A will is a legal document that allows a person to identify family, friends, loved ones or a charity that will receive specific gifts or a portion of all of your assets upon your death. Without a will you will be intestate and state law will identify who receives your assets (usually the closest family member) or if there is no person your assets will default to the state.
While many people understand the importance of having a will to insure that their testamentary wishes are fulfilled, the importance of leaving the right person in charge of managing and distributing the assets is often overlooked.
The person who will step into your shoes, take control of your estate, manage and distribute the estate in accordance with your wishes is called the executor. You can choose who will serve as your executor and in fact this is one of the most important decision you will make in your will. Choosing the right person can make a difference between a well managed estate with and prompt distributions to your heirs and choosing the wrong person can mean years of probate court, poor management of estate assets that reduce the value of your estate, and outright failure of your wishes to be fulfilled. This article discusses choosing an executor
WHAT AN EXECUTOR DOES
The importance of choosing the right executor will be clear after you understand the five primary tasks and responsibilities your executor has, which are briefly outlined below.
1. Opening Your Estate
Upon your death, your executor will “open” your estate, the first step in probating your will. Probate is a process conducted by the Court that determines that your will is valid and that the process for managing and distributing your estate are being adhered to by your executor.
To open an estate, your executor will file paperwork with the state court in the county in which you reside. This paperwork notifies the court of your death and of the executor’s intent to act as the Executor of your estate. Next your executor will notify your creditors of your death, allowing them the opportunity to file a claim against your estate.
2. Asset Collection
Next your executor will begin the process of collecting and inventorying all assets subject to your Will, such as bank, brokerage, and retirement accounts, personal and real property and other valuable items. This task can be time consuming and often requires some digging to ensure nothing is missed. To do a good job, your executor will likely have to comb through your personal paperwork for information, speak with your heirs, and compile a variety of ownership documents at the town hall.
3. Estate Management
Your executor will be in charge of managing the assets and liabilities of your estate. Your executor will pay outstanding bills, such as outstanding car, credit card and mortgage payments. Your executor will also collect any money that might be owed to you. If you owned a business, the executor would step into your shoes to perform management decisions such as buying or selling certain assets, making payroll distributions or whatever else is required to keep the business in operation.
4. Payment of Taxes
Your executor, with the help and support of an accountant and/or attorney will also take care of paying any and all estate taxes that might be due. This responsibility includes identifying the appropriate tax return and remitting to the taxing authority to amount owed. But wait, there are more taxes. Your executor will also be responsible for filing your final Form1040 income tax return, and remitting to the IRS any income tax payable or collecting any refund due from the IRS.
5. Closing Your Estate
Upon all potential creditors having been notified and all taxes paid your executor will present a detailed accounting of income earned, disbursements made, assets and liabilities held by the estate. Upon receiving the go ahead from the court, your executor will distribute estate assets to your beneficiaries as specified in you Will.
As you can see, an executor has a variety of responsibilities, which makes appointing the right person paramount. The right choice could mean your heirs receiving their inheritance on a timely basis. A bad choice, on the other hand, could result in a contested will, tax problems, delays, or even missing assets and estate funds.
CHOOSING YOUR EXECUTOR
Below are 10 considerations that should be taken into account when choosing your executor.
1. Barred from Serving
As a general matter, nearly anyone can act as your executor, provided they are over the age of 18. However, certain individuals have a high probability of being denied by the probate court. This list includes felons and persons with unsavory characteristics that may cause problems, for example, “bad actors” under securities laws. While some courts may consider allowing such a person to serve as your executor, they may require the individual post a bond, which acts as an insurance policy –paying the beneficiaries if the executor absconds with estate funds. Often bonding companies will refuse to bond a felon. This is not surprising given that signing checks is a primary purpose of having an executor and having a felon in charge of disbursing your estate funds is perceived as highly risky. For this reason, you should select a person who has not had any felony convictions or fraud issues in the past.
2. Irresponsible Parties Need Not Apply
Because an executor has a variety of important responsibilities, the most important quality in an executor is that they are a responsible person. This means someone with a strong work ethic, that is capable of meeting deadlines, and who is not afraid to go the extra mile to ensure your estate issues are handled promptly and in an organized fashion. Keep in mind that your executor can hire qualified financial advisors, attorneys, and accountants to help them get the job done, so they don’t need to have legal or accounting acumen to be a great executor. What is required is that they have sufficient intelligence, life experience, and wisdom to know when and how to hire professional help. You should avoid individuals who might have skills in a relevant field but who are overburdened or relaxed when it comes to completing a project.
