As my practice ages, I have a number of individuals come to me for advice on how to administer a loved one’s estate. The person died and may have a number of assets and several bills that need to be paid.
Assume that Mrs. Smith dies owning a home, five bank accounts, several annuities, stocks, and bonds. Some of her assets name beneficiaries, some do not. Mrs. Smith also has a funeral bill that needs to be paid, several medical bills, and the on-going bills associated with running her house (electric bill, gas bill, real estate taxes, etc.)
Many of the people who come to me want me to tell them what they should do as executor at our initial meeting. As if I have a priority list and all I have to do is walk the people through this priority list, and they will know what to do.
The fact of the matter is, administering a decedent’s estate is a process, not a checklist. The basics of every administration are these, the executor must submit the decedent’s last will and testament to probate before the surrogate of the county in which the decedent died domiciled.
The executor must marshal all of the decedent’s assets, typically into an estate account or two. The executor must pay all the debts of the decedent’s estate. The executor must account to the beneficiaries of the estate. Finally, the executor must distribute the assets of the estate to the beneficiaries.
Now, those are the basics, but if someone comes to my office, and I tell them that those are their duties, they’ll look at me as if I have two heads. They won’t understand what I mean, and they’ll think that I’m being vague.
But the fact of the matter is, that is the checklist for an executor. Beyond that, there’s a lot of leg work for the executor. The executor must actually do those things.
More importantly though, within these items are a lot of hidden pitfalls. It is helping people negotiate those pitfalls where I typically come in to help.
For instance, Mrs. Smith has several annuities. There are all different types of annuities. Many seniors own deferred annuities. A deferred annuity is an annuity on which the owner deferred the payment of the income tax.
Mrs. Smith might own an annuity worth $200,000 for which she paid $100,000. The executor—eager to gather up Mrs. Smith’s assets and distribute her assets to the beneficiaries as quickly as he can—might submit a claim for the annuity and withdraw all the money from the annuity in one lump-sum.
Next year, the executor will be surprised to receive an IRS form 1099 telling him that he has to claim $100,000 of income on the estate’s income tax return. Moreover, if the executor is like many of the people with whom I meet, he may have already distributed the assets of the estate to the beneficiaries and no longer has estate funds with which to pay the estate tax.
For many, being an executor is like being handed a hot potato, because they believe that the quicker they end the estate the better. Knowing better, I believe the opposite is true. The executor should take his time and be deliberate in his actions.
Mrs. Smith may have owned assets that name individuals as beneficiaries. These beneficiaries will receive the assets on which they are named as beneficiary outside the terms of the Will. Mrs. Smith’s estate may be subject to estate tax or inheritance tax. The question that arises then is, who pays this tax and in what proportions? Do the people who receive money via a beneficiary designation escape the obligation to pay the tax?
Perhaps not. The answer depends on several factors.
The point is, there are a great number of questions that need to be answered. Telling someone the basics of estate administration is quite simple. Understanding the ins-and-outs of what to do all the way is quite another thing.
Serving as an executor involves important legal and financial responsibilities that must be handled carefully and in the proper order. Understanding these priorities can help executors manage estate administration more efficiently while reducing delays, disputes, and unnecessary stress for beneficiaries.