Common Mistakes Executors Make and How to Avoid Them
Being named the executor of an estate is a significant responsibility that requires attention to detail, understanding of legal processes, and effective communication. Many executors, especially first-timers, can make mistakes that lead to complications, delays, and even legal issues. Here are some of the most common mistakes executors make and tips on how to avoid them.
1. Waiting Too Long to Take Action
Problem: Delaying action after being named an executor can cause numerous issues, including missing important deadlines and failing to secure estate assets.
Solution: As soon as you learn you are the executor:
- Lodge the Will: Take the original will to the courthouse in the county where the decedent passed away. The court will keep the will on file, making it a public document.
- Notify Beneficiaries: Inform all beneficiaries named in the will about the probate process and their entitlements.
- Hire an Attorney: Engage a probate attorney to guide you through the legal requirements and ensure compliance with probate laws.
2. Distributing Estate Funds Without a Court Order
Problem: Distributing funds to beneficiaries without a court order can lead to significant liability if unforeseen debts or taxes arise.
Solution: Wait until the court issues an order for distribution before giving any funds to beneficiaries. This ensures all debts, taxes, and expenses are settled first.
Example: If the decedent had unpaid taxes, distributing funds prematurely could leave the estate unable to cover these liabilities, putting the executor at risk of personal liability.
3. Failing to Make the Portability Election
Problem: Missing the portability election can result in losing a significant tax benefit for the surviving spouse.
Solution: If the decedent did not use up their estate tax exemption, the executor must file a portability election with the IRS. This allows the surviving spouse to use the deceased spouse’s unused exemption.
Example: If the first spouse dies and leaves an unused $10 million exemption, making the portability election allows the surviving spouse to add this to their own exemption, potentially shielding $20 million from estate taxes.
4. Not Following the Terms of the Will
Problem: Executors sometimes deviate from the terms of the will based on personal beliefs about the decedent’s wishes, leading to legal issues.
Solution: Follow the will’s instructions precisely. Any deviation can result in legal consequences and challenges from beneficiaries.
Example: An executor who distributes assets differently than specified in the will could be held accountable by the court and beneficiaries, leading to possible removal and legal action.
5. Not Making a Complete Estate Inventory
Problem: Failing to include all assets in the estate inventory can lead to incomplete administration and potential legal issues.
Solution: Work with a probate attorney to create a thorough inventory of all estate assets, including real estate, bank accounts, personal property, and other valuables.
Example: Leaving out a car worth $22,000 because it seems insignificant can cause problems later when the inventory is reviewed by the court and beneficiaries.
6. Avoiding Communication with Beneficiaries
Problem: Poor communication with beneficiaries can lead to distrust, frustration, and potential disputes.
Solution: Maintain regular, transparent communication with all beneficiaries, updating them on the estate administration process and addressing their concerns.
Example: Providing periodic updates and being available to answer questions can help manage beneficiaries’ expectations and reduce conflict.
7. Holding Estate Funds in a Non-Estate Account
Problem: Mixing estate funds with personal funds (co-mingling) is a serious mistake that can lead to allegations of mismanagement.
Solution: Open a separate estate account using the estate’s tax ID number to keep all funds and transactions distinct from personal finances.
Example: An executor who deposits estate funds into their personal account, even temporarily, could face removal and legal repercussions for mismanagement.
8. Ignoring Valid Claims Against the Estate
Problem: Ignoring or failing to notify creditors can result in unpaid debts and potential legal action against the estate.
Solution: Send notice to all known creditors and address valid claims promptly. This protects the estate from additional legal and financial complications.
Example: Failing to notify a creditor about the probate process could lead to a lawsuit, further delaying the administration and distribution of the estate.
9. Self-Dealing from the Estate
Problem: Engaging in transactions that benefit the executor personally, known as self-dealing, is a breach of fiduciary duty.
Solution: Ensure all transactions are conducted in the best interest of the estate and its beneficiaries, avoiding any appearance of conflict of interest.
Example: Selling estate property to a relative at below market value can be seen as self-dealing and result in legal challenges and removal as executor.
Conclusion
Serving as an executor requires diligence, transparency, and adherence to legal guidelines. By avoiding these common mistakes and seeking guidance from a competent probate attorney, executors can effectively manage estate administration, protect themselves from liability, and ensure that the decedent’s wishes are honored. Beneficiaries should also stay informed and seek legal counsel if they suspect mismanagement or other issues with the estate administration.