3. Location, Location, Location
Courts tend to prefer to have individuals over which they have jurisdiction to serve as executor. For this reason, many states frown upon or outright disallow out of state executors, and most states do not allow a non-US citizen who resides overseas to serve as sole executor. While some states might allow the above stated persons to serve, the court in such instances will require the person to post bond. The hassle and difficulty presented by an out of state or overseas executors should be avoided. Select someone that resides in the United States, and preferably someone who lives in the same state as you. While an in-state executor is ideal, your executor need not live particularly close by. While an executor may make in-person visits to your home, businesses, or properties, this is not required. In fact, most tasks can be done remotely, through agents (people hired by your executor, such as movers, attorneys, property management companies, etc.).
4. Financial Woes
You should avoid selecting an individual who has undergone or is undergoing financial hardship. Not only does the management of one’s own finances indicate the person’s ability to manage your estate, it can also cause the court to require a bond be posted. Individuals with a number of creditors or liens against them, those with bad or no credit history, and those who have declared bankruptcy are all individuals that should be avoided if possible.
5. Age
Your will, unless revoked, lasts forever. For this reason, it is possible that your last will and testament will be in place for thirty, forty, or even fifty years or more. A lot can change in that amount of time, including which of your friends, family and acquaintances are alive. For this reason, the age of your executor is an important consideration. A younger executor is more likely to be survive you and therefore be available to perform their role. Because you can name more than one executor in your will, it is best practices to ensure that at least one of those individuals is younger than you. It should be noted that naming alternate executors is also a best practice regardless of the age of your chosen executor. You named executor could very well decline the responsibility and for this reason alone, it you should consider naming an alternate. Failure to name at least one alternate executor increase the probability that the court, not you, will choose who administers your estate.
6. Communication is Key
While finances, taxes, and business decision might seem like the bread and butter of an executor’s responsibilities, none of these tasks can be achieved well without strong communication skills. For this reason, clear and effective communication is a key attribute of every good executor. You need someone who is able to be diplomatic and handle family dynamics. Remember, your executor will be stepping into you're your financial and familial affairs at a difficult time. They will need to be able to communicate with grieving family members and friends while maintaining the poise and focus necessary to navigating estate matters in a timely and effective fashion.
7. Family Members
Many individuals feel a sense of obligation to name a close friend or family member to serve as their executor. While it may be the case that such a person would make a great executor, often times this sense of obligation leads to the wrong individual being selected. Do not feel required to naming a particular executor due the expectation of others. It is your estate, and you are entitled the opportunity to select the individual you believe would be most capable of managing the estate in an organized and timely fashion. You should not pass up this opportunity. Quite simply, you can’t choose who is in your family, but you can choose who gets to serve your as executor. Always opt for the more qualified individual rather than just who happens to be a close friend or relative. By choosing the most competent individual you are making the right choice, not just for you but for your heirs. If you happen to have a trusted and competent close friend or relative that you believe could perform the job, then this is ideal. However, if your family members are not competent or particularly trustworthy you should won’t lose sleep because you chose a better suited executor.
8. Willing and Able
You cannot force someone to be the executor of your estate and being an executor is time consuming and can be difficult. For this reason, it’s important that you name only individuals who are likely to accept the role. These means selecting individuals with enough flexibility in their lives that they could perform the role. A busy individual may be unwilling or unable to perform all the responsibilities required of them on top of their already loaded schedule. Also, if they accept the job, they may not be able to devote sufficient time to the task to perform a satisfactory job. It should note that an executor does receive a commission for his or her work managing the estate. While this is unlikely to be the driving force behind an individual accepting the role of executor, it can be an incentive.
9. Family Drama
No family is without its drama. When appointing an executor your goal should be to reduce the probability that this drama will impact the management or distribution of your estate. Sometimes siblings do not get along or will fight over money. Out of fear that one would use their role as executor to exact revenge, you might appoint both to serve as co-Executors. Requiring that they work together. This should be avoided. Where family strife is present, it is always best to appoint a neutral third party that is not involved or party to any family conflicts.
10. Consider a Professional Executor
Trust companies, trust departments of banks, and individuals, called professional fiduciaries, can serve as your executor. While these entities charge varying amounts for their services, they can be a good option for those who:
· Have blended or non-traditional families;
· Have no nearby family members;
· Have overseas assets or beneficiaries;
· Cannot identify a responsible, competent, or trustworthy family member or friend;
· Highly complex assets or estate plans.
While cost is one drawback to selecting a professional trustee, there are a number of benefits, including: professional executors operates outside of the family drama and are not beholden to any particular beneficiary; an entity is more likely to outlive you than an individual; most have offices around the country, negating jurisdictional issues; they are experienced in estate management and therefore bring a higher degree of professionalism and financial acumen. The downside is cost and for estates under two million dollars the cost can outweigh the benefit.
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