Choosing Your Executor
Before you can select an executor, you need to know what an executor does. The executor is the person responsible for carrying out the terms of your will. The duties are many and varied.
When you die, your executor must first probate your will and be appointed as executor by the local Register of Wills. Then the work begins. The executor collects all your assets and values them, which may require hiring qualified appraisers. The executor opens a bank account in the name of the estate and transfers all financial assets into the name of the estate. The executor pays any bills you left behind and the costs of your last illness and funeral expenses.
It is the executors responsibility to file and pay all taxes. The tax responsibilities include your final federal and state income tax returns, federal estate taxes, state inheritance or estate taxes, and federal and state income tax returns for the estate. If there is property that is included in the taxable estate but does not pass under the will (such as life insurance, pension benefits, or joint property), the executor must also value these assets, report them to the tax authorities and pay the tax attributable to them. In some cases the executor must collect taxes dues from the recipients of this property.
There are various tax elections and planning techniques which may benefit the estate. Some of these are disclaimers, choice of a fiscal year for the estate, elections for the deductibility of administration expenses, elections regarding the taxation of Series E Bond interest, election of marital deduction treatment, valuing real estate as "special use" property, and installment payment of estate taxes. Obviously, a lay person acting as an executor cannot be expected to know about all these choices and will need competent advice to make the appropriate decisions.
It is the executor's duty to preserve the value of the estate and administer it for the benefit of the beneficiaries. The executor collects income from investments, business interests, and real estate. The collected assets must be invested prudently and, in many cases, estate assets must be sold and these sales are handled by the executor. The executor accounts for all transactions and when all creditors have been satisfied and all taxes paid, distributes the estate in accordance with the terms of the will.
An executor is entitled to be compensated for the very substantial work and responsibility involved. The amount of the fee will depend on the amount of work performed. Sometimes an individual executor will do a tremendous amount of work and sometimes he will hire professionals who will do almost all of the work. And of course, in some cases, the work is shared.
Usually the executor engages the services of a lawyer and possibly an accountant to advise them of their duties, the due dates for various actions, assists with the preparation of tax returns, resolution of disputes, making tax elections, and so forth. The taxation of trusts and estates is a very complex matter and a trained professional can often save the estate substantial dollars in taxes with good post-mortem tax planning.
You may have an estate which, for one reason or another, is complex. The estate may hold real estate, closely-held stock, or a variety of business interests, and post-mortem tax planning and liquidation of business interests may be part of your executor's "job description." In such cases, you might consider naming a professional executor such as a bank or trust company, or a private professional executor. A professional as well as family member, of course, may serve as co-executors.
There are some practical considerations. Does the person you prefer live so far away that carrying out the duties of an executor will be inconvenient and excessively costly? Is the individual who seems most competent also abrasive and impatient? Is he or she likely to alienate the beneficiaries or be seen as biased because of ancient family feuds? Since an executor has a number of responsibilities, some of which are time consuming and demanding, it makes good sense to discuss with a person whether he or she is willing to be your executor. Both you and the potential executor need to realize that an executor can be held personally liable by the estate beneficiaires if errors are made or the estate is negligently handled. Beneficiaries may sue an executor to recover these losses. In most cases, individuals name capable and honest executors who fulfill their responsibilities with integrity and conscientiousness; nevertheless, we have all heard horror stories of situations where an executor and beneficiaries are at odds with each other. The executor should be in a position to expend time and energy in this role to handle considerable detail, to keep good records and to expect the bureaucratic wheels to turn slowly at times. He or she may often need to exercise patience and to explain to beneficiaries what steps are required to administer the estate. If the executor has a realistic outlook and realizes that sometimes settling an estate is neither quick nor simple, the process will be considerably more tolerable!
This is the main point: View the executor's position as a job, one for which certain skills and characteristics are essential. Think carefully about who the right person is for that job, let that person know that he or she is your choice, and hope that the answer is "Yes"!
