This is a re-publication and update of an article I wrote that originally appeared here.
The title “Executor” is commonly used to refer to a person who administers the estate of a deceased person.
In Latin, an Executor is always a male. The female counterpart is an “Executrix.” Gender specific titles can be troublesome, and Latin is difficult. So in most places the archaic titles have been abandoned in favor of the gender neutral term, “Personal Representative.”
An Executor may be named in a Will. However, to actually become an Executor requires a Court order. Consequently, the term typically applies only when there is a probate. Where probate is avoided because the decedent’s assets are owned by a Trust, the estate will be administered by a “Trustee.”
For simplicity sake, we will use the title “Executor” to include any person administering an estate whether an Executor, Executrix, Personal Representative, or Trustee. Anyone may be named as an Executor. It is challenging to be a good Executor.
Trouble In Paradise
Administering an estate is tough. It involves family and money. Either one of these alone can be challenging. Together, they can be daunting. The probability of conflict is high. Even well functioning families run into trouble. The probability of ending up in Court is high. Without a Trust, it is nearly 100%.
Even with a Trust, conflict happens. The overall number of estates that end up in adversarial proceedings mirrors divorce rates — somewhere north of 50%.
This is particularly painful, uncomfortable, and expensive when the Executor is a family member. Families that end up fighting over an inheritance in Court rarely recover. Just by doing their job, even when done right, the Executor runs a high risk of alienating or angering other family members who may want something they are not getting.
This article draws from decades of experience in working with hundreds of estates. These 10 steps will help an Executor keep family relations smooth and happy in the administration of an estate.
Keep Good Records
In addition to being a legal obligation, keeping an exact accounting of what is done with the estate is just plain smart. It is critical that the Executor be able to show chapter and verse what was done. This is particularly the case with any assets or benefits received by the Executor.
One of the most common allegations made against Executors is that they unfairly plundered the estate and received some inappropriate benefit, or that they unfairly benefited one family member to the detriment of another.
Keeping good records is vital to making sure allegations are never warranted, and if made, can be readily disproved.
At a minimum, keeping good records will include:
Making a comprehensive inventory of everything in the estate
Determining the value of all estate assets
Preparing and using signed receipts for every distribution made
Keeping receipts and verification of all expenses incurred
Detailed tracking of time spent by and fees paid to the Executor
The records that an Executor prepares have multiple purposes. One such purpose is to share information with the beneficiaries. More often than not, it is a lack of transparency that triggers allegations of misconduct by an Executor.
An “accounting” of the estate is, again, not only required by law, it is just a good idea. One of the reasons it is a good idea is that it creates trust, accountability, and a significant incentive to follow the decedent’s intent.
Follow the Decedent’s Intent
All other Executor duties are ancillary to one primary duty: follow the decedent’s intent.
Such intent can be determined from at least three sources: 1. the governing instruments (Wills, Trusts, and related documents), 2. the law, and 3. what is morally correct, fair, and reasonable.
Last Will and Testament” refers literally to a person’s “will” in terms of what they want or intend.
The purpose of a Will is to state that intent in writing in a manner that can be determined and enforced by the Court.
Altogether too often, the “will” of the decedent is not the same as the will of the recipients of the decedent’s generosity. Sandbox sibling rivalries quickly emerge when one sibling receives some benefit another sibling wanted or believes they should have received.
For the Executor, it is simple. Just do what the decedent told you to do. Don’t take more than you should. Don’t deprive anyone of something they are given, or give them something intended for another.
If the decedent told you to give something to a family member or to charity, just do it. Some of the saddest and most heartbreaking situations I have witnessed have come from an Executor taking a benefit for themselves that the decedent intended for someone else.
Generally in life, and especially in administering an estate, there is happiness in doing what your mother or father told you to do.
Comply with the Law
The administration of estates is governed by law. Such laws are like rules of the road. They are not merely arbitrary intrusions of government into otherwise private actions. The purpose and function of such laws is to empower people to safely and efficiently change the ownership of property from the dead to the living.
Such laws give politicians the first right at plunder (taxes), and otherwise prohibit private piracy, lying and cheating. Failing to follow the law has unpleasant consequences. An Executor who breaks the law can be removed, fined, penalized, and even imprisoned in egregious situations. Just play by the rules.
Report and Pay All Taxes
Some assets such as retirement accounts or deferred annuities have very specific tax rules. Just because you are able to readily take the money, doesn’t mean there are no taxes. Check on tax rules before making or taking distributions.
Get Professional Help
The Executor does not have to do it all. Other family members my help. Outsource appropriate functions to the advisory team. That is why they are there. The Executor’s job gets a lot easier when they have appropriate professionals manage the money, prepare the tax returns, and do the legal work.
The professional advisors can pick up the ball wherever the Executor sets it down, as long as they are in the game and on the proverbial field of play.
