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What happens when you are named as an estate executor? Nothing, until the death of the person who asked you to play this crucial role.
Your duties boil down to making sure the desires of the person who named you as their executor are carried out. Learn about the importance of an estate plan, as well as the fundamental responsibilities of estate executors.
The Importance of an Estate Plan
An estate executor's job is easier if the person who has died had an estate plan in place. An estate plan is a formal strategy created to assure that your wishes are fulfilled when you die. Naming an estate executor is the first step in creating an estate plan. In addition to a last will and testament that spells out your wishes, an estate plan features strategies that could help you maximize what you can pass on to your beneficiaries and minimize the taxes your estate might have to pay.
For example, a life insurance policy could be an important piece of an estate plan. That's because a life insurance death benefit can offer an immediate cash infusion (free from income taxes) to your estate to help pay off any debts, tax obligations, medical bills and funeral expenses. This death benefit could help ensure your estate will have funds left over to pass on to your children or other beneficiaries after your debts are settled.
An estate plan could help decide which assets to draw upon first to help pay for your cost of living during your retirement. For example, there could be tax advantages for your beneficiaries in leaving them an individual retirement account (IRA), as opposed to stocks and bonds in a taxable account.
Every situation is different, so work with an estate planning attorney to customize your estate plan based on your unique circumstances and goals.
Estate Executor Responsibilities
You don't need to be a lawyer to serve as an estate executor, but you do need to exercise great care in carrying out your responsibilities.
Gather necessary documents
The key document to track down is the last will and testament, if there is one. Other documents you might need to find out
- Insurance policies
- Property deeds
- Loan agreements
- Tax records
Other evidence of your loved one's wishes regarding the distribution of estate assets (adding detail to the will) to particular individuals, such as:
- Designation of specific property, like pieces of furniture
- Other cherished possessions
Notify relevant parties
Notify everyone who will be impacted financially, including:
- People who will receive an inheritance
- Life insurance companies
- Brokerage firms
- Mortgage companies
- Any other person or company owed money by your loved one
It's essential those people and institutions acknowledge receiving the notification.
Settle financial issues
Follow up to ensure the below accounts are indeed closed, so the estate won't later be faced with late-payment surcharges from lenders claiming that bills or loan balances remain outstanding:
- Gather and pay bills
- Retire debts
- Close accounts
- File your loved one's final tax return
Continue caring for property, such as a home, until it can be sold. You might determine the estate will come out ahead if you make minor improvements to the property before putting it on the market.
Consider legal issues
If any legal issues arise, you may need to represent the estate in court. This is done by retaining an attorney, which is generally paid by the estate.
Distributing Certain Assets
Determining how certain assets need to be distributed isn't the responsibility of the estate executor. For example, a retirement account like an IRA will typically have a named beneficiary. The same is true of a life insurance policy.
If the decedent had the benefit of an estate plan and created a "revocable trust," as estate executor you won't need to decide what happens to assets placed in that trust: this would have been spelled out in the trust document and handled by the trust's trustee. While you won't need to decide where those assets are going, you'll need to make sure they're dealt with properly.
What about lawyers and probate courts? Whether you need an attorney or the involvement of a probate court will depend upon the size and complexity of the estate, whether there any disputes among affected parties and local estate laws. A court will need to be given a heads-up that you're settling an estate, though no formal action by the court will be required. Even if you do have to interact with a probate court, a carefully designed estate plan could help minimize the court's role in the process.
You don't need to be wealthy to benefit from an estate plan, but such a plan can be helpful for building a clear road map for your loved ones. Speak with an estate planning attorney who can help you write a will and discuss your broader estate planning needs.