Estate Planning: Choose an Executor with Time and a Wide Range of Skills

When it comes to estate planning, choosing an Executor should be an important part of the process, not an afterthought. Depending on the complexity of the estate, it can be a time-consuming, demanding responsibility, and the person who assumes this role should have a broad range of skills and be comfortable working with lawyers, accountants and investment professionals.

The Executor’s role 

Executors are responsible for settling estates. Families most often name one of their children to act as Executor, but it can be the family’s attorney or a fiduciary. A financial institution, trust company or bank may also serve as co-Executors with an individual, such as the decedent’s spouse, child, advisor or other person.

An Executor performs five basic functions: 

• Locates, collects and has responsibility for the estate’s assets until they are distributed to the beneficiaries.
• Determines and raises the cash needs for the estate.
• Pays the decedent’s funeral expenses, debts and estate administration expenses.
• Handles tax matters.
• Distributes the remaining assets in accordance with the terms of the Trust.

6 qualities to seek in your Executor

1. Integrity

A primary consideration should be honesty and integrity of the individual or financial institution.

2. Knowledge of Financial Matters 

Executors should understand financial matters because they are responsible for locating, collecting, and if necessary, taking physical possession of assets owned by the decedent. They must also secure, insure and appraise those assets. If there are debts, Executors must also liquidate assets to pay debts, taxes and the estate’s administration expenses.

An Executor’s initial effort is performing an investment analysis. Determining what to retain and what to sell will establish how the estate’s cash needs will be met. A trust company or bank has experienced staff to help with this analysis. It also may be that the decedent’s financial advisor will be the one who can most efficiently make recommendations about the best way to manage the estate’s assets.

3. Experience with tax matters 

Executors should be experienced in tax matters because they prepare and file the decedent’s final federal and state personal income tax returns. Executors must also prepare and file income tax returns for prior years and, when appropriate, gift tax returns, if those returns were not filed.

For those estates with assets exceeding $5.49 million (nearly $11 million per couple) in 2017, an Executor is responsible for filing a federal estate tax return and, depending upon the jurisdiction, a state estate or inheritance tax return. The federal estate tax return is a complex and comprehensive return, due nine months after the date of death. Since the estate is a separate taxpayer, an Executor is also required to prepare and file annual income tax returns for the estate. A knowledgeable Executor will also propose a comprehensive tax plan to minimize the income taxes paid by the estate and its beneficiaries. On complex tax issues, the Executor may work closely with a bookkeeper or CPA.

4. Impartiality 

Naming a family member or friend as your Executor may place that individual in an uncomfortable position, and could cause a conflict of interest, especially in those cases where the Executor is also a beneficiary of the estate. The Executor may be faced with a number of decisions, referred to as “elections,” on the federal and state estate tax returns. The exercise or non-exercise of these elections determines the amount of taxes paid, the source of payment of those taxes and the amount of taxes deferred. A family member or friend who acts as Executor must be able to make these decisions without favoring one beneficiary over another.

5. Availability

Depending on the complexity, settling an estate can take several years or more, so an Executor must be both willing and able to make a long-term commitment.

The information gathered and the relationships developed during the estate settlement process can be carried over to the administration of the Living Trust. Since a typical estate plan may provide for the creation of a trust or trusts which can last for 70 years or longer, an established trust company or bank can provide uninterrupted services to a family for several generations.

6. Financial responsibility 

The settlement of an estate is a full-time job for the estate administration department in a trust company or bank, which is also subject to both internal and external audits that are regulated by both state and federal laws. An individual is not subject to these regulations and audit procedures, nor does he/she have the resources that a bank or trust company has to deal with the complexities that may surface.

Carefully consider the responsibilities and demands of being an Executor

Selecting the best possible candidate to act as Executor of your estate should not be based on family relationships or your long years of friendship, as happens in many cases. This has nothing to do with loyalty or popularity; it’s a demanding role requiring someone who understands complex financial matters who can easily interact with financial advisers and CPAs. It also requires someone who has the time to devote to what can become a prolonged estate-settlement process.

If you have questions about estate planning, the role of a Living Trust and choosing your Executor, contact DP Legal Solutions.