Executor’s role can be a burden for a relative or friend

While you may intend it as a gesture of trust or love, naming a friend or relative as executor of your estate has serious implications.

The duties of an executor are formidable — onerous, actually — and you should give careful thought to the selection of a steward for your estate before a decision is made.

To qualify as executor, the person named must be at least 18, legally competent and not a convicted felon. Most people initially are inclined to name a friend or relative as executor, based on the rationale that intimates are most familiar with family relationships and emotional needs. However, a close friend who lacks experience or cannot devote the time needed to perform as an executor could undermine your family’s future financial security. A close associate may be unable to act impartially or mediate the misunderstandings that often arise within families.

In addition, the sheer volume of work demanded of an executor often overwhelms an individual who is not well versed in estate management.

Before outlining the responsibilities of an executor, it is important to explain the scope of the role. An executor is your personal representative, designated in your will to carry out your instructions. Naming an executor is a first step, but that action alone does not mean that your designee will be willing or able to serve as your representative. Therefore, it is wise to make your intentions known and gain your prospective nominee’s consent beforehand.

Once named, your nominee must be appointed by a probate court to act as executor. Generally, probate courts get involved in estate matters when the party designated as executor applies for authority to act on behalf of the estate. Once the application is made and the nominee qualified, the court issues “letters of administration.” These are formal instruments of authority that empower executors to carry out their duties.

A demanding role

An executor should not be expected to be involved in aspects of your life beyond the administration of your will. For example, caring for minor children or the incapacitated is outside the role of an executor. These responsibilities can be handled by a guardian, whom you also can name in your will. Nor is an executor responsible for managing your family’s long-term financial needs. A trustee is better suited to this task, and you should consider establishing a separate trust for this purpose.

An executor is not omnipotent; his or her powers are circumscribed by state law, although your will may grant additional latitude. Above all, an executor is a fiduciary, which means that he or she is held to a strict standard of legal care in the exercise of his or her powers.

The duties and complexity of an executor’s role cannot be overstated. The work of administering an estate is a time-consuming job that generally lasts an average of two to three years. Acting as executor requires detailed knowledge of several disciplines, including tax planning, investment management and property management — areas that are often beyond the experience of most individuals.

Broadly, the duties of an executor fall into four categories:

• Identifying, protecting and valuing estate assets

• Meeting the estate’s liquidity needs

• Paying creditors, including all appropriate tax authorities

• Distributing estate assets

Generally, your estate is responsible for paying your executor a fee. This fee may be specified in your will, or it may be determined by applicable law. The fee may be waived — family members and friends often decline payment for this role. If the executor is an attorney, the law in most states regulates whether the attorney can collect both an executor’s fee and attorney’s fee for legal advice on the estate.

Individuals with large or complex estates should consider naming a corporate executor. A corporate executor is a bank or trust company appointed in your will to manage your estate. This entity has a fiduciary obligation to act objectively and quickly on your behalf, while performing the responsibilities of an executor.

Unlike individual executors, whose resources may be limited, corporate executors have a variety of specialists on hand to provide efficient estate management, including investment managers, bankers, insurance and tax experts and closely-held business and real estate specialists. The availability of this expertise in one place ensures that your family will not have to identify and separately hire individual specialists — a time-consuming and costly approach.

For some people, the “best of both worlds” solution to estate administration is to appoint co-executors, naming both an individual and a corporate executor. Such an approach satisfies the estate’s dual need for attention to personal family concerns, as well as professional handling of estate administration.

Individual executors often have full-time jobs that consume most of their professional energy, leaving little time for even the most informed layman to perform the duties of an executor. With a better understanding of the complexities of executorship, you can make an informed decision about choosing a personal friend, corporate executor, or both, to manage your estate.

Eric Hayes is managing director and regional chief executive officer, upper New England, for U.S. Trust.

Categories: News