Keep the Advisors
When counseling people who have lost a spouse, I generally recommend that they avoid making big changes in their life for at least a year. This may be obvious in matters of romance. It also applies in financial and legal matters. Most of the time, an Executor should take the same advice when it comes to the decedent’s advisory team.
One of the most foolish moves an Executor can make is to fire and replace the decedent’s advisors. If, prior to passing, the decedent had engaged an accountant, financial advisor, insurance advisor, and/or attorney, the Executor and the family will most often be better off keeping these advisors.
It will simply cost less and work better to have advisors on board who are already familiar with the history and status. Some Executors wrongly feel that changing advisors is good way to show that they are now in control. This is analogous to making sharp turns at high speeds to prove that one is a good driver. A steady hand is a better indicator of control and good judgement.
Changing advisors often betrays a failure to grasp the vital role advisors play. In particular, don’t let the neighbor or childhood friend who is eager to get a commission or fee talk you into letting them take over. Also, for the record, telling you an unpleasant truth is not bad advice.
Don’t throw away the decedent’s investment in developing the advisory team. Changing advisors, even when appropriate, costs time and money. Of course, there are times when a change is appropriate.
Retirement, unavailability, poor service, and other situations may make replacing an advisor necessary. When this happens, it is generally best to seek referrals from the other advisors. It is almost always a bad idea to sweep the house clean and replace all the advisors at once. If change must be made, it should be done sparingly and judiciously.
Keep a Reserve
Often, family members are anxious to receive whatever they are entitled to. Sadly, sometimes this is because they have spent the money long before they get it. This puts a great deal of pressure on the family member Executor to hurry up and divvy out the goods.
It is vital that distributions be timed so that there are sufficient funds to pay taxes, liabilities, expenses, and other claims that may arise. Even when the Executor is certain that all such issues have been resolved, it is highly appropriate to retain some amount in reserve for roughly one year just to make sure.
I have seen most unpleasant situations where the Executor had to cover claims by going back to the beneficiaries and requesting reimbursement of distributions.
Don’t be that Executor. Even if other distributions are made, set aside a small reserve just in case. The amount of the reserve will depend on the size of the estate. I generally recommend waiting at least one year after everything else is finalized before distributing what remains of the reserve.
Look for Win-Win Solutions
Know when to think outside the box. Sometimes the best path is not the obvious path.
I once worked with a family that was distressed because their mother had disinherited one of their siblings. For the last twenty years of their mother’s life, she had used the threat of disinheriting her children as a tool of manipulation.
She had updated her Will multiple times every year. Each of the siblings had at various times been excluded from their mother’s estate. It was just bad timing for the one who happened to be excluded at the time of her death.
His expertise was in other areas. He told the family there was nothing they could do.
Their mother’s intent was clear and unambiguous. They were told the only available option was to follow their mother’s final arbitrary exercise of caprice.
The Executor, highly frustrated by this advice, found her way to me. We came up with a solution. Fortunately, the entire family was in complete agreement with how the estate should have been allocated among them. We implemented a Settlement Agreement.
It recited the basic facts, acknowledged that with so many versions of the Will there were many potential conflicts, expressed the family’s desire to resolve all matters amicably, waived all contrary claims, and settled all disputes by dividing the estate equally.
The other attorney, who was handling the probate, offered to have the settlement approved by the Court. While that is often a prudent and appropriate course, in this instance the family unanimously declined, and relied successfully on their global settlement.
The win-win solution may involve delaying a distribution, or a distribution in kind, or a loan instead of a distribution, or even no distribution at all. Find out what your choices are and how they impact the people involved before simply handing out money.
Use Alternative Dispute Resolution
Although a great many lawyers who make their living by going to Court will disagree with this, the Court should be the last resort for solving a problem, not the first. Whenever possible, use communication, negotiation, mediation and arbitration as alternatives to litigation. Real problems happen. But the best solutions are found outside of litigation.
These 10 steps are directed at the unique challenges faced by Executors who are family members. Professional Executors have their own duties and issues.
I have a final cautionary word for parents who have named, or will name, a child as Executor. In my experience, roughly half the time, there is no problem at all in giving a child the responsibility of serving as Executor. They can and will do a great job. But the rest of the time, other alternatives such as naming a professional or institution are far better.
I have seen parents complain that a child is disobedient, disrespectful, dishonest, constantly fighting with siblings, or unable to complete tasks. Then these parents name the very same child as Executor. They apparently expect that this adult child will somehow get religion and “honor and obey” them once they are dead. In my experience, the death of a parent rarely if ever produces a mystic transformation in the character of a child.
For parents, just saying, if they don’t honor and obey you while you’re alive, it won’t happen once you’re dead. If your child lies, cheats, fights, or avoids duty while you are present to see it happen, it is going to be even worse when you are dead and only able to observe from beyond the veil.
Parents would be wise to avoid putting their children in situations where the risk of failure is high. Executors can do a great deal to avoid trouble in the family by following the 10 steps outlined here.