Know the Duties of an Estate Executor

Physician's Money Digest, September30 2003, Volume 10, Issue 18

Being a physician and an educatedperson, you may be asked atsome point to serve as theexecutor of an estate for a relativeor friend. Likewise, you'll probablyask someone to serve as the executor ofyour estate. You should ensure that theperson you plan to name as executor iswilling to accept these responsibilities. If anamed executor chooses not to serve,they must sign a document indicating thatthey are giving up the right to act asexecutor. A properly drafted will almostalways includes at least 1 backup executorshould the named executor not beable to serve.

Determining Who Serves

An executor is a person appointed ina will who is responsible for all aspects ofthe administration of the estate. Their jobcomes with many legal obligations, theirfiduciary duty being to act in the bestinterest of the estate and its beneficiaries.They must avoid conflicts of interest—even at their own expense—and exerciseprudence and care in managing estateproperty. The duties of an executor canbe difficult and challenging and shouldnot be taken lightly.

Under increasingly complex laws andrulings, an executor might have to servefor 2 or 3 years before the estate administrationis completed. A person chooses anexecutor because they have confidence inthat person's ability to carry out theirwishes honestly and in the best interestsof the beneficiaries. A physician often willname their spouse as executor andemploy other professionals (eg, accountantsor estate attorneys) to assist with thelegal ramifications. For their efforts inadministering the estate, executors areentitled to compensation, which variesaccording to the estate's difficulty.

Executor Responsibilities

There are a number of routine affairsthat must be attended to by the executor,including the following simple tasks:

  • Rerouting the deceased's mail
  • Paying bills
  • Canceling and destroying creditcards to prevent further use
  • Canceling magazine subscriptions
  • Gathering basic information (eg,name, address, and birth date) about thevarious beneficiaries named in the willand other family members of the deceased
  • Preparing a detailed statement ofthe estate's assets that reflects their valueas of the date of death
  • Determining the debts and otherliabilities of the deceased and includingthem in the original estate inventoryTo complete the estate inventory, anexecutor will need to gather the followinginformation:
  • Contents of safety deposit boxes,stock certificates, trust documents, lifeinsurance policies, and all bank/investmentaccounts with the amounts verified
  • Amount of any unpaid wages orbenefits from the deceased's employer
  • Value of personal assets (eg, householdgoods, jewelry, and automobiles)

Estate Administration

There are a few main areas of estateadministration that an executor shouldbe familiar with, including the following:

Probate. In most cases, an executormust probate (ie, validate a will) beforedealing with the estate. This means thecourt gives the will legal effect. Thecourt's decision that the will was validlyexecuted under state law gives the executorthe power to perform their dutiesunder the provisions of the will.

Once the probate process starts, theexecutor takes legal title to the assets inthe estate. In some cases, part of the managementof the estate could include liquidatingassets, running a business, ormanaging a portfolio of securities. Theexecutor is also responsible for properrecord keeping of the estate. The law doesnot specify a particular process to usewhen managing the estate accounts, but apaper bookkeeping system can be usedfor an uncomplicated estate. A complicatedestate probably demands the use of acomputer accounting program designedto handle various intricacies. In suchcases, it's good to seek the help of anaccounting professional.

Executors should be able to producereports regarding the management of anestate. Common reports include accountsof all money received and disbursed aswell as statements of the following:

  • Disposition of assets
  • Investment locations
  • Money paid for investments
  • Money received from investments
  • Balance of all investments
  • All assets remaining in the estate
  • All money remaining in the estate
  • All liabilities remaining in the estate

Tax issues. The executor is legallyrequired to file several tax documents onbehalf of the deceased and the estate.These include the last federal and statetax returns for the deceased (with respectto their last year of life) and possibly anestate tax return. The executor is alsoresponsible for all death tax payments.Usually, all taxes must be paid beforeother debts are satisfied. A tax professionalshould be consulted to help correctlyfile these returns.

An employer identification number(EIN) should be obtained for the estate.This EIN must be included on all taxreturns and other tax documents havingto do with the estate. The executor shouldalso file a written notice with the IRS thatthey are serving as the fiduciary of theestate. This gives the executor the authorityto deal with the IRS on the estate'sbehalf. After filing returns and payingtaxes, the IRS will generally send anestate-closing letter notifying the executorthat the return has been accepted.

Debt payment. Liability claims on theestate must be satisfied after the taxes arepaid. Any estate administration expenses(eg, attorneys, accountants, and appraisers)must also be paid before distributionof the estate's assets.

Distribution of Assets

After all debts and expenses havebeen paid, the executor will distribute theassets. Frequently, beneficiaries can receivepartial distributions of their inheritancewithout having to wait for the closingof the estate.

When distributing the estate's assets,an executor prepares a report for the beneficiariesshowing how their shares arecalculated. It is the obligation of theexecutor to ensure that any specificbequests are honored, and that a fair andequitable distribution of all nonbequestassets is made. Beneficiaries must sign arelease indicating that they accept theexecutor's accounting. If beneficiaries donot accept the accounting, an executorcan apply to the court to approve theaccounting methods.

An executor may be reluctant to distributethe assets, fearing they might beresponsible for the deceased's debts. Anexecutor is not responsible for debts thatexceed the value of the estate. However, ifthey distribute the estate improperly, theymay become responsible for resulting losses.Executors should put notices in localnewspapers to learn whether there are anyoutstanding debts.

If you know you will be the executorof someone's estate, hire an estate planningattorney to guide you through theseduties and responsibilities.

William B. Howard, Jr, is presidentof William Howard & CoFinancial Advisors, Inc, a fee-onlyinvestment and financial planningfirm in Memphis, Tenn. He has 23years of experience working withphysicians and was named 1 of the top 150 advisors.He welcomes questions or comments at 901-761-5068 or whoward@whcfa.com.