Helping Your Executor Fulfill Your Estate Planning Strategy

Too many estate planning strategies ignore one of the keys to their success. An important driver of a plan’s outcome is the job performed by your executor or administrator. You appoint this person, or several persons in your estate planing strategy, but you won’t be around to oversee or guide. Yet, there are steps you can take now to assist this vital actor and ensure your goals are accomplished.

Despite the importance of the role, most people give little thought to the executor. Here are some key actions you can take to make it likely the executor is successful.

Choose carefully. It’s remarkable, but the choice of executor too often is an afterthought. Estate planning professionals say that frequently a person isn’t asked before the will is written if he or she is willing to serve as executor. Some people don’t even know they been named executor until contacted by an attorney after the decedent passes. Others accept the role, considering it an honor, without realizing what the responsibilities are. Still others don’t really want the role but feel obligated to accept it when offered.

The executor’s role can be substantial, depending on the size of the estate, the components of the estate, and the state and locality where the estate must be processed.

Be sure that you and the executor are familiar with the details of the role. You need to know the facts so you’ll select an appropriate executor. (Or you might decide it requires more than one person.) The executor needs to know the scope of the responsibility being accepted.

The executor has to identify all assets owned by the decedent, develop an inventory, and organize them. That task includes personal possessions as well as investments, employer-provided benefits, and other assets. It also requires locating legal title documents, account statements, and other ownership documents. The executor has to place a value on each item. The value has to be reasonable to the IRS (if the estate might be taxable), creditors, heirs, and perhaps others.

In the course of assembling and processing the estate, the executor has to become familiar with the files and records of the decedent. The executor also might have to deal with a range of people and firms: banks, brokers, insurers, former employers, accountants, a financial planner and of course, attorneys and courts. The debts of the deceased have to be determined and settled. Debts will range from mortgages, credit cards, the expenses of a final illness, and the regular utility and household bills.

In some cases the executor will have to manage or ensure the continuation of a business, rental real estate, or similar assets. This could involve dealing with partners, employees, tenants, and others.

Of course, the executor then has to wind down the estate. That means paying the debts. It also might mean selling a business, real estate, or other assets. Assets that are retained then must be transferred to the beneficiaries designated in the will. As we’ve discussed in past visits, some of the more difficult issues in the estate could be distributing personal items that appear to have little monetary value but have sentimental or emotional value to some beneficiaries. (See the December 2014 visit.) The executor also has to be sure that credit cards are canceled, other accounts are closed, utilities canceled, and similar details are handled. Finally, an estate tax return might have to be filed and a final report submitted to the court.

The executor doesn’t have to perform all these tasks personally. But the executor must oversee them and ensure they are done. The executor is personally responsible and liable for many of them.

You need to weigh all these tasks when considering who should be your executor. After you believe you have found the right person, discuss the responsibilities with him or her. Be sure the potential executor knows what lies ahead before making it final.

Some people are under the impression the executor must or should be a relative. That’s not true, and often it is best that the executor not be a family member so that personal conflicts don’t impede settling the estate. You also should consider whether the job of administering your estate is big enough that the executor should receive some compensation.

Estate Planning Strategy #1

Prepare for the executor. You can do much to help the executor. Actions you take can increase the probability your estate will be processed quickly and at low cost. As we’ve discussed in the past, the best way to do this is to prepare and organize your estate so that the executor doesn’t have to spend a lot of time searching for all your assets and debts, never to be fully convinced that all of them have been located.

I recommend preparing a letter and notebook for the executor. Details are available in To My Heirs?, a report available through the Bob’s Library tab on the web site at www.RetirementWatch.com.

Estate Planning Strategy #2

Encourage consultation. An executor has a lot of power and discretion under the law, and many wills also give the executor flexibility. You should of course leave the executor any ideas and preferences you have. Also, encourage the executor to talk with the primary heirs and ask their preferences regarding the issues over which the executor has discretion. It also is good for the executor to explain to the heirs the planned process for determining how these items are distributed and the reasoning behind it. The openness might reveal potential problems and lead the executor to resolve them instead of letting them grow.

Estate Planning Strategy #3

Encourage transparency. Settling an estate can take a long time, a really long time in some states. People who haven’t been involved in settling an estate don’t under-stand what’s involved and why it takes so long. The delays can cause frustration among some family members or other heirs and lead to harsh thoughts, accusations, and worse about what the executor is doing.

The executor should be encouraged to provide regular updates to family members and anyone else who has expectations or interests in the estate. A review of what’s been done and what lies ahead can keep expectations in check and raise satisfaction. The updates can be done in meetings or in writing, depending on where people are located, how they prefer to receive information, and other factors.

Estate Planning Strategy #4

Provide experts. An executor shouldn’t be expected to perform personally all the administrative tasks. The experts and professionals who might be needed depend on the value and content of the estate. It’s likely that an attorney and perhaps an accountant will be helpful. There also might be a need for one or more appraisers. The list could go on, depending on the estate and the expertise of the executor. Be sure the executor knows you expect him or her to seek appropriate expertise when needed. Otherwise, trying to avoid fees in the short term could trigger substantial expenses or losses later.

Estate Planning Strategy #5

Warn against premature distributions. A common mistake is for the executor to give into pressure from family members and distribute assets too soon. It’s understandable that people want access to their inheritances, especially when they know that specific assets are intended for them. But the executor should resist the pleas and bullying.

Distributing assets is one of the final acts of estate administration. It isn’t the main focus. Before assets are distributed, the creditors must be determined and paid. Any taxes must be paid. And all accounts that result in charges to the estate have to be closed and settled. Only after that is done should assets be distributed. Even then it is a good idea for an executor to keep a reasonable reserve for a period of time in case small bills or debts surface late in the process.

The executor should know that he or she is personally responsible for paying debts and taxes. If the estate is disbursed before all claims are paid, the creditors can seek personal payment from the executor. They don’t have to go after the heirs and seek payment from their inheritances. The heirs usually aren’t legally responsible to return assets to the estate.

The executor has an important role in your estate planning strategy and can make or break your plan. Heirs can be either satisfied or frustrated and angry, largely depending on how the executor performs. Select your executor carefully and do all you can to prepare a smooth transition.

RW March 2016.