What does an executor do? Here is a checklist of the most important financial tasks
When a loved one who was financially well off passes away, there will likely be tax issues. You may be the heir responsible for their handling, and large sums could be involved. In three previous columns, I explored potential tax considerations. See here, here and here.
This column discusses other important financial issues. Here is.
What is the role of the executor?
When a loved one (the deceased) dies, someone must take care of the financial aspects of the estate. This person can be identified in the deceased’s will as the executor of the deceased’s estate. If a family trust holds the assets of the deceased, the trust document will appoint a trustee. If there is no will or trust, the probate court will appoint an administrator. In each of these scenarios, we will call this person the executor to keep it simple. That person could be you. If so, please read this.
The task of the executor is of a financial nature: to identify the assets of the succession, to reimburse the debts and to distribute the remainder to the heirs and beneficiaries. The executor is also responsible for filing tax returns and paying taxes payable.
As an executor, you may feel morally obligated to do a lot more. We’ll talk about what “much more” can include.
Do you need a professional executor?
May be. If the deceased was wealthy with complicated financial affairs, hiring a professional executor might be a good idea for this reason alone. It takes some heat away from you.
Another situation in which a professional executor could be advised is that of warring or simply unreasonable heirs. This is not unusual in families of means. For example, an heir who has lived essentially off-grid in New Mexico for 20 years might think the soon-to-be-market homestead is worth $ 10 million. The other heirs, much closer to the action, know that it is not worth more than $ 5 million. The off-grid guy thinks he’s wronged and threatens to sue everyone and their brother. Literally. Or a financially troubled heir may demand their share “cash now”, even if this is not possible. A professional executor can undo such nonsense without getting dragged into the mud. A good estate planning lawyer can recommend a good professional executor.
Whether or not you hire a professional executor, you may feel morally obligated to deal with many things on your own. Keep reading.
Executors must adopt a ‘pproject management mindset
In the “financially comfortable death” scenario, the financial aspects of the estate liquidation and all the related tasks can involve a lot of tedious work. The dollar stakes can be high and there may be deadlines that increase the pressure. So you need to stay focused, prioritize, and stick to them. In other words, you are in the project management fashion, and some people are better at project management than others. Even if you’re pretty good at it, personal experience suggests that most of the tasks you do as a project manager will take about two and a half times as long as you think. If you work under this assumption, you won’t be far.
Take steps to avoid homologation
Hopefully not. Many affluent people and married couples place their most valuable assets in a revocable trust (AKA family trust, living trust or transferor trust). Reason: to avoid homologation. If the deceased has not taken this step, the approval is in the cards. Probate is a legal process that includes proving in court that the deceased’s will (if any) is valid, identifying the deceased’s assets and valuing them, paying the estate’s debts and taxes, and and finally the distribution of the remaining assets as specified in the will. If there is no will, the remaining assets must be distributed in accordance with applicable state law.
Probate usually involves a lot of paperwork and a few court appearances by attorneys. It can get expensive. The estate pays legal fees and related court costs. Although the additional cost of probate is already high enough, it can also delay the liquidation of the estate for a long period of time. Heirs may be unhappy to hear this, and some may start looking for someone to blame. Not good!
Fortunately, some assets can be passed on to legitimate heirs and beneficiaries without going through probate. Examples include real estate held as joint tenants with right of survivorship (JTWROS), life insurance death benefits if designated policy beneficiaries deceased, and retirement accounts if deceased beneficiaries designated for accounts.
Obtain death certificates – at least 5 originals
For various reasons, you will need a death certificate to prove that the deceased person is deceased. You may need originals for some purposes. Obtain at least five originals from the applicable source. Get more if the deceased had a lot going on, like real estate owned by multiple jurisdictions. If in doubt, get more originals than you think you need.
Consider updating a married couple’s revocable trust
If the deceased was married, a revocable trust (AKA family trust, living trust or transferor trust) may have been put in place to hold the couple’s most important assets and thus avoid the probate of those assets. Both spouses are generally appointed co-trustees. If this is the case, the trust document may need to be amended to remove the deceased as a co-trustee and perhaps add a new co-trustee (usually an adult child) to help the surviving spouse manage the trust assets. This new co-trustee can be you.
At the same time, consider whether the trust’s beneficiary and distribution provisions reflect current reality. If the trust was created years ago, changes are likely needed. The designated beneficiaries of the trust may be deceased, joined cults, married someone the surviving spouse despises, or greatly disappointed the surviving spouse in several ways. There may be grandchildren who were never added to the list of beneficiaries. There may be a major beneficiary who has proven to be financially irresponsible and whose share needs to be restricted to protect them from themselves. You got the idea.
Consult with a good estate planning lawyer to make any necessary changes to the trust. Do it quickly, because no one knows how long the surviving spouse will be with us. If the surviving spouse dies before the desired changes are made, the trust – with all of its unresolved defects – becomes irrevocable. Not good!
The bottom line
I hope this column and the ones that came before it will give you an idea of what you might be faced with when a loved one dies. The work is all the more important when this person was “financially comfortable”. Stay tuned for the next column, which will be the last in this series.