If you’re like most people, you aren’t eager to spend time thinking about what would happen if you became unable to direct your own medical care because of illness, an accident, or advanced age. However, if you don’t do at least a little bit of planning — writing down your wishes about the kinds of […]
Role of Executor
An executor is an individual responsible for managing the affairs of a your estate. You can no longer own property, so everything owned at the time of death must be legally transferred to living beneficiaries.
This is where probate comes in. It is the legal process of making sure your debts and liabilities are paid from the cash and assets left behind, then transferring ownership of what remains to beneficiaries.
The Probate Process
Probate can last for months or even years in some cases if an estate is extremely complicated. The executor is responsible for managing the estate throughout the entire process. This typically involves seeking approval from the probate court before taking some actions, and it can involve numerous court filings and some court appearances.
The executor must deal with beneficiaries, heirs, and professionals, such as accountants and appraisers. An executor’s duties throughout probate occur in somewhat chronological order.
Submitting the Will
The executor’s first order of business is to submit your last will and testament to the probate court for review and acceptance. This officially begins the process of opening the probate estate.
The executor must then attend a hearing where a judge will determine if the will is valid and meets the letter of the law in that state.
This hearing also provides an opening in most states for individuals who have an interest in the estate to contest the will. They can then open a separate lawsuit to convince the court that the will is invalid and that its terms should not be honored.
Appointing an Executor
People typically name their executors in their wills, and the judge will almost always appoint these individuals unless beneficiaries object, which also requires a separate lawsuit.
Otherwise, if the will is silent or there is no will, a judge will usually appoint a close family member to oversee the estate. Many states have statutes citing which relatives qualify and in what order of preference.
The judge will grant the executor authorization to act on behalf of the estate through “letters testamentary” or “letters of administration.” Executors provide these documents to entities such as insurance companies or financial institutions to confirm that they have the legal authority to act on behalf of the estate.
The executor must first identify all your assets and gather them for safekeeping if feasible. This is where the Yup I’m Dead…Now What? Planner is extremely valuable and saves them from having to hunt down these items. They can alternatively turn to the book for guidance.
Without this Book, this process can be a literal hunt for assets, such as bank and investment accounts, insurance policies, or safe deposit boxes. The executor will typically go through your personal papers and interview family members in an effort to track down all accounts that might exist.
The executor must then maintain the assets when necessary after they’ve been gathered and identified. This can involve making sure that insurance policies don’t lapse, and that mortgages, car loans, and other installment loans are kept current.
The estate’s money is used for this purpose. Survivors don’t have to come out of pocket. The executor will set up an estate bank account, and your personal bank accounts and any other cash assets are then transferred into this account so the estate can operate.
The executor must submit an accounting of all your assets to the probate court in most states.
Making Notifications of the Death
The executor will make all necessary notifications of the death, including to beneficiaries named in the will if they’re not already aware. This might or might not be a formal process.
Services, subscriptions, and benefits the decedent was receiving must be contacted and cut off as well. Credit cards should be officially canceled, and the Social Security Administration must be notified if the decedent was receiving benefits.
Paying your Debts
Your creditors must be notified because the estate is responsible for paying all final bills and debts.
Family members, beneficiaries, and heirs typically aren’t liable for your debts, no matter what creditors might insinuate. An exception exists if they’re cosigners on a particular loan or account, and for spouses in some community property states.
The executor must first identify your creditors, often through the same methods used to pinpoint the assets. The executor must then send them notice that the decedent has died, and most states also require running a newspaper notice to ensure that unknown creditors are also alerted.
Dealing With Taxes
The executor is also responsible for having all assets valued for tax purposes. This determines whether any estate taxes are due. An executor has two options here: Date of death values can be used, or the executor can elect to use an alternate valuation date six months later.
The Internal Revenue Code includes specific rules for using an alternate date, and this option can only be used for assets that have not been sold or passed on to heirs within those six months. If so, that property would be valued as of the date of distribution.
As a practical matter, an estate would have to be pretty large to be liable for estate taxes. Only those with values exceeding $11.4 million are subject to an estate tax on the balance over this amount for deaths that occur in 2019. This exemption is expected to be marginally adjusted upward in 2020 to accommodate inflation.
Closing the Estate
Finally, the executor will submit an accounting to the court detailing all actions and transactions made on behalf of the estate. The judge will then grant the executor authority to distribute the estate’s remaining funds and property to the beneficiaries named in your will, assuming the accounting is approved.
Is the Executor Paid for All This?
It’s quite a job, and yes, an executor is usually entitled to payment. How much can depend on the state in which you die and where the will is being probated.
Many people include instructions for their executor’s compensation in their wills. Courts typically honor these provisions if they negate state law, and state law takes over if the will is silent as to payment.
As a practical matter, many executors who are closely related to the decedent waive payment, particularly when they’re also beneficiaries under the terms the will and the estate isn’t complicated.
The executor’s payment comes out of the estate, decreasing the amount that’s left to be transferred to beneficiaries. Payments for services by the executor are taxable income to that individual, whereas cash inheritances generally aren’t taxable, at least not at the federal level.
Due to these factors, a larger inheritance is often the preferred method of payment.