Maroto & Associates

One of the most important decisions you’ll make in the process of estate planning is picking the person(s) (or institution) to be in charge of your assets after you’re gone. That means the executor of your will and the trustee of any trusts you set up. (Another important decision, choosing a guardian for your minor children, is discussed else where on our website; choosing an agent for your power of attorney is also discussed)

The tasks of each of these fiduciaries (people who are legally obliged to act in your interests) differ slightly, so we’ll discuss the factors you should consider for each seperately. You can choose more than one person to fulfill these duties: co-executors or co-trustees. This is a way to ensure that at least one person has legal or financial expertise and one is close to the family. If you choose this course, be sure to pick people or entities that can work together. You must also choose a successor in case your first choice dies or is unable to serve.

Choosing The Executor

Who will be the person or institution responsible for administering your estate through probate?  Hopefully it’s the person that is the most financially responsible, stable, and trustworthy.

The law requires an executor because, ultimately, someone must be responsible for collecting the assets of the estate, protecting the estate property, preparing an inventory of the property, paying valid claims against the estate (including taxes), representing the estate in claims against others, and, finally, distributing the estate property to the beneficiaries. These last two functions may require liquidating assets; that is, selling items like stocks, bonds, even furniture or a car to have enough cash to pay taxes, creditors or beneficiaries. The will can impose additional duties not required by law on the executor such as choosing beneficiaries or distributing personal property, even investing funds.

Sounds like a lot of work, doesn’t it? It can be, and some of it can be complicated. However, the executor doesn’t necessarily have to shoulder the entire burden. He or she can pay a professional out of the estate assets to take care of most of these functions, especially those requiring legal or financial expertise, but that will reduce the amount that goes to the beneficiaries. Therefore, handling an estate is often a matter of balancing expertise, convenience, cost, and so on.

The Paid Executor

There’s no consensus, even among lawyers, about who makes the best executor; it all depends upon your individual circumstances. As mentioned, one approach is to appoint someone with no potential conflict of interest–that is, someone who doesn’t stand to gain from the will. A “Paid Executor”.  For this reason, many people avoid naming family members or business partners. This helps avoid will contests from disgruntled relatives who might accuse the executor of cheating. If you have several beneficiaries who don’t get along, you may want an outside executor who’s independent of all factions. The larger the estate, the more the potential for conflicts, and the more you should consider naming an outside executor. You should also consider the possibilities of conflicts of interest if you have several beneficiaries. There are sometimes reasons for choosing a paid executor instead of your spouse. Your spouse may be incapacitated by grief, illness, or disability. Nonetheless, he or she as executor will be personally liable for unpaid estate taxes and fines for late filings, even if he or she has delegated such tasks to a lawyer.

Furthermore, since the executor must gather all the estate assets, your spouse may be faced with the odious duty of retrieving money or property you loaned to other friends. If you think your spouse may not be up to the job (considering that he or she may also be saddled with sole responsibility for any minor children), you might choose a lawyer or other professionals, even though it means paying a fee. Remember, this is a job that, primarily because of tax procedures, can take more than three years of involvement, though most estates take far less and in any event the first few months are by far the hardest.

For larger estates, it’s often advisable to use a lawyer or a bank. A complicated estate that involves temporarily running a business often demands an institutional fiduciary, such as a bank, that can call on the advice of lawyers, tax experts, accountants, investment counselors, even business administrators; it’s impartial and immortal.

The Unpaid Executor

But you can also consider an “Unpaid Executor”. Most of the time, where there is little possibility of a contest, the fees that lawyers and other paid executors charge may make it too expensive to hire such outsiders. So many people choose a friend or family member who will waive (refuse) the executor’s fee to which he or she would be entitled–and which comes out of your estate.  For people whose assets amount to less than half a million dollars or so, your spouse or a mature child or children may be your choice. This person will naturally be interested in making sure the probate process goes as quickly and smoothly as possible.

One compromise popular with some families is to appoint co-executors, such as one personal friend and one person with business expertise, and specify which executor will be responsible for which duties. Or, to prevent family dissension, your will may provide that all three of your children serve as co-executors. Co-executors can be a good idea if the main beneficiary lives in another state and it would be inconvenient for him or her to make frequent trips to handle clerical details; you could appoint another relative or friend who lives in the same city as the one in which the probate court is located, to handle local details.

What Should I Look For In An Executor?

It’s important to be sure the executor is capable of doing the job. Think of the appointment as employment–not a way to reward (or punish) a friend or a relative. The quality most desirable in an executor is perseverance in dealing with bills (especially the hospital, Medicare, ambulance and doctor charges incurred in a last illness).

These often require a lot of paperwork, and payment first, then reimbursement from insurance companies. Pick someone who has the time and inclination to deal with bureaucrats and forms. Also, the executor may have to cope with relatives who may be wondering why it’s taking so long to receive their inheritance, or why their bequests are smaller than they expected. This can happen if, for example, the dead person’s money was aggressively invested in the stock market, and those stocks nose-dived after he wrote the will.

The executor will probably hire a CPA or lawyer to handle the tax returns–the income tax return for income accrued before your death, and the estate tax return as well as estate income tax return for income taxes incurred after your death. If the estate includes stocks or other investments, the executor may have to hire an investment advisor, particularly if the value of the estate has changed substantially because of changes in the market.

In most estates, no significant legal expertise is required to serve as executor; the issues are all financial. The executor will generally work with a lawyer to probate the will. Estate fees paid to the lawyer may be set by law (some states specify an hourly rate, some a fee based on a percentage of the estate). The lawyer handles all the court appearances and filings while the executor provides information and input.

The executor cannot be a minor, convicted felon, or a non-U.S. citizen. And, while all states allow nonresidents to act as executors, some require a nonresident to be a primary beneficiary or close relative; others require a surety bond or require that the out-of-state executor engage a resident to act as his or her representative.

Whomever you choose, be sure to provide in your will for a replacement executor in case the original executor dies or is unwilling to act. Otherwise the court will have to choose someone.