Unless you are an underworld spy or perhaps the villain in a horror movie, you probably don’t feel the need to save any riveting surprises for the reading of your will. While the unexpected announcement of an executor or trustee can make for wonderful drama in a film, drama surrounding your finances after your death isn’t funny or intriguing to anyone in real life. It’s just plain painful.
So, in addition to clarifying the terms of your will, make your own death easier. First thing’s first: Make sure you actually inform your executor or trustee that they have the job and what their responsibilities will be. Nobody likes this information to come as a surprise. It’s bad estate planning and just all around not cool to stick your friends with positions like these and to let them find out at the funeral.
An executor is the personal representative of the deceased. They have the authority to administer and distribute the estate. An executor needs to understand the terms of the will and who the heirs are.
A trustee is appointed to overlook a trust. So, the first step is to make it clear which assets are in the trust and which assets are not. In general, trusts are used to avoid probate and to provide more direction and control over certain aspects of the estate. If the trust is properly funded, it owns the assets specified by the person who established it. The trustee is the person or group of people who decide how the funds in the trust will be used.
In short, the difference between executors and trustees is primarily one of function. Executors liquidate estates, while trustees manage them. The former is usually very temporary, while a trustee might serve for years. Neither job tends to be compensated. If there were money to be made, people would be making money at it. Nonetheless, if you get asked to do this, it is important that you do it right. Here is a quick survival guide.
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5 Things Estate Trustees & Executors Should Know
Before you do anything, you need to actually read the estate documents. This will take care of all the big questions. The management and distribution of the estate, as well as funeral and burial, instructions will be found here.
Hopefully there will be a memorandum of personal property for valuable items like jewelry, weapons, or art.
2. Determine the assets.
This can be a big chore if the deceased hasn’t left a complete list.
When you’ve pulled together all of the bank accounts, investments, real estate, retirement plans, insurance policies, and secret treasures from ancient antiquity, you need to identify the heirs. This part is usually easy as the heirs are typically relatives of the deceased—or at the very least, present at the funeral.
In any case, estate documents will list the heirs, but it can get, well, hairy. What if one of the heirs has themselves passed away, for example? This is the sort of detail that might get overlooked. This is where you will have to make a judgment that will definitely incur the wrath of the family and ruin Thanksgiving for years to come.
3. Pay up.
Few of us leave this world owing nobody a dime. In all likelihood, you are going to have some creditors to pay off on behalf of the deceased. You need to guarantee that all creditor claims are paid from the estate. Failure to do so could lead to liability, i.e. problems you don’t want to deal with. Yeah, this is a thankless job.
Generally speaking, secured creditors such as mortgage lenders will be paid upon the sale of the property unless there is cash available and the estate intends to hold the assets.
Inform the secured creditors of the death immediately. Make payments right away where possible to avoid penalties.
When you speak with unsecured creditors, don’t hesitate to negotiate. Credit card companies don’t expect to be paid in full. You should be able to bring those prices down. Keep in mind that they do have legal recourse against the estate, but they face significant legal fees in probate court to collect on the debt and can usually be bought off for about a third of what is owed.
If the estate must be probated, which is often the case where there is only a will, then as executor you will need to go through your list of creditors and inform them of the action and of the estate assets. This is pretty much only good for engendering mutual resentment with your unfortunate executor.
Unsecured creditors have to make a claim against the estate within a prescribed time limit. Most unsecured creditors won’t follow up with a claim even after they are given notice of the estate assets.
So hold off on unsecured creditors until claims are made rather than spontaneously paying them all in full at the slightest provocation. There’s a good chance problems of this nature will take care of themselves by simply dissolving into the ether of banking bureaucracy.
4. Review the estate documents for an outline of the process for estate administration.
You may need court approval for parts of this, such as the transfer of real estate assets. If the identity of any of the heirs is in question, you may need approval from the court before you distribute proceeds from the estate.
Vital to administration is this one simple fact: Anything confusing, ambiguous, contradictory, or otherwise weird isn’t for you to interpret. Get court approval before “interpreting” a will if you want to avoid claims against yourself or the estate.
5. Pay the taxman.
As your final honor as executor or trustee, you will need to handle the individual and estate income tax returns. Make sure that the tax returns are marked “DECEASED,” or they may quite literally come back to haunt you. You must file an estate return if the estate receives more than $600 in total income.
Being an executor or trustee is a big job. Get help if you need it. Lawyers and accountants can ease the stress and the estate can pay their fees. Your out-of-pocket expenses should also be reimbursed.
Keep in mind that this is a sensitive time for the grieving family. If you are acting as executor or trustee, you are probably close to the family and lending your emotional support as well as your financial acumen. Just be certain than when you execute your legal duties, you are doing so with a level head and not with a bleeding heart.
Have you ever served as a trustee or executor? Any questions about these roles?