RSM Resources

Who will be responsible for wrapping up your financial affairs and distributing your estate? Assigning an executor is chief among the many decisions in creating an estate plan.

In some circumstances, a spouse, adult child or other person stands out as the obvious choice to serve as executor. However, if you partially or fully own a company, participate in a partnership, or have other complex business or personal arrangements, you may need to look beyond close family relationships and designate a professional to assist or guide your executor.

Estate settlement can be complicated and time-consuming — often lasting one to three years — and involves numerous responsibilities. It’s important to choose a willing and trustworthy executor who possesses some business acumen, particularly related to taxes and investments.

Duties of the executor
The executor’s first task upon the death of the will’s originator is to locate the original signed will. The executor notifies the relatives and beneficiaries of their interest in the estate and uses funds from the estate to pay funeral expenses and living expenses for the deceased’s dependents.

Next, the executor must identify,inventory and secure (potentially maintaining or obtaining appropriate insurance) the assets of the estate. Responsibilities include maintaining real estate assets that are not jointly owned with a beneficiary and paying corresponding bills until selling or transferring the property to another party.

If the estate includes a business, the executor does not assume control of or manage the business, but ensures that ownership passes according to the succession terms the will stipulates. Depending on the size of the business and the number of owners, the owners typically prearrange a buy-sell agreement that addresses future ownership structure. The agreement, funded with life insurance, outlines a succession process and ultimately provides liquidity for beneficiaries, thereby reducing stress on the business.

In addition to administering the assets,the executor is responsible for discovering all debts the estate owes.This includes notifying creditors and filing taxes. The executor arranges for the preparation and filing of final income- and estate-tax returns for the deceased, and the estate pays any taxes due. Debt payment may require liquidating assets, such as selling stocks or bonds.

The executor’s final duty is to distribute assets. With the appropriate financial knowledge, the executor also provides advice or guidance on investing inheritances.

Executors should understand that, in accepting the position, they’re also assuming fiduciary responsibility, or legal obligation, for acting on the wishes of the deceased. However, the probate court will supervise them, requiring them to report back and seek approval before distributing assets. Unpaid executors, acting in good faith, are far less likely than professionals to be held liable for any financial or legal negligence.

Guiding the executor
If you’re unsure whether an immediate family member has the ability to serve as executor of your estate, you can set up dual or co-executors.For example, name one executor for your business and another for your personal affairs. Designate a professional to assist your executor, or have a bank serve as your executor.

Your attorney, investment manager, tax advisor or the professional who helped create your estate plan can provide executor support. You also can designate a bank serving as your executor to work with the professional of your choice for guidance.

Why select professionals to assist your executor or serve as executor? They can bring independence, impartiality, lack of emotional bias, knowledge of your financial affairs, and general expertise in handling estates and trusts.

A family member who serves as executor will often waive any executor fee, but expect a professional to charge an hourly rate, which the estate pays.

Following are additional considerations when choosing an executor:

Identify an alternate executor. If selecting an individual, instead of an institution, as your executor, it’s in your best interest to identify at least one alternate. The executor can refuse the assignment and resign at anytime, or may predecease you. If the estate needs an alternate but the will does not designate one, the court will appoint someone.

Handle family issues. If you anticipate controversy or conflict among your beneficiaries, experts recommend selecting an executor who is familiar with the issues. You have the option of writing a letter of guidance to your executor. It’s not a legal document but may help the executor understand your wishes. A professional, particularly an attorney,likely will abide strictly by the wording of your will and not try to interpret what you may have intended.

Choose a guardian for minor children. If your children are younger than 18, your will should designate a guardian. The guardian and executor do not have to be the same person. The executor is responsible for following, or implementing, the custody plan your will establishes.

Updating your estate plan
The most frequent estate-planning mistake is to file plan documents without reviewing them periodically. For example, if your will becomes outdated, your executors may no longer be available, and your beneficiaries may have to pay more taxes than necessary.

Experts recommend reviewing your estate plan every three years to keep up with changes in estate-tax law. Also revise your plan, if necessary, upon significant life events such as the birth of children or grandchildren, death, divorce, or a change in business ownership.

A regularly updated, expertly managed estate plan can provide great comfort to you and your family. You’ll know your dependents’ needs will be addressed and helpful guidance will be available during a difficult time.