The Executor’s Job

It is virtually impossible today, given the complexity of our taxes, for a lay person to act on his or her own as executor of a large, complicated estate. Important things will be forgotten or mishandled, particularly postmortem tax planning. In my experience it usually works best to nominate two coexecutors: a trust company or lawyer, plus a close relative who is trusted by the other beneficiaries and knows their needs and concerns.

The bank (or lawyer) has the professional training and experience for this complex task, keeping things orderly and correct, and protects the other beneficiaries from possible imprudence or worse on the part of the family coexecutor. It will do all the technical work, including preparing the documents for the family executor’s signature. The relative, who should understand the family dynamics and the reasons for the testator’s wishes, will not ordinarily do any detailed work, but will keep the bank on the qui vive.

Unless it’s agreed otherwise, both coexecutors are entitled to a full commission: they don’t split a single one. A lawyer or a trust company will view an executor’s commission essentially as compensation for collecting (“marshaling”), preserving, investing, and distributing the estate assets. Usually the commission would not cover the work of probate or of estate accounting. However, a trust company also provides postmortem tax planning, for which the lawyer usually charges separately, as well as custody service. Thus, one may get slightly better value by designating a trust company as the institutional executor.

Another advantage of a trust company is that it’s a corporation, and so should still be there when the testator dies. An individual lawyer may retire or die before the testator, and the firm may change character.

A family lawyer may well give more imaginative advice than a trust company on estate matters. But there has to be a lawyer anyway, to handle the probate work and, ordinarily, to prepare the tax return. So his advice should be available even if a trust company is the institutional executor.

It is, of course, less expensive to name a family member as sole executor (or two members as coexecutors, in which case each should accept a half commission). He can appoint a bank as custodian and have the estate lawyer do the postmortem tax planning. This is a reasonable solution if the estate is not too complicated, at least one of the family executors has a quasi-professional familiarity with the job, and the family is closely knit.

The executor is nominated by the testator in his will but appointed by a court through Letters Testamentary. His duty is to settle the estate under the terms of the will, and until that has been done, to preserve the estate’s assets as a fiduciary. Depending on what the will says, the beneficiaries can hold him liable for imprudence, such as losses from holding on unreasonably long to commercial real estate or to businesses run by the decedent, or for inadequately protecting or insuring property, or for improper distributions.

Here is a checklist of some of his duties.

Immediate Jobs

1. Find and read the last will and any related instructions, letters, or notes. Determine who the beneficiaries and fiduciaries are, and confer with any coexecutors.
2. Collect necessary information, consult the family, and take appropriate action on such anatomical bequests as the Eye Bank, and on funeral arrangements, together with obituary notices.
3. Arrange for the security of the residence, and if appropriate, the safekeeping of valuables.
4. Schedule a conference with the decedent’s family, the estate’s attorney, and any coexecutors.
5. Determine the immediate income needs of the family members and provide for the decedent’s employees, including salaries or severance pay.
6. Get about twenty-five copies of the death certificate. (The funeral home will ordinarily do this.)
7. Tell the Post Office to forward mail, and cancel telephone and other services.
8. Cancel credit cards and club memberships.
9. Locate safety-deposit boxes, bank accounts, money funds, and securities accounts.
10. Send copies of the death certificate to banks, brokers, and the like, with instructions to conduct no further transactions, except to invest income and maturing loans in Treasury bills or money funds, until the will is probated. Find out what further documentation each requires.
11. Review insurance. (Change coverage as may be appropriate.)

Probate

The estate’s attorney prepares and submits a petition to the appropriate court on behalf of the executor, requesting that the court certify the validity of (“probate”) the will and appoint the executor through Letters Testamentary.

Depending on the state, all beneficiaries under the will and anyone who would have had an interest in the decedent’s property if he had not left a will must be given an opportunity to challenge the will or the executor’s qualifications. The attorney prepares for each such person a consent form under which he waives his right to challenge the will or to receive formal notice of this right (notice of probate). The court serves notice on those who do not sign a consent.

