What happens when you are named as an estate executor? Nothing … until you're called upon to assume the relevant duties following the death of the person who asked you to play this crucial role.
Your duties essentially boil down to making sure the desires of the person who named you as his or her executor — often a family member or other loved one — 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 usually much 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 often 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 also help you 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, which include:
- Gather necessary documents: The key document you'll need to track down is the last will and testament — assuming there is one. You'll also need to find things like insurance policies, property deeds, loan agreements, tax records and so on. You might also find other evidence of your loved one's wishes regarding the distribution of estate assets (adding detail to the will), such as the designation of specific property, like pieces of furniture or other cherished possessions, to particular individuals.
- Notify relevant parties: Notify everyone who will be impacted financially, including people who will receive an inheritance, life insurance companies, banks, brokerage firms, mortgage companies and 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: Gather and pay bills, retire debts, close accounts and file your loved one's final tax return — these are all crucial steps. Follow up to ensure these 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.
- Maintain property: Continue caring for property, such as a home, until it can be sold. You might also determine the estate will come out ahead if you make minor improvements to the property before putting it on the market.
- Consider legal issues: It's also important to note that if any legal issues arise, you may need to represent the estate in court. This is typically 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.
Similarly, if the decedent had the benefit of an estate plan and created something called 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. Keep in mind, however, that 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. Sometimes, a court will also 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.