TrustLawyer

9 Steps for Executors of Wills & Estates

What is an Executor?

In a nutshell, an Executor is someone appointed in a will to manage a deceased person’s assets after he or she dies. The executor has several responsibilities when executing an estate. To learn more about those responsibilities read our post “Your Uncle Died. You Are His Executor. What Do You Have to Do?

What are an Executor’s Jobs?

An Executor has four duties:

  1. Determine the nature, extent and value of all of the deceased person’s assets.
  2. Ascertain what bills or debts the person had and, after making sure that they are legitimate, pay them.
  3. File all estate and income tax returns and probate court documents.
  4. Account for what he or she has done and distribute the assets to the beneficiaries.

Executor’s Steps #1: Locate the Estate’s Assets

The first, and most important, job is to locate all of the assets which the person owned, either alone or in conjunction with any other person.  For this purpose, “assets” include on-line bank and brokerage accounts, life insurance policies (even “lapsed” ones) and assets which through inattention, have found their way to an unclaimed property list.

Executor’s Steps #2: Gather the Facts of the Estate

It’s not always easy to locate all of the person’s assets.  The simple reason is that people simply forget. With increasing age comes decreasing memory. Some items that typically wind up on unclaimed property lists include:

  • Security deposits
  • Dividends that were sent to a prior address
  • Safe deposit boxes
  • CDs which have rolled over for several years while ignoring bank correspondence was ignored.

Executor’s Steps #3: Check Unclaimed Property Lists

When  probate lawyers settle an estate, we always check the “unclaimed asset” lists of all the states the person lived in or had property in.  We review prior tax returns for sources of dividends and interest.  We sometimes find, after examining all of the person’s records, that there are “dormant” assets which we can bring back to life.

Executor’s Steps #4: Be Aware of Gifts

The Executor must also be aware of the decedent's prior gifts. This is another reason to carefully examine prior years’ tax returns.  The IRS certainly will in an estate tax audit so an executor needs to know what’s in them too.  A significant drop in interest or dividends from a specific source could indicate a gift and the estate could be liable for taxes on those gifts.  

A few years ago, our law firm was involved in settling an estate where an Executor didn't know that his deceased uncle had made gifts in excess of $900,000. The IRS initially threatened a criminal prosecution against the Executor until the Executor persuaded them that he was totally ignorant of the gifts and was not attempting to defraud the government.

Executor’s Steps #5: Value the Estates Assets

Another important job for the Executor is to determine the fair market value of every asset in the estate. This is necessary in order to distribute the assets and also in order to file proper estate tax returns.  

Even for estates that don’t have a lot of assets, valuing the estates assets can be much more complex than just getting an appraisal. How you value assets can have a huge impact on tax obligations and needs to be done strategically. To learn more, read this blog post about the factors to consider when valuing an estates assets.

Executor’s Steps #6: Pay the Estates Taxes

The Executor is legally responsible for filing necessary income and estate tax returns (federal and state) and for paying all estate and income taxes.  The Connecticut estate tax return and any payments owed are due six months from date of death.  The federal return and payment are due three months later. The IRS penalty for failure to file a return on time is 5% of the tax for each month that the return is not filed.  The Connecticut penalty is 10% of the tax. In an egregious case, an Executor could receive a visit from the criminal division of the IRS.

Executor’s Steps #7: Distribute Assets to Beneficiaries

You might have seen ads for “free living trust seminars that talk about the evils of probate and how to avoid it. These ads make the claim that the beneficiaries have to wait to receive their distributions while the estate is “tied up in probate.”  This is simply not true.  An Executor can begin to make distributions right after he or she is appointed.  However, the Executor should be sure that there are sufficient assets remaining in the estate to pay all claims, expenses and taxes. If the Executor is not sure whether he or she should or can make a distribution, he or she should seek the guidance of the probate court.

Executor’s Steps #8: Account for the Assets in Probate Court

An Executor has to file an inventory of the deceased person’s assets with the probate court two months after opening the estate.  On the other end of the process when the Executor is about to close the estate, he or she must “account” for all of the assets on the inventory, all income and other assets which came into the estate and all payments and distributions which the Executor made.

The Executor need not file a formal accounting in many estates.  He or she can often file a shorter form called a “financial report.”  That report needs to inform the court what the Executor has done with the estate assets.  It lists all sales and distributions, dividends, interest and other income and all claims and expenses.  It shows the proposed final distribution of the assets. It is crucial that the Executor get the accounting right because he or she is personally responsible for any errors in financial reports and accountings.

Executor’s Steps #9:  Distribute Remaining Assets

After the financial report or accounting is accepted by the probate court, the Executor's last job is to distribute the remaining assets in accordance with the will. 

Not a Time for “On the Job Training”

What I’ve described above is an extremely simplified overview of the estate settlement process and the Executor’s duties. Administering an estate is not  a simple matter of filling in and filing forms.  An Executor is required to make vital decisions which require a knowledge of estate and tax law.

Estate administration is not “intuitive.”  It is very easy for an uninformed Executor to make a costly, and often irreparable, error.  That is why you need a will and estate attorney who has the training, experience and access to tools to do the job right.

Our TrustLawyer team has been representing individual and bank Executors for over forty years. We help Executors to make wise tax and administrative decisions. We welcome your questions. Please call us at (860)257-4330.