Risk is inherent in everything we do. Driving in our car, we risk getting into an accident. Walking down the sidewalk in winter, we risk falling on a patch of slippery ice. Working in the garden, we risk getting stung by a bee. As humans, we are used to the risks that are a part of everyday life. But when it comes to new risks, we can get uneasy.
When you took on the role of estate executor, you may have considered the risks but determined that you would be able to manage them. Or, if you are a first-time executor, you may not be aware of the legal and financial risks involved. Now that you are actively managing your executor duties, you want to make sure you are doing things right to minimize these risks.
Take your fiduciary duty seriously.
As an executor, you have a “fiduciary duty.” This means you have a legal responsibility to act in the best interest of the beneficiaries, not yourself. This can be especially challenging to manage if you are both the executor and one of the beneficiaries. That’s why you need to be careful to ensure you don’t even give the impression that you are being self-serving. This looks different for everyone but may include things like involving the estate attorney in any disputes, having a third-party appraiser value the estate assets before distribution, and communicating plans in advance and sticking to them. It is impossible to overstate the importance of great communication. If you are not regularly reaching out to beneficiaries, those individuals (or their spouses) may become concerned about how you are managing your executor responsibilities and whether you’re being fair to all parties.
In rare instances, you might need a probate bond to proceed with the administration of the estate. A probate bond is a financial guarantee that protects the beneficiaries of the estate from acts such as misrepresentation, fraud, and theft of assets by the executor. For more information, read these Executor.org resources: Probate Bond: As Executor of an Estate, Do I Need One? and the aptly-titled Probate Bonds: Part 2.
Let the experts do their jobs.
Chances are, you will be working with an estate attorney, a financial advisor, and an accountant as you perform your executor duties. While this may be obvious, working with licensed professionals and following their direction in fulfillment of your executor duties is a key aspect of risk management. It’s important to cooperate with these experts and respond promptly to their communications with you. If the accountant asks you to pull together receipts or documents that are needed for tax filings, be sure to ask the deadline to submit that information and get it in on time. If the estate attorney tells you that there is a mandatory appearance before the probate court that you have to complete as part of your executor duties, be there.
Don’t get ahead of yourself.
There are 100+ items on an executor’s to-do list that must be completed in order. That’s why we created Executor.org. We designed the site to help walk you through the steps necessary to complete your executor duties. As just one example of the importance of proper sequencing, if you start distributing estate assets to beneficiaries before confirming that all estate debts are paid, you could get in a lot of trouble and be financially liable for your error. Remember that serving as executor will take several months, and may even take a year. Don’t rush the process and make unnecessary mistakes.
Keep things separate.
Did you know that you need to get a bank account for the estate — one that’s separate even from the account the deceased had during her lifetime? You can’t just put all the estate money in your personal account, even if you keep great records and promise everyone you will distribute it properly when the time comes. It may seem like a hassle, particularly if there aren’t many things that need to be done financially to close the estate. But failing to keep estate money separate can open you up to huge potential legal liability.
Get help with the money.
Let’s face it. Most of us have only the faintest ideas about what to do with non-cash financial assets. Stocks, bonds, interests in businesses, and even assets like IRAs can have major financial implications for estate beneficiaries. If you are the executor for an estate with these types of assets, you should consider consulting a financial professional. Don’t risk being accused of mishandling estate assets to the detriment of the beneficiaries.
Serving in the executor role is a great way to honor your loved one and make sure that their wishes are carried out after they die. Just make sure you take the proper steps to minimize your legal and financial risk in the process.
Have a question about executorship? Get an answer by sending an email to [email protected].
Patrick O’Brien is CEO and co-founder of Executor.org, a free, comprehensive online resource that helps executors manage their responsibilities and duties in this complex role. The free tools include a helpful step-by-step interactive guide for executors and invaluable tips on everything from planning a funeral and keeping beneficiaries happy to dealing with grief and managing estate assets.