If you’re reading this, you most likely know about the importance of estate planning and drafting a proper and valid will. Your will, however, is only one component of your estate plan. There are several elements you’ll need to have in place and revisit as you age. As financial planners, one thing we often see overlooked is the naming an executor (also called administrator or personal representative, depending on your state). If you have an estate plan, it is key to have a capable and qualified executor to ensure your affairs and are administered accurately and according to your wishes.
Whether someone close to you has asked you to assume the role in the future, or you are wondering who a good choice for an executor would be, there are resources that can help. NY Life‘s executor checklist is a great place for getting started, especially if you are wondering what the responsibilities entail.
Organization is one of the pivotal aspects of the executor job, and it is helpful to have a guide (such as a binder, notebook, or protected document) of contacts beforehand. These contacts should include the financial advisor, CPA/tax preparer, estate attorney, and insurance agents. With the help of this team, the executor will embark along the journey of notification, disbursement, and eventual settlement of the estate. This typically begins with the executor submitting the will to the local court, and, if needed, applying for an Employer Identification Number (EIN) from the IRS to help disburse assets from the estate. Only the executor will have power of these estate-titled accounts. From there, they will work through the probate process (if necessary) and manage the assets, pay bills, and file taxes if necessary, before eventually distributing the assets as directed by the will. The executor is also responsible for contacting beneficiaries, businesses, and agencies that are connected to the estate.
Who is a good choice for such a mighty job? It’s a popular idea to have a trusted family member in the position, and it’s the situation we see most often with clients. Typically, it is a surviving spouse, reliable sibling, or child/niece/nephew. We’ve also seen clients name close friends or neighbors, who are respected by all of the heirs and are impartial to the proceedings. You can elect to offer the individual “reasonable compensation” for their work in this position if they are not direct beneficiaries of any assets. Regardless of who you choose, a good trait to look for is someone who is organized and capable of handling financial matters, with a close proximity to where the estate will be settled.
One note to make in the deliberations of naming an executor is that typically it is a solo position – most planners have cautioned against the use of two executors (co-executors). The question commonly arises in situations where people have two or more children and don’t want to slight any of them by naming only one to serve as executor. The largest issue is that the named executors must act in total unison to carry out the various estate tasks (applying for probate, if necessary, signing property deeds and asset transfer forms, opening and operating financial accounts in the estate’s name and filing tax returns, etc.), which can cause delays and inconvenience if one lives out of town or out of state. There are a few instances where it could make sense – if you simply want to support the first executor through the probate process or if you elect an individual with specific knowledge regarding your assets (such as a business partner or attorney to support the co-executor, who could be a spouse). If your estate is large or you anticipate a significant amount of court time for your executor, you might think of naming a bank, lawyer, or financial professional (note: this typically wouldn’t be your CFP® advisor or any type of investment manager). These individuals will typically charge a fee, which would be paid by the estate, and can be planned for in advance.
As AFM upholds fiduciary standards, a firm like ours (and its advisors) can’t act in an executor capacity due to the multiple conflicts of interests. Being named in client documents results in a difficult compliance situation and generally leads to the named advisor or firm renouncing the appointment.
Whomever you choose, it is recommended to discuss your decision with that person to ensure a successful transition. Because record-keeping is an important task, it is important that both parties understand the job and have time to prepare together. An experienced advisor who is up to date on your plans is the final puzzle piece to a proficient distribution.
Here at AFM, we regularly work with a variety of parties, from court-appointed trustees and executors to members of a client’s family we have had a successful relationship with for years. As with any issue regarding your financial life, we would be happy to answer additional questions you may have on the estate executor process or involvement.