Key Takeaways
- An executor is an individual identified in the will and formally appointed by the probate court who is responsible for settling an estate.
- The most common executor mistakes include failing to communicate with beneficiaries, mismanaging their duties, and failing to keep organized records.
- An executor can avoid these mistakes by fully understanding the scope of their responsibilities, maintaining detailed documentation of estate transactions, and more.
- Professional advice from financial advisors, planners, and an experienced estate administration attorney can all be valuable for assisting an executor in understanding and effectively carrying out their duties.
Introduction
During the probate administration process, an executor plays a crucial role and has significant responsibility, including marshaling and inventorying all assets, ensuring debts are paid, and determining how to distribute remaining property to beneficiaries based on a will or estate law.
However, there are a number of common mistakes made by executors that could derail the estate administration process and prevent actions from being taken in the estate’s best interests. Because they have such an important responsibility, it’s essential that the executor understands the full scope of their duties and how to fulfill them.
As an executor, it’s important to take steps to understand the full scope of your role and consult an experienced estate administration attorney who can advise you on how to fulfill your responsibilities and preserve the best interests of an estate. Below are some of the most common executor mistakes to be aware of so that you can understand the potential pitfalls and how you can avoid them.
What Is The Role Of An Executor?
An executor is an individual identified in a will and formally appointed by the probate court with the responsibility to administer an estate. The role of an executor involves seeing through every step of the probate and estate administration process, from compiling all of the assets of an estate outlined in a will to distributing assets to the identified beneficiaries.
There is an important distinction between an executor and an estate administrator. Although both are considered personal representatives of an estate, an executor is identified in a will and formally appointed by the probate court, while an administrator is chosen and appointed by the court when the decedent did not leave a will. Instead of following the will, the administrator will distribute assets according to state intestacy laws.
Some of the responsibilities of an executor include:
- Having a detailed understanding of the will and its instructions
- Marshaling and inventorying assets of the estate
- Establishing a dedicated estate account to prevent co-mingling with personal funds
- Managing and protecting estate assets
- Notifying creditors of the probate process and resolving creditor claims
- Maintaining detailed records of all estate transactions
- Distributing assets to beneficiaries identified in the will
In this role, an executor also has an overarching responsibility to act in the best interests of an estate and its beneficiaries, known as a fiduciary duty. This duty means that an executor should make responsible, informed decisions about estate assets, act with good faith, and avoid any actions that may be perceived as self-serving.
Why Is It Important To Avoid Mistakes As An Executor?
An estate is a complex matter that involves multiple parties who have a stake in the outcome of its proper administration, including creditors, beneficiaries, legal heirs, and even the wishes of the decedent themselves. It’s important that an executor avoids mistakes in order to ensure that the best interests of all parties are carried out and the decedent’s wishes are honored.
Making mistakes as an executor can have wide-ranging consequences that can affect the several parties involved. These mistakes can affect the process by creating consequences like unnecessary family disputes, tax penalties, potential litigation, unfair distributions of the estate, insufficient estate funds, and more. Ultimately, adequately preparing oneself to prevent common mistakes will avoid complicating the already challenging process of settling an estate.
Common Mistakes Executors Make
Executor mistakes can range from simply misunderstanding the scope of one’s duties to acting with misconduct. Below are some of the most common executor mistakes to be avoided.
Failing To Review Updated Wills And Testamentary Documents
The executor must identify the most recent estate planning documents and use them to guide the estate administration process. Using the improper version of the will may affect the integrity of the estate administration process by failing to honor the decedent’s true wishes, delaying asset distribution, and opening up costly legal challenges.
If the testator (also known as a will creator) created an original estate planning document and later revoked that document, it’s important that the executor is aware and ensures the correct version is admitted into probate. An executor must do their due diligence to verify the correct will is used by doing a thorough search for the most recent valid will in safe deposit boxes and consulting with the attorney or advisors involved during the drafting process.
Mismanaging Duties And Responsibilities
Failing to follow through on one’s duties and responsibilities can lead to significant legal and financial issues involving the estate, resulting in legal disputes, distribution delays, and even financial penalties. Mismanagement may result from a lack of understanding one’s duties or clear acts of executor misconduct.
An act of mismanagement is often referred to as a breach of fiduciary duty, which may encompass a variety of potential acts. Common actions that constitute a breach a fiduciary duty include self-dealing, making irresponsible investments or sales, failing to pay estate taxes, and failing to notify creditors of their window to submit claims to resolve debts.
Firmly understanding one’s duties and how to carry them out is the best way to prevent mismanagement of an estate. An executor checklist can also ensure that the estate representative is fulfilling the full scope of their duties.
Neglecting Communication With Beneficiaries
Neglecting communication with beneficiaries has the potential to lead to misunderstandings and mistrust in probate administration, which may negatively affect relationships, increase the likelihood of conflicts, and complicate the overall probate process.
