Veronique Horne, J.D.
06.21.2018 | Wealth of Insights
There are a few truly important decisions people make in their lives. Choosing the right people to carry out their will is one of them. No matter how well developed an estate plan is, ensure its proper execution by naming the right executor and by providing the tools they need to succeed. It starts with understanding and defining an executor’s role.
Whether choosing to nominate a person, persons, or an institution, there are many factors that should be considered when making this important decision. For example, the age and health of the executor factors into whether they will have the longevity to carry out one’s wishes for a significant period of time. Therefore, it is essential to consider the following before choosing an executor:
- Is the executor geographically viable, and has state law been considered for those that are nonresidents?
- Does the executor have a reputation for being financially responsible, stable, and trustworthy?
- Will the executor have the ability to deal with disgruntled or impatient beneficiaries, or to act as the referee between beneficiaries that do not get along?
- Does the executor have any potential conflict of interest (i.e., it is better to select someone that does not stand to gain from the disadvantage of a beneficiary)?
Administering an estate can be both time consuming and costly. Choosing an executor who has a combination of financial expertise, good communication and relationship skills, and can do the work at a reasonable price are all important factors. However, the executor does not need to do everything themselves. Legally, executors are responsible for the administration of the estate assets. However, they may hire accountants and/or lawyers to help with estate administration and preparation of tax returns, as well as hire an investment advisor to help manage the estate assets prior to their distribution to the beneficiaries.
Given the nature of the responsibility, individuals usually indicate in their will what commission (i.e., statutory or another amount) should be paid to the nominated executors. Even for a small estate where mostly liquid assets are left to a surviving spouse or immediate family members, the role of executor is still a job that requires time and effort.
For larger estates, consider a professional who was involved with creating the estate plan and estate assets to be administered (i.e., estate planning lawyer, accountant, corporate fiduciary, investment advisor) and who has familiarity with fiduciary responsibilities. The larger the estate, the more potential for conflicts— especially if assets, including operating businesses, are a cross section of liquid assets, tangible property, and business investments. It is prudent to consider using a paid executor to handle conflict and relieve the burden on a spouse or other family members for administering the estate, or ongoing trusts resulting from the estate.
The nominated executor(s) will hold many responsibilities. They will initially be charged with the task of seeing that the will is accepted for probate by a Surrogate Court. After probate, the executor will receive Letters Testamentary, which give the executor the authority to act. They will then be required by law to carry out the following duties:
- Investigate and collect the assets;
- Protect the estate property during the estate’s administration;
- Prepare an inventory of the estate’s property and any other document required by a Surrogate Court;
- Liquidate assets (if necessary) to pay taxes, creditors, or beneficiaries;
- Pay any known debts and valid claims against the estate (including income and transfer taxes);
- Represent the estate in claims against others;
- Prepare all necessary tax filings;
- Distribute the estate property to the beneficiaries per the decedent’s will; and
- “Account” to all interest parties.
Executor(s) will be granted certain powers to act, either by statute and/or under the terms of the will. Such powers may include the following:
- Choose certain personal property for distribution to beneficiaries;
- Invest estate property during the estate’s administration;
- Employ and compensate professional help (i.e., attorneys, accountants, investment advisors);
- Collect and retain certain kinds of property in the estate for investment;
- Continue to run decedent’s business, where special expertise may be needed;
- Access and control all assets held in digital or virtual form;
- Mortgage, lease, buy, and sell real property;
- Make loans/advances of estate property;
- Borrow money against estate property; and
- Act and make any and all decisions or elections under state law or the Internal Revenue Code on behalf of the decedent and his or her estate.
Think and plan long term — who you choose to be your executor today could turn out to be a very unwise choice tomorrow. Revisiting this choice after major life events and/or circumstances may help to avoid such situations. Seek the nominated executor’s approval of the nomination and discuss important documents and financial information to make navigating the administration of the estate less difficult.
Questions? Contact Veronique Horne at 212.331.7631 | firstname.lastname@example.org or reach out to your Berdon advisor.
Berdon LLP New York Accountants