At some point, you may be asked to serve as the executor of someone’s estate. If so, congratulations: That person clearly thinks highly of you. However, you might not want to say yes immediately. Being an executor is a task that comes with some serious responsibilities. Additionally, you could face some risks if you mismanage your duties.
A better idea, in our opinion: Learn what the job likely entails so you can make a clear- headed decision about whether to accept the role.
The list of duties you will be responsible for as an executor can vary, sometimes significantly, on a state-by-state basis. But just a few of the most common include:
- Find and file the will. If you’re confirmed by the probate court, the judge will grant you authorization to act on behalf of the estate through certain documents. You’ll provide these documents to financial firms, insurance companies and other institutions you deal with during the process.
- Set up an estate bank account. Expenses of the deceased should be paid using money from that person’s estate. You will set up an estate bank account, to which the deceased’s bank accounts and other cash assets will be transferred.
- Identify the assets and liabilities. One of your biggest roles is to identify and find all the assets of the deceased person. This can literally be a hunt that requires digging through old papers, storage bins, safe deposit boxes and so on—sometimes in multiple locations. This part of the process might also involve getting physical items (jewelry, artwork) from family members or others who are currently in possession of them. Note: Some assets require probate, while other assets are nonprobate.
- Handle the taxes. You’re also responsible for having the assets valued for tax purposes, to determine whether estate taxes are owed. You’ll prepare and file a federal and/or state estate tax return, and perhaps an estate income tax return, as well as a personal income tax return covering the final year of the deceased’s life.
- Distribute bequests to the beneficiaries. This task comes after the bills and creditors have been paid, and after the beneficiaries sign a release saying that you’ve done your job as executor satisfactorily. At that point, you will see that the beneficiaries get what they’re supposed to according to the will. It’s possible that you’ll be involved in helping fund trusts that are required by the will.
The upshot: The process is time-consuming and could take up a significant chunk of your life (depending on the complexity of the estate).
POTENTIAL RISKS
Being an executor can expose you to lawsuits and put you into the middle of family fights. There are many legal and fiduciary responsibilities that go with the position. Even if you’re extremely financially savvy, you may not be at all familiar with the elements of what it takes to be an effective executor.
Some of the key risks or hurdles you could encounter include:
- Personal liability exposure. You must pay creditors and any tax bills before distributing inheritances to heirs or other beneficiaries. Flip the order, and you can be held personally liable for payments owed. So be crystal clear with beneficiaries about the steps you must take before they get their assets. And generally, all beneficiaries should receive distributions at the same time in a pro rata fashion.
Family members named as executors, for example, may not have the knowledge to ensure the process goes smoothly. The consequences can include exposing the estate to litigation as well as increasing the estate’s tax liability.
Executors need to protect the value of the estate, as well as themselves, legally. An executor has to, for instance, ensure the financial health of the estate. Say a stock portfolio, houses and artwork are part of the estate. It is important to protect the value of these assets before they are transferred to heirs. Failing to do so adequately can lead to the executor breaching their fiduciary responsibilities—and potentially create personal liability exposure. - Time commitments and constraints. Depending on the estate, the condition of the paperwork and how close you are geographically to the deceased, you may end up spending an onerous amount of time and effort tracking down documents, closing accounts, claiming benefits, dealing with tax forms and the like. Keep in mind that you may also need to meet strict deadlines on certain tasks, such as filing tax returns and filing the will.
- Angry heirs. As executor, you’ll need to secure the estate’s assets. That could mean, for example, that someone in the family will need to wait to get their hands on money or other items they want—which, in turn, can create tension between you and that person. A good approach is to gather up and safeguard the deceased’s assets as quickly as possible and explain to heirs that legally you need to protect these assets for the time being. What’s more, if someone removes items from their parent’s home that are bequeathed to another person, the heir whose items were taken could potentially sue you. One of the most effective ways to mitigate risks and confrontations is to keep extremely accurate records of the actions you take as executor.
The bottom line: Think carefully about what it takes to be an effective executor—and whether you have the time, knowledge and temperament to do the job—before simply agreeing to take on this important role.
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