HOW TO HANDLE THE CHALLENGES BEING AN ESTATE
EXECUTOR
At some point
in your life, you may be asked to serve as executor of a loved
one's estate; a spouse, a parent, a good friend. Actually, you
may not even be asked, but simply find yourself named in the deceased's
will. But before accepting out of love and duty-bound honor, be
aware of the many duties and challenges of this job.
And it can
be a job. Serving as an executor can be time-consuming, complex,
emotionally frustrating and an exhausting experience, even for
a modest-size estate. It even carries legal responsibilities.
As a "fiduciary," you must act with the utmost honesty,
impartiality and scrupulousness on behalf of the deceased and
the estate's beneficiaries. This all comes on top of the fact
that you're going through the emotional loss of the loved one.
Fortunately,
you can hire professional (a financial planner, an attorney, an
accountant) who can provide advice and do much of the actual work.
Still, you as executor must ensure that all work is accomplished
and done properly. So keep the following in mind when deciding
whether to accept the role.
The role of
an executor (called a personal representative in some states)
is to ensure that the decedent's estate is properly settled. To
adequately accomplish this task, you ideally should have the time
and live near the deceased because you’ll need to go through
their records and work with local officials and state laws. You
should be an organized person, with financial savvy and attention
to detail. You should be fair minded (especially if you're one
of the beneficiaries), yet strong enough to handle squabbles among
heirs.
As executor, first thoroughly read
the will and any letter of instructions from the deceased, and
you may need to register the will with the court. You'll need
to determine the estate's heirs and inventory all property and
financial assets to see what passes via the will versus what goes
directly to an heir outside of the will (such as life insurance
or a retirement account). Are there any existing trusts or trusts created by
the will, for which you or someone else serves as trustee?
All property
and financial assets, ranging from insurance policies to bank
accounts and real estate, will need to be identified and valued,
either by yourself or by outside professionals. This process may
be relatively simple if you're the decedent's spouse and records
are in good order. On the other hand, a poorly managed estate
for which you have little or no direct knowledge can be a nightmare
to inventory.
You'll need
to manage estate assets until they are used to pay ongoing estate
bills and debts or they are distributed to the heirs. This is
one area where liability can arise. You're not legally responsible
just because the value of some assets might decline under your
management (markets obviously go down as well as up). But you
could be held responsible if you mismanage them. For example,
the three executors of the estate of a world-famous artist were
assessed millions of dollars in damages and fines by the probate
court because they sold the estate's paintings at well below market
value.
You'll need
to determine valid creditor claims and be sure the estate pays
off any debts.
You’re
responsible for filing the estate's taxes, which probably will
be an income tax return on behalf of the deceased, and federal
and possibly state estate tax if the estate is large enough.
Naturally,
you'll see that the estate's remaining assets are properly distributed
to the heirs. Here's where conflicts can erupt, with heirs fighting
over personal possessions or other assets. If you're also a beneficiary,
you might be accused of partiality. Some battles end up in court.
You can dramatically
reduce the potential for problems by working with outside financial
advisors and, if possible, by being sure the person who has named
you as executor has a well-prepared estate plan.
For all your
troubles, you may collect a fee as executor (two to five percent
of the estate's value is common), though you may pass because
it's better financially for the estate's heirs (of which you might
be one). Or, of course, you can simply decline to serve as an
executor in the first place and a successor executor will be identified.
This article was produced by the Consumer Affairs Dept. of The
Financial Planning Association and provided to you courtesy of
Terry P. Welsh, CFP, Ketchikan, Alaska. If you have any questions
or concerns regarding this, or any other financial topic, please
call me at 1-907-225-0619, or click on the "CONTACT US" button
to arrange for a free initial consultation.