Part of the executor’s fiduciary duty is to keep beneficiaries informed about and engaged in the probate process. The executor should provide frequent updates to beneficiaries through their preferred communication channels to ensure they are aware of all estate transactions and prevent disputes. This includes maintaining an ongoing accounting of estate transactions that can be provided to beneficiaries at least yearly and upon request.
Premature Asset Distribution
Although asset distribution is an important part of the estate administration process, it is also the final step before closing the estate. An executor or estate administrator must ensure that they have fulfilled all their duties before distributing assets; otherwise, it may lead to procedural or legal errors.
Asset distribution can be considered too premature, when:
- An executor has failed to pay all debts, taxes, and creditor claims first
- An executor has failed to obtain court approval for the distribution
Distributing assets prematurely may lead to risks such as the estate being unable to fulfill its obligations if unexpected debts or taxes arise and cannot be paid from the estate. In extreme cases, this could include having to recollect distributions from beneficiaries. It can also lead to legal complications if the executor does not submit a record of all transactions to the probate court and receive court authorization in the process.
In any case, it’s essential that the estate representative obtains court authorization by submitting a record of all transactions before distributing estate funds to beneficiaries to avoid legal complications.
Ignoring Debt And Tax Obligations
During the administration of an estate, executors must settle all valid debts and pay any necessary federal or state taxes levied against the estate before distributing any assets to beneficiaries. Failing to follow through on this responsibility can result in having to pay interest or late fees from estate funds.
In the most serious instances, missed payments may also lead creditors with unresolved claims to seek litigation against the estate, which can drain estate resources and delay the distribution of assets.
An executor who fails to fulfill these obligations may also open themselves up to potential personal liability and allegations of mismanagement. This liability could lead to possible legal action against the executor, and in some cases, even removing the executor from the role.
Failing To Maintain Accurate Records
Detailed records are crucial for documenting all estate transactions, maintaining transparency, and demonstrating the responsible administration of the estate. If an executor fails to keep accurate records around the estate, it could lead to potential disputes and raise questions about the effectiveness of the estate administration process.
Detailed and organized accountings should be available to provide beneficiaries upon request and should be shared with beneficiaries at least yearly. Comprehensive records demonstrate that an executor is fulfilling their duties, minimizing the risk of an executor facing personal liability and ensuring that the asset distribution process can proceed smoothly.
Confusing Probate and Non-Probate Assets
A common area of confusion during probate is differentiating between probate and non-probate assets. While most estate property must pass through probate, some assets can pass directly , depending on how they are accounted for in an estate plan. For example, property that is owned jointly with beneficiaries, bank accounts with transferable on death (TOD) beneficiaries, or life insurance policies with a listed beneficiary can transfer directly to the new owner without probate.
Misunderstanding this difference may result in improperly transferring assets or delaying the transfer of an inheritance to the rightful beneficiaries. Executors can avoid this confusion by closely reviewing the will, taking a thorough inventory of all estate property, and consulting an estate administration attorney to understand the difference.
Seeking Guidance From Unqualified Sources
Executors have a difficult responsibility in having to carry out several complex tasks that involve considerable legal nuance—this may lead an executor to seek advice from individuals close to them, like a close friend. However, receiving advice from unqualified sources can have serious legal implications.
For example, faulty advice can lead to misunderstanding important legal requirements or processes and potentially missing key legal deadlines. If the executor overlooks important legal processes, they can expose the estate to legal contests or financial liability.
It’s essential that executors only seek support from qualified sources with experience in probate administration and an understanding of state and local probate laws. It’s wise to seek legal counsel early in the process to mitigate the risk of avoidable mistakes that can affect the appropriate settlement of the estate.
Delaying Critical Actions (Opening The Estate, Safeguarding Assets)
Delaying critical actions can extend the probate process unnecessarily, add unnecessary stress to beneficiaries, executors and other interested parties to an already challenging time, and even open up the estate to financial liabilities. An executor may delay necessary actions either through failing to understand their duties or through outright negligence.
Actions that may be wrongfully delayed or overlooked may include:
- Petitioning the probate court to open the estate administration process
- Marshaling, inventorying, and securing estate assets
- Notifying creditors of the opening of probate and the window to submit creditor claims
- Managing estate assets and verifying insurance policies
Delaying vital actions can compromise the value of the estate. For example, failing to secure estate assets early on can open them up to risks of vandalism or theft. It’s essential that executors understand their duties and act swiftly to avoid liabilities or risks.
Consequences Of Errors In Execution
Errors in execution can pose several risks to an estate and its beneficiaries. From failing to adhere to the terms of a will to procrastinating in carrying out important functions, executor mistakes can lead to costly consequences for beneficiaries, creditors, and the estate as a whole.
Executor errors may produce some of the following consequences:
- Acts of negligence or self-dealing can compromise the value of the estate, reducing the inheritance of beneficiaries
- Overlooking responsibilities like taxes or resolving debts can lead to insufficient funds to pay creditors or distribute to beneficiaries
- Failing to pay taxes can result in unnecessary losses to the estate and reduce the overall value of the estate
- Lawsuits or misunderstandings surrounding one’s fiduciary duties can cause unnecessary delays to the estate administration process and prevent the distribution of assets, and potentially strain family relationships
- A misunderstanding of the instructions of the will can lead to the estate administration process failing to honor the decedent’s wishes and prevent beneficiaries from receiving their rightful share of the inheritance.
