Put Time and Thought into Answering This Critical Question
Dealing with end-of-life issues can be overwhelming. One of the most important decisions you will make is deciding who should be your executor.
An executor is someone named in your will who will be responsible for handling all the paperwork after your death and the distribution of your assets. This can include collecting assets of the estate, protecting and maintaining estate property, paying bills, paying taxes, making court appearances, and, if necessary, liquidating assets to have enough cash to pay creditors, taxes and/or beneficiaries. An executor is responsible for distributing assets that don’t have a stated beneficiary, are not in joint name, or titled in the name of a revocable trust. If an executor is not named in your will, the court will appoint one.
You can choose an unpaid or paid executor. You may also choose to have co-executors. The key qualities an executor needs are honesty, organization, communication, and financial responsibility; the distribution of the estate can become a mess if handled by someone who lacks these qualities.
The law sometimes restricts the powers of an executor, and for this reason, it’s often a good idea to specify in your will that your executor will have certain powers beyond those normally granted by state law. This may be especially important if you choose a family member or friend as your executor.
Powers that you grant in your will may include the right to hire professional help (attorneys or a CPA, for example); power to continue running your business; power to mortgage, lease, buy, and sell real estate; power to borrow money; and power to take advantage of tax savings.
The most common unpaid executors are spouses, siblings, and children. Think carefully before choosing your husband, wife, or partner as an executor; they may be too overwhelmed by grief to deal with everything. A grown child who lives nearby could serve as co-executor to help the surviving spouse.
It is also important to consider the executor’s location. Things such as court appearances and checking property can be more difficult if the executor does not live near where the majority of the assets are located. You should also take into account the person’s age, health and likelihood of being willing and able to administer your estate.
Family dynamics are extremely important when choosing your executor. Who you choose can lead to family squabbles and contesting of the will. Whether intended or not, people sometimes read into your decisions and assume you are making judgments regarding their worthiness or based on favoritism. Instead of focusing on being fair to your children, aim to prevent family conflict. Family fights will cause more friction in the family, deplete the estate’s assets, and take a lot of time. If you have several beneficiaries who don’t get along, you may want to appoint an outside executor who is independent and has no potential conflict of interest.
For larger estates, it is often advisable to use an independent executor. A complicated estate may require an institutional executor, such as a bank trust department that can call on the advice of lawyers, tax experts, accountants, investment counselors, and business administrators. You may also consider choosing an attorney if you believe the estate will require considerable legal work.
Although heirs may not appreciate paying fees to an executor, in certain cases it is best to leave the fiduciary responsibility to an institution. This shifts stress and liability away from a family member. A corporate trustee may also be a smart choice for blended families. With a second marriage, it may be preferred to have a neutral executor.
Another option is to appoint co-executors. You could choose a personal friend or family member and someone with more expertise, such as a trusted business partner. Oftentimes, people appoint all of their children as co-executors. Assuming the children all have a good relationship, this may prevent some family dissension.
For smaller estates and where there is little possibility of a contest, the fees that lawyers and other paid executors charge make it too expensive to hire outside executors, so many people choose a friend or family member who will waive or refuse the executor’s fee. This person will be interested in making sure the process goes as quickly and smoothly as possible.
Massachusetts law provides only that the executor be reimbursed for reasonable out-of-pocket expenses and be compensated for their services as the court allows. In Massachusetts, there is no set amount or percentage of the estate’s assets for executor compensation. Ideally, the decedent’s will states exactly how much compensation the executor will receive. If it doesn’t and the beneficiaries and executor cannot agree, then the probate judge must decide what is reasonable.
It is important that you discuss being the executor with the person you wish to name in your will. Once you have made your choice, go over your will with that person and let him or her know where you keep all your important financial documents. Also, be aware that whomever you named as your executor may decline the responsibility when it is time. For this reason, it is important to name successor executors in your will, allow your executor to name a successor, or designate a corporate executor.
It is a good idea to review your will and your choice of executor every few years and after major life changes. What seems like a good choice today may become an unwise choice tomorrow.
Dawn Badorini, CPA is a manager for the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3477; firstname.lastname@example.org