Episode 423: Role of the Executor

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Executors are individuals that are named either in a final will and testament or by the courts, following an estate owner’s death, and are responsible for carrying out the wishes of the decedent according to the instructions of the will. Once named, the executor assumes administration of the estate, its assets and the decedent’s will. In this way, an executor serves a double role as fiduciary and administrator.

It can be an honor to serve as an executor as the position implies trust, but it also comes with many responsibilities. Often the responsibilities are so great that executors do not have the time or expertise to handle them. In those cases, probate attorneys and accountants can provide expert guidance and assist with case management.

 What Are an Executor’s Responsibilities?

An executor is entrusted by the decedent, or the court, to carry out the decedent’s wishes. This includes proper management of the decedent’s estate.

Some of the executor’s duties include:

• Gathering all documentation relevant to the estate’s finances.
• Submitting the will to a probate court.
• Communicating with anyone who has an interest in the estate. This could include heirs and creditors, as well as agencies like the Social Security Administration.
• Taking an inventory of the estate’s assets and presenting it to the court.
• Ascertaining fair market value (FMV) for all inventoried assets.
• Determining which assets are required to pass through probate.
• Alerting all beneficiaries, heirs, and creditors to the probate process.
• Managing the estate’s assets and transferring them to beneficiaries.

Executors can be paid for their time, but in many cases where the executor is a family member, executors will forego payment for their executive duties as the compensation must be declared and is still taxable. Furthermore, any compensation paid to the executor is paid out of the estate’s assets. In many cases, executors are also beneficiaries of the estate, and taking payment would reduce the amount left to disperse to themselves as a beneficiary. The duties of an estate executor can be a major undertaking . Beyond simply taking inventory and dividing and distributing property, the executor must create a tax ID number for the estate, and must file estate tax returns. For large estates, it is common work with an accountant and probate attorney to ensure that all assets are properly accounted for and forms are filed on time.

Challenges That Executors May Face During Administration

Although some estates are small and simple enough to manage without difficulty, executors regularly face additional complexities, such as:

• Discovering assets that may not be clearly defined anywhere in the decedent’s documents
• Establishing accounts just for the estate
• Dealing with potential conflicts of interest
• Resolving outstanding lawsuits or other legal actions involving the estate
• Mediating conflict between beneficiaries
• Demonstrating validity of all documentation to the court
• Resolving confusion or uncertainties in the will
• Handling complex assets or investments, such as business ownership

If any of the above are present, an accountant or probate attorney can advise the executor on making legally defensible decisions. Probate attorneys can also walk the executor through the process and ensure it is properly managed.

For example, a client we recently represented was the executor of an estate that included a condo. While selling the condo, the court disputed whether it was being sold at FMV. We had to reach out to an independent appraiser to prove to the court that the transaction met FMV standards. Our firm regularly encounters and resolves roadblocks like this.

Executors: Independent vs. Dependent Administrators 

Executors may be considered independent or dependent administrators of the decedent’s estate and affairs. Here are the differences between the two:

 

• Independent administrators – Independent executors are either named in the will or are appointed by the court if all beneficiaries agree with the decision.
  In Texas, independent administrators are given additional latitude to engage in transactions on the estate’s behalf.
  Independent administrators must submit an inventory of all assets, a value appraisal of those assets, and any claims against the estate. Once this is provided, the court’s involvement will be minimal. Essentially, the executor will have the agency to pay creditors and transfer assets to beneficiaries without notifying the court of every decision.There are limitations in place to prevent independent administrators from breaching their fiduciary duty. For instance, the court may appoint a lawyer to represent any heirs that are not present during the probate process, to ensure they are fairly considered.

   

• Dependent administrators – Dependent administrators are usually appointed by the court if no executor is named in the decedent’s will, or if the decedent died intestate (without a will).Dependent administrators must receive court approval before finalizing any transactions between the estate and other parties, including beneficiaries, creditors, or financial institutions.

  The added court oversight can slow the administration process down, but it’s helpful for contentious or complex cases. Dependent administration is also recommended if the executor is inexperienced in estate management or has potential conflict of interest issues.

 

Three Things to Remember if You’ve Been Named an Executor 

Our firm has assisted many executors entrusted with high-value estates. Along the way, we’ve compiled a short list of important things to remember when being named an executor, including:

 

• Bring everything to the court at the same time – Dependent administrators have to verify every estate-related decision with the courts. Given the court system’s procedural nature, this can be time-consuming. As such, we advise our executor clients to consider every possible decision before approaching the judge. If you can get everything approved at once, it will save multiple trips to the courthouse and prevent bottlenecks from emerging while managing the estate. 
• Observe a clear division between estate and personal accounts – Prior to and throughout the probate process, the executor will need to prove they are properly managing the estate’s assets. That means clear accounting. To establish this accounting transparency, it’s vital that the executor create a separate set of bank accounts just for the estate. This will make it easier for the executor to organize the estate’s finances and to establish a clear accounting trail for all transactions. 
• Get the process started early – Probating an estate can take years, and it’s an expensive process. It isunwise to prolong probate. If you get started right away on gathering documentation, getting court approvals, and appraising assets, you’ll extract maximum value out of the estate and lose less of it to probate.

 

Why Should Executors Work with a Probate Firm? 

If you’ve got the time, experience, and confidence to administer an estate, you may only need an attorney or accountant when complicated questions arise. For everyone else, there are good reasons to partner with a probate attorney or accountant. For example:

 

• An accountant can create a clear division between personal and estate finances – Accountants can establish a clear division of accounts and assets between the executor and the estate. This will protect the executor from a common, and potentially serious, mistake – intermingling personal assets with estate assets. 
• An attorney will ensure their client acts as a proper fiduciary – Executors must make reasonable financial decisions on the estate’s behalf. For example, all assets must be liquidated at fair market value and creditors must be paid according to priority. A probate attorney will advise their client on how to meet these fiduciary requirements. 
• A law firm will prevent their client from becoming overwhelmed – Estate administration requires an attention to detail and organization, as there are rigid procedures to follow at every step. For inexperienced executors, it can be too much for one person to take on. A law firm which specializes in probate will oversee important details such as deadlines and documentation, preventing their client from becoming overwhelmed in the process.

 

Estate administration is a major undertaking, even for those who have done it before. If you have recently been named the executor in a will or by the courts, a probate attorney or accountant can guide you through the process and ensure you take every necessary step in acting as an effective executor.

By Harold "Hap" May, P.C. on March 1, 2024   /   The Legal Play Podcast   /   Leave a comment