CHOOSING AN EXECUTOR

The purpose of your will is to convey your probate property and see that your loved ones are protected. One of the most important decisions you’ll make is choosing who’ll be in charge of your estate. That person is known as the executor of your will.

Many people choose their spouse or an adult child to be executor, but what if you have no one in these categories, or your child lives in another state, or your estate is complex?

What Executors Do. The Executor is responsible for administering your estate through probate. He or she should be someone who is financially responsible, stable, and trustworthy.

The law requires an executor because someone must be responsible for wrapping up your affairs, which entails paying bills, taxes, and gathering assets and distributing them to beneficiaries, to name just a few tasks.

The executor notifies the IRS of his or her appointment by sending in a form and applying for a taxpayer ID number for the estate. The executor must file a form to pay estate tax, for estates valued at $675,000 or more, within nine months after the date of death. The executor may have to file a state estate tax return also.

There may also be income tax to pay. Your executor must file a final income tax return (Form 1040) for you by April 15 of the tax year after the year you died or obtain an extension. Income to the estate in one year before the estate is completely settled is subject to income tax.

Sounds like a lot of work, doesn’t it? It can be, and some of it can be complicated. However, the executor doesn’t necessarily have to shoulder the entire burden. He or she can pay a professional out of the estate assets to take care of most of these functions, especially those requiring legal or financial expertise.

The executor will generally work with your lawyer to probate the will. The lawyer handles all of the court appearances and filings while the executor provides information and input.

What to Look for in an Executor. In choosing an executor, you must find someone with the proper balance of people skills and financial acumen.

It’s important to be sure the executor is capable of doing the job. Think of the appointment as employment – not a way to reward (or punish) a friend or a relative.

One desirable quality is perseverance in dealing with bills (especially the hospital, Medicare, ambulance and doctor charges incurred in a last illness.) Bills often require a lot of paperwork, first paying them, then being reimbursed by insurance companies. Pick someone who has the time and inclination to deal with bureaucrats and forms.

If there are complicated tax issues, or a business to run, you might choose co-executors. This is a way to ensure that at least one person has legal or financial expertise and one is close to the family. If you choose this course, be sure to pick people or entities that can work together.

For example, a small business owner might appoint his or her spouse and a person with business expertise, and specify which executor will be responsible for which duties.

The executor cannot be a minor or convicted felon, and must be a U.S. Citizen. And while all states allow nonresidents to be executors, some require a nonresident to be a primary beneficiary or a close relative; others require a surety bond or require that the out-of-state executor engage a resident to act as his or her representative and keep the assets in the state of primary probate.

Whomever you choose, be sure to provide in your will for a replacement executor in case the original executor dies or is unable or unwilling to act. Otherwise, the court will have to choose the replacement.

Giving the Executor More Powers. The law defines, and sometimes restricts, the powers of an executor. For this reason it’s often a good idea to specify in your will that your executor will have certain powers beyond those normally granted by state law. Many lawyers put some or all of the following powers into the wills they write for their clients:

Power to hire professional help. Your will can state that you expect your executor to retain the services of a competent attorney and other appropriate counselors to speed the process of settling your estate. This takes the burden off your executor (especially important if it’s your spouse) and brings expertise to your estate administration.

Power to retain certain kids of property in the estate. This is necessary because state law may mandate that certain kinds of property be sold (e.g., "unproductive assets," which might be interpreted to include a family business that hasn’t yet reached its full potential.)

Power to continue running your business. This will keep the business going until a new chief executive is chosen, unless you want it liquidated.

Power to mortgage, lease, buy and sell real estate and other assets. This ability may be limited by law if not otherwise specified in the will.

Power to borrow money. This is usually to pay estate debts or taxes.

Power to take advantage of tax savings. Exercising the various options permissible under tax law, such as filing a joint tax return with your spouse, can save money.

RESPONSIBILITIES OF THE EXECUTOR

• Collecting the assets of the deceased.
• Representing the estate in claims against others and otherwise protecting the estate property.
• Evaluating and paying claims against the estate, especially bills and taxes.
• Raising money to pay these claims, often by selling estate assets.
• Preparing and filing a budget and accounting for the court.
• Transferring legacies and gifts to the beneficiaries.
• Guiding the will through probate to legal acceptance of its validity, including defending it against will contests.
• Paying claims and taxes and distributing the estate property to the beneficiaries may require liquidating assets; that is, selling items like stocks, bond, even a car to have enough cash.

The will can impose additional duties not required by law on the executor: choosing beneficiaries or distributing personal property, even investing funds.