If you’ve been named executor of an estate, you carry the burden of a variety of duties and legal responsibilities, including filing and paying remaining local and federal taxes, assessing the worth of assets, distributing…
If you’ve been named executor of an estate, you carry the burden of a variety of duties and legal responsibilities, including filing and paying remaining local and federal taxes, assessing the worth of assets, distributing property and sending records to beneficiaries. While you may feel privileged to be trusted to settle the affairs and fulfill the wishes of the deceased, to steer clear of common headaches and minimize hurdles, it’s critical to stay prepared and organized.
If you’re wondering what’s in store — and how to settle an estate strategically — here’s what you need to know.
Serving as an executor is a big — and time-consuming — task. Chances are, you’re going to be spending a lot of time reviewing the will and handling your loved one’s final affairs. You need to be ready for that, stresses Anderson Lafontant, a certified financial planner and senior investment advisor with Los Angeles-based Miracle Mile Advisors. “It can be a very time-consuming and stressful job,” she says. “You not only have the responsibility of acquiring, assigning and distributing the assets of the estate, but you also have a legal fiduciary responsibility to do so in a manner as intended by the original owner. The executor will oftentimes have to deal with liquidating assets in order to pay off any outstanding debt assigned to the estate, which could cause a fire sale within a short time frame.”
Expect plenty of paperwork. Sometimes, you’re thrust in the position of executor of an estate; other times, you’re asked years in advance by relatives. If that’s the case, you would be wise to ask a lot of questions now, advises Patti Black, a certified financial planner and partner at Bridgeworth LLC, a wealth management firm in Birmingham, Alabama. Black suggests asking your relatives: “Where do you keep important documents?” Also, remember some important documents may be in paper format, while others may be digitized, she adds.
In addition to important legal documents, you should know the location for Social Security numbers, a benefits statement and personal papers such as birth certificates, marriage certificates and military discharge papers. You should also know where income tax returns are located as well as medical, life, long-term care, auto and home insurance records. As executor, you’ll also need to know where to find any investment and bank account statements, including IRAs and 401(k)s, and statements for any debts, like mortgage, car loan or personal loan. Plus, you’ll also want documentation on employee benefits, including pay stubs and employer-provided life insurance, beneficiary designations on retirement accounts and life insurance policies, real estate deeds and car titles. Finally, you’ll want to gather the contact information for professional advisors including CPAs, estate attorneys, employee benefits managers and insurance agents.
And if you don’t anticipate becoming an executor until the distant future, you’ll want to continue important money discussions with your parents and siblings. “Your financial and family life will change, and it is important to stay on top of these changes,” Black says. She also recommends setting up a password manager early on, such as LastPass.com, which allows clients to grant emergency access to someone like an executor or attorney. Other password managers to consider include Zoho Vault, Dashlane and Keeper.
Anticipate a variety of tasks to fulfill. Richard Sabo, a financial planner and owner of RPS Financial Solutions in Gibsonia, Pennsylvania, who has was named the executor of his father-in-law’s estate, understands the responsibilities required of an executor well.
“For my father-in-law’s estate, I knew as executor to take the will to the county courthouse and have it entered,” Sabo says. “They give the executor short certificates, which are documents to give out to people to show that you are in charge of the estate, and it is like a power of attorney since you are able to do anything that you need to within the estate.”
After the county courthouse, Sabo went to the bank where his father-in-law had accounts and opened up an estate account and started liquidating accounts and moving everything into the estate account. “Every time that I would do something in the estate — like sell a car — that money would go to the estate account,” Sabo says.
To ensure you’re performing the essential legal steps required, it’s a smart idea to contact an estate settlement attorney who specializes in transferring a deceased person’s assets to his or her beneficiaries, while staying in the Internal Revenue Service’s good graces. These attorneys can charge anywhere from around $200 per hour to a flat fee to a small percentage (think: 5 percent) of the estate’s assets, so make sure to inquire about pricing before selecting a lawyer.
Ask a lot of questions about what the attorney’s responsibilities will be, Sabo suggests. He says that one of his clients was going to charge 5 percent of the estate’s assets, but it was Sabo, as the client’s financial advisor, who was doing the paperwork to process investment accounts, annuities and life insurance. “It needs to be asked if the attorney is going to charge a fee for any accounts that name a beneficiary, which can be processed by the financial planner or insurance agent who they were working with at the time,” he says.
Remember: You may be grieving while handling your duties as executor. Chances are, you’ll not only be dealing with your own emotions while clearing away an estate of somebody you loved, but also supporting siblings and other relatives who may believe you aren’t handling things efficiently enough — or that you’re going to shortchange them financially. If that’s the case, Lafontant recommends hiring a professional like an estate attorney or financial advisor to close the estate.
“The executor has a fiduciary duty to the beneficiaries, and having a professional involved can reduce their liability and help ease the situation,” she says.