If there is no challenge, the court issues a certification of the will’s validity and Letters Testamentary appointing the executor. If there are complications, the court may issue temporary letters to the executor, or to someone else, so that the estate’s assets may be protected. The executor must then do the following:

1. With the estate’s attorney, analyze the will and prepare a summary, together with a timetable of the estate’s settlement, for distribution to the beneficiaries.
2. Review and sign the probate papers prepared by the attorney. Consider seeking preliminary Letters Testamentary if a delay in obtaining permanent letters is likely, or if the estate needs cash immediately.
3. Arrange for tax waivers from the state of residence, under which the state waives its lien on specific assets to secure the estate-tax liability.
4. Provide for ancillary proceedings if the decedent owned property outside of his state of domicile.
5. Negotiate the attorney’s compensation, after the size and complexity of the estate are roughly established.
6. It may be a flat fee, such as the equivalent of an executor’s commission, or otherwise; hourly charges are not unusual.

Administration

1. Make an inventory of all assets, including the contents of safe-deposit boxes and tax shelters. Review the decedent’s financial reports, incoming mail, and old papers for clues to assets. Value them at the date of death and the alternate date.
2. Transfer assets into the estate’s name. (This is not necessary for real estate or personal effects.) Give any agents copies of the Letters Testamentary, tax waivers, and any other documents they need. Arrange for appraisals of the estate’s assets for federal and state tax purposes.
3. Collect and review financial data, including canceled checks and checkbooks, investment records, income- and gift-tax returns, insurance policies, employees’ salary records, closely held business records, medical expenses and medical insurance–all for as many years as appropriate.
4. Pay funeral and last illness expenses. Scrutinize all claims against the decedent, calling for appropriate documentation from the creditors.
5. Collect all benefits, including life and medical insurance, Social Security, Veterans Administration, corporate and fraternal-order benefits, retirement plan assets, and notes and claims receivable.
6. With an accountant, establish a bookkeeping system to facilitate the formal accounting upon closing the estate. A professional fiduciary probably has an appropriate software package available.

Postmortem Tax Planning

1. Calculate the state and federal taxes, taking note of gift-tax returns filed, trusts in which the decedent had an interest or a power of appointment, foreign property, generation-skipping transfers, inheritances from others, and qualified disclaimers.
2. Determine whether any legatee should disclaim any bequest. This must be done within a specified period after the decedent’s death, and can be extraordinarily important.
3. Establish the most advantageous fiscal years for the estate and any testamentary trusts.
4. Plan income-tax and cash distributions.This includes election of whether a Q-Tip trust should qualify for the unlimited marital deduction, preparation of the decedent’s final income-tax return, allocation of income or expenses that can go either way (to either the estate or the decedent), meeting the cash needs of the beneficiaries, and spreading the income among several taxpayers–estate, trusts, and beneficiaries–to reduce tax.
5. Review and update the tax plan annually. Consider seeking an extension of time for the payment of the estate tax or income tax to avoid premature liquidation of estate assets.
6. File estate- and income-tax returns, using the date of death or the alternate date (six months later) valuation.
7. Obtain tax-clearance letters for the estate-tax return from the IRS and the state tax department.

Management

1. Establish liquidity needs; raise cash for debts, expenses, taxes, and legacies.
2. Manage the estate’s assets; often, engage professional management. Keep cash working.
3. Take as active a role as necessary in closely held companies, real estate, tax-shelter deals, and ventures. Initiate or defend litigation.

Distribution

1. Pay cash legacies and other specific bequests, and distribute personal effects as soon as possible after probate. Where appropriate, arrange for professional advice for any family members who are unfamiliar with investments.
2. Once the estate taxes are estimated, make partial payments to fund trusts created by the decedent’s will, and to residuary legatees. Enough should be left in the estate for estimated income and estate taxes, assessments upon audit, expenses, and contingencies. Distributions may have adverse tax consequences and should tie in with the tax plan.
3. Determine the investment objective of the trust beneficiaries. Arrange for the trustees to take charge of the trusts.
4. Have a final accounting prepared (the lawyer usually does this), and submit it to the court for approval and discharge of the executor.
5. Distribute the remaining assets.

I trust that after contemplating all this, the reader can see why for an estate of any size a professional fiduciary is indispensable as executor! It follows, incidentally, that an individual should hesitate before accepting a position as sole executor.

Excerpted from Preserving Capital and Making it Grow, 1983.