meaning of a few common terms so that you can fully understand the Will and your duties:
- Fiduciary – An individual, bank or trust company that acts for the benefit of another. Trustees, executors, and personal representatives are all fiduciaries. The person acting as the fiduciary has a duty to act with care as they are being trusted with the authority to act for another person.
- Testator – The person who has made the Will (a woman is sometimes called a “testatrix”).
- Beneficiary – A person for who benefits from the Will or trust. They will receive property or income either outright or in trust, now or at a later date.
- Trustee – An individual, bank or trust company that holds legal title to property or assets for the benefit of another and acts according to the terms of the trust.
- Executor – (Also called “personal representative;” a woman is sometimes called an “executrix”). An individual, bank or trust company that settles the estate of a testator according to the terms of the Will. If there is no Will, the executor will settle the estate in accordance with state intestacy laws.
Does an executor have to serve, or can I refuse the responsibility?
Just because you have been named an executor in a Will doesn’t mean you have to do it. Even if you previously agreed with the testator that you would perform the role, you still have the option to decline the responsibility. In addition, someone who originally accepted the role as executor and performed some of the tasks, can resign at any time.
Therefore, when writing a Will it is generally recommended that you name alternative executors, otherwise a court will appoint a replacement executor if your original choice bows out for some reason. Distributing an entire estate can be daunting for anyone, therefore it is not unusual for people to resign once they realize how big the task actually is.
Do I get paid and how much?
Because being a fiduciary is time-consuming and difficult role, it is appropriate to be paid for your services. The Will or trust may set forth the compensation to which you are entitled. If the document does not, many states either provide a fixed schedule of fees or allow “reasonable” compensation, which usually takes into account the size of the estate, the complexity involved, and the time spent by the fiduciary.
Executor’s or trustee’s fees are taxable compensation to you. Several states do not permit you to pay your own compensation without a court order, so ask your attorney before you write yourself a check. Many fiduciaries handling a family estate feel awkward about collecting a fee and are quick to waive fees. However, before doing this, consult with the attorney for the estate and be certain you understand the full scope of your duties and any ramifications of the waiver. At the end of the day, you are putting in a lot of time for which you are allowed to be paid for.
Where do I hold the estate or trust assets?
It is advisable to open an investment account with a bank, trust company, or brokerage company in the name of the estate or trust. All expenses and disbursements must be made from these accounts, and you should receive regular statements. In the event of a complaint and to avoid any complications, it is always a good idea to keep clear records of all work done for the estate as you may have to explain your actions at a later date.
What if a beneficiary complains?
Even professional fiduciaries, such as trust companies, receive complaints from beneficiaries from time to time. The best way to deal with them is to do your best to avoid them in the first place by following the guidelines set forth in state legislation and by consulting with an attorney experienced in estate administration.
Many complaints arise because beneficiaries are not kept up to date about the administration of the trust or estate. Frequent communication with beneficiaries is vital. The best approach in all instances is to be proactive by communicating throughout the estate or trust administration process and handling all matters with appropriate formality.
Can I be sued or be held personally liable?
Your errors or mismanagement of a trust or estate can subject you to personal liability. Common pitfalls include not paying taxes or filing returns on time, improper investment choices (whether too conservative, too speculative, or favoring one beneficiary over another), self-dealing (buying assets for yourself or a family member). Your best protection is to get good professional advice as early as possible in the process, communicate regularly with the beneficiaries, treat everything with appropriate formalities as if you were not a related party (even if you are), and fully document your actions and decisions.
What if I want to resign?
If you wish to resign before the conclusion of your administration, you must be discharged either by the local court or by the beneficiaries. In some states, discharge is a formal process that involves the preparation of an accounting. In other states, you can be discharged with the use of a relatively simple document signed by the beneficiaries. If you are resigning prior to the conclusion of your administration, check the Will or trust document to see who succeeds you as fiduciary. If no successor is named, you may need a court proceeding to appoint a successor before you can be discharged.
Do executors need to hire a lawyer?
Many Wills are fairly routine and simple, and require no specialized knowledge. Even if a Will goes through probate court, the paperwork required does not require a legal degree. However, if there are disputes, complex property issues, significant tax liability, etc., then an executor should seriously consider getting professional help in the form of a lawyer.
Closing the Estate
Estates may be closed when the executor has paid all debts, expenses, and taxes, has received tax clearances from the IRS and the state, and has distributed all assets on hand. Trusts terminate when an event described in the trust document, such as the death of a beneficiary, or the date the beneficiary attains a stated age, occurs. The fiduciary is given a reasonable period of time thereafter to make the actual distributions.
Some states require a petition to be filed in court before the assets are distributed and the estate or trust closed. When such a formal proceeding is not required, it is nevertheless good practice to require all beneficiaries to sign a document, prepared by an attorney, in which they approve of your actions as fiduciary and acknowledge receipt of assets due them. This document protects the fiduciary from later claims by a beneficiary. Finally, a final income tax return must be filed and a reserve kept back for any due, but unpaid, taxes or estate expenses.
Distributing an estate is rarely a straightforward process and having this knowledge will help you determine if you are up for the task. Having an experienced attorney by your side will obviously help to alleviate some of your concerns and don’t forget, you can always resign if the task becomes too daunting.
He has over 19 years of experience helping people to write their Will and other estate planning documents. He has been interviewed by many of the major news media outlets, and has contributed to articles in The New York Times, NY Metro Parents, U.S. News & World Report, and other leading publications. He has also contributed to a number of financial planning books.
Throughout his career, Tim has written extensively on the subject of Will writing and estate planning.