- Failing to uphold responsibilities can expose an estate to litigation, which can result in added legal fees to the estate and delays while the administrator works to resolve the litigation.
These are just some of the potential consequences of errors from an executor misstep. Because of the scope of an executor’s duties, the consequences of potential errors can be wide-ranging depending on the gravity of the error.
Best Practices For Executors
The key to avoiding common mistakes as an executor is to act with due diligence and adequately prepare oneself for the process. The following practices can reduce the risk of costly errors.
Stay Organized And Keeping Detailed Records
Detailed recordkeeping is essential for an executor, ensuring that they can provide proper information to beneficiaries, maintain transparency, and prevent disputes. An estate executor must maintain meticulous records that document all estate transactions, including the following:
- An inventory of estate property
- Asset appraisals
- Statements tracking market value of property
- Bank statements
- Retirement account statements
- Estate income
- Investment account performance, including gains and losses
- Itemized receipts
These records should be updated on an ongoing basis and easily accessible so that the executor may show accountings to beneficiaries as requested. It’s also advisable for the executor to maintain records of all communications between themselves and beneficiaries in the event that disputes arise.
Communicating Effectively With Beneficiaries
Open and transparent communication with all beneficiaries is essential for maintaining trust and confidence between all parties throughout the estate administration process.
Communicating with beneficiaries has multiple benefits:
- Ensuring beneficiaries understand the appropriate steps in estate administration
- Minimizing the risk of a lawsuit against an executor
- Easing beneficiaries concerns about the status of the estate administration process and trust in the executor
- Allowing beneficiaries to dispute an action before it happens rather than after
An executor should notify beneficiaries every time they take an important action or make important decisions such as admitting a will into probate, selling estate property or preparing to distribute assets, this will provide beneficiaries with input in the process and allow them to provide feedback related to these decisions and potentially avoid litigation on the back-end. A probate administration attorney can provide guidance for an executor in ensuring that they fulfill all notification requirements.
Consulting With Legal And Financial Professionals
Because of the considerable responsibilities, it’s not realistic to assume that the executor knows everything about the process. An executor should welcome professional input to assist with the administration of the estate, offer legal advice, and provide additional support.
Seeking the proper professional support may help ensure compliance with legal deadlines and requirements, ensure proper asset distribution
Consider engaging the following professionals:
- An estate administration attorney – An attorney will offer guidance and advice regarding how to fulfill necessary steps in settling an estate, such as notification requirements, creditor deadlines, and reporting requirements.
- Financial professionals – Professionals like financial planners and CPAs can offer guidance on how to manage estate property to preserve the value and protect against financial losses to an estate.
- Realtors – Realtors experienced in the probate process can assist with ensuring property is sold following careful procedures and receives the greatest possible value.
- Tax advisors – These advisors can provide insight into the necessary tax obligations an executor must consider as well as the tax implications of sales or investment decisions involving estate property.
These professionals can offer valuable guidance throughout all steps of the process, from marshaling and inventorying assets to formally closing an estate. Begin the path to a smooth estate administration process by seeking legal guidance as soon as possible. It’s often wise to seek the support of an attorney as soon as you are named as the executor so you can get in front of preventing errors.
Avoid Common Executor Mistakes With The Help Of RMO Lawyers
Estate executors must be meticulous in their management of an estate to ensure they preserve the best interests of all involved. One of the best ways to avoid errors is to consult an experienced estate and probate administration attorney who can offer invaluable legal advice so you understand your duties and responsibilities.
The team at RMO Lawyers has decades of experience combined in the estate administration process. Our team will work with you to ensure you understand your responsibilities and help you fulfill your duties effectively. In the event that a conflict arises, the litigation team is here to help you navigate any potential challenges.
Schedule a consultation with RMO Lawyers to discuss your role as an executor today and how we can help you navigate the process.
Glossary
Breach of fiduciary duty – When a fiduciary fails to act in the best interests of the party they represent, typically resulting in harm or loss to an estate.
Estate executor – An individual appointed by a probate court who is responsible for managing and administering an estate and is named as executor in the deceased’s will.
Estate administrator – An individual appointed by a probate court to manage and administer an estate when there is no will naming an executor or the named executor is deceased or otherwise cannot serve, including because they are disqualified or were suspended or removed.
Estate property – Any property or possessions owned by a decedent at the time of their death.
Fiduciary duty – The responsibility of a person in a fiduciary role to act in the best interests of the party that they represent.
Personal representative – An overarching term for a person who is responsible for administering an estate, encompassing the role of both executors and administrators.
Testator – An individual who creates a will to be followed upon their death, explaining their wishes for the distribution of their assets to identified beneficiaries.