So You Want To Be Named Executor…

We’ve discussed the importance of having essential estate planning documents routinely in our weekly commentaries over the years. And we know that there is a significant transition of wealth coming from aging baby boomers to their children over the next few decades.

The thought of this may make adult children question which of their siblings Mom & Dad named as their executor. And sometimes it can create jealousy or hard feelings.

Before you do or say something you may regret, please first take a moment to read about what’s involved. Being an executor can be a time-intensive role that carries a great deal of responsibility where you’re personally responsible for what’s involved and where you can be legally liable if you do something incorrectly or irresponsibly.

Your parents will is the legal document that outlines how they want certain assets to be distributed at their death. Their will is also where they name their executor (aka “personal representative”) who administers the decedent’s estate through the legal process by which a court oversees the settlement of an estate after someone dies, which is known as “probate”.

We’ve discussed how some assets pass through probate and some don’t. Sorting out which assets are probate assets and which are not and transferring these legally and directly to the intended heirs and beneficiaries is only one part of the job of the executor.

While a simple estate might be settled in as little as few months, settling one that is more complex can take a year or even several years.

To serve as an executor, it’s important that you have some understanding of the estate settlement process and it will be helpful if you are already familiar with working with other professionals such as attorneys, accountants, and financial advisors. And if you’re reading this and considering who should take on the role for your own estate, then below are some of the typical responsibilities of your executor.

Keep in mind that the below can vary depending on the state in which the decedent lived and often is separate and in addition to all of the steps and requirements involved with the decedent’s last wishes and funeral and burial arrangements.

1. Collect the death certificate and organize estate planning and other legal documents.

2. File the last will and testament with the local surrogate court as required by the local laws.

This typically is done in person within a certain time period and requires a fee to be paid (which is typically paid by the executor and reimbursed by the estate). If the decedent owned assets in multiple states, then this process may be required in each of those states.

3. Take an oath.

After the court validates the will, it will typically appoint the person (or entity) named in the will as executor. To be approved, the executor must agree to faithfully fulfill the decedent’s wishes, as outlined in the will, and abide by all applicable fiduciary laws and probate court rules. Once an executor is approved, the court will typically issue a formal document, sometimes referred to as a “Letter of Testamentary” that documents the executor’s authority. These letters give the executor the legal authority to act on behalf of the estate and are used to interact with third parties, such as financial institutions (banks, brokerage firms and insurance companies, etc.) and government agencies (Social Security, IRS, Medicare, etc).

4. Notify interested parties.

In most forms of probate, the court will direct the executor to formally notify all those individuals that may have an interest, whether financial, legal, or otherwise, in the decedent’s estate. This typically includes the decedent’s heirs, financial institutions, insurance companies, creditors, government entities such as the Social Security Office and DMV, etc.

5. Obtain a tax ID and establish bank accounts for the estate.

Because an “estate” is a separate legal entity, the decedent’s individually owned accounts must be transferred into estate accounts. The executor is responsible for establishing a tax ID for the estate, properly opening these accounts, funding them, and prudently managing them throughout the course of the estate administration. The executor can use the estate bank account to receive any outstanding funds owed to the decedent and to pay any of the decedents or the estate’s bills.

6. Post bonds if required.

State law (or the will itself) may require an executor to obtain a probate or fiduciary bond, which serves as a form of insurance primarily to protect estate beneficiaries in the event an executor does not properly fulfill their duties and obligations and causes financial harm to the estate. A probate bond is purchased by the executor and typically reimbursed by the estate.

7. Maintain real estate and other estate assets.

The executor is responsible for maintaining and protecting all estate assets until the estate is fully distributed. In the case of real estate, this includes properly maintaining the property and insuring the property. It’s possible that the executor may be responsible for selling property too if the heirs decide that they don’t want or need it.

8. Create and file an inventory of the estate’s assets with the court.

In many states, an executor is responsible for submitting an estate inventory that details all assets that comprise a decedent’s probate (and potentially non-probate) assets. This may include accessing safe deposit boxes and digital assets and having personal property professionally appraised where appropriate.

9. File tax returns for the decedent and the estate.

The final personal income tax returns for the decedent for the year of death (federal and/or state estate and/or an inheritance tax return), and an income tax return for the estate for all income received by the estate while it’s open is typically required to be filed.

10. Pay the estate’s debts and taxes.

While laws differ by state, the costs to settle the estate are the first to be paid. These typically include professional fees such as legal fees, executor fees, and the cost of public filing fees. Next are funeral expenses and taxes, with all other claims (credit cards, utilities, etc.) following those. There are often outstanding final medical/hospital/care facility payments to be made as well. Careful records should be kept, and receipts should always be obtained.

11. Resolve creditor claims.

It is not uncommon for someone to die with outstanding bills, particularly heath care bills, as well as other debts or contractual obligations. An executor is responsible for evaluating these claims and, if valid, pay them. However, if the executor believes the claim is not valid, they may have to resolve or settle the claim, or even litigate it, if necessary. This includes cancelling “subscriptions” to the many services we pay for today.

12. Distribute assets to beneficiaries.

Executors must be certain that all estate debts, including outstanding bills, income, and estate taxes, have been satisfied before making a final distribution of estate assets to beneficiaries. In some cases, partial distributions can be made, provided the executor is confident sufficient estate assets remain to satisfy any outstanding liabilities.

13. Wrap up the estate to close out the probate process.

Prior to the complete distribution of the assets, it’s common for the executor to prepare an accounting and a “receipt and release” for each beneficiary to sign.

You can also review the above list in Fidelity’s article “What does it mean to be an executor?”

Estate beneficiaries may have to wait months, if not years, to receive a distribution from an estate, depending on the complexity of the estate’s assets, liabilities, and the timeliness of state and federal tax agencies. As an executor, you’ll bear the brunt of any anger from your siblings and other frustrated family members who are waiting for their inheritance—even when the settlement time isn’t within your power to control.

So before you question who was named…or who you should name as executor, you need to know that being an executor can be a very time-intensive role with legal ramifications. It’s important to understand what goes into the process and assess whether you’re able to make the commitment and capable of carrying out the responsibilities that the estate settlement process requires.

If you agree to take on the role of executor or if you were named executor without having agreed to do so, then you can also consider engaging a qualified estate planning attorney who understands the local rules and can administer the estate and complete the estate settlement process for you, as “agent for the executor”.

If you have any questions on the estate settlement process if your named as executor, or who you should name as executor of your estate, you can discuss this with your ACM Wealth Advisor or consult your attorney or tax professional about your specific situation.

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