When your loved one asks you to oversee the management of a will or trust, it demonstrates they think you possess the confidence and responsibility needed to successfully fulfill their wishes. The responsibility may be overwhelming, but some simple tips can help guide you through the process.
What is an estate executor?
Most families have a will because they're quite simple to set up. If you're the executor of a will, it controls how you'll distribute assets. A will must first go through probate court, which is a legal process formally appointing you as executor to administer the deceased's estate.
A revocable trust is similar to a will in that it guides the overseer of the estate in distributing assets, but it skips the probate process.
“We see more clients with revocable trusts as part of their estate plan," says Bill Ringham, director of private wealth strategies for RBC Wealth Management-U.S. “Usually their estate tends to be larger and is more complex. Privacy and probate avoidance may also be important. A revocable trust may also benefit families with multiple properties in different states. You can put the title of those properties into the trust and avoid probate in each state where the property is located."
While trusts don't require court oversight, as the trustee, you do have a fiduciary duty to administer the assets listed in the trust as specified in the document.
Understand the wishes of the estate before you take control
Unfortunately for many estate distributors, the job comes as a surprise, leaving them scrambling to make sense of the estate.In the case of trusts, usually the spouse is the trustee, and children are successor trustees.
First, you need to decide if you have the skill and time to take on the task, says Dean Deutz, private wealth consultant with RBC Wealth Management-U.S. He estimates between six months to two years to fully execute an estate.
If your loved one asks you in advance to serve as executor or trustee for an estate, it gives you opportunity to be organized when it's time for you to take the role," adds Ringham. “You can learn about your loved one's legacy expectations, where assets are stored and what professionals were involved in the development of the estate."
Learning the wishes of your loved one is an important first step in executing an estate. Ask the following questions:
- Can I use a team of professionals to assist me?
- Where are your assets located?
- What do you want your legacy to look like?
Deutz recommends you determine how much of the work you want to accomplish on your own, what you will need help with and who's going to provide that assistance. A traditional team includes an attorney, financial advisor, CPA and professionals to evaluate for property values.
Locating the assets is often a large undertaking. “It's harder today than it was two years ago, because so many people are going online," Deutz says.There are two tricks to finding online assets. Get a copy of the deceased's recent tax return, which will show a list of all of the incomes. And, if you know in advance, you ask the person creating the will or trust to create a list."
Tips for getting started on estate management
Once you're in position to oversee an estate as trustee, or named by probate court for a will, it's time to prioritize management of the estate.
- Engage a team of professionals to help you.A lawyer can help with probate court, and getting the estate tax ID or EIN number established for the trust. “Most times, the executor of a will is not compensated," says Cathy Walker, senior trust consultant with RBC Wealth Management-U.S. “You may need to take vacation days. And some of the decisions you make are not going to be popular. I encourage the use of professionals who are available if the estate gets complicated. The money you spend to bring an attorney or financial advisor on your team to provide expertise in their respective fields is well worth the price of keeping family relationships on good terms."
- Notify financial institutions, government agencies and billing companies (like utilities) about the death. This will help you manage and close accounts as appropriate.
- Collect and transfer the assets located within the will or trust.You're responsible for managing those assets and guided by the wishes listed in the will or trust until distribution.
- Distribute the assets. The executor or trustee needs to be prepared to communicate," Deutz says. “The more family members, the more communication is necessary." Emotions often increase when it's time to distribute household property, he adds. He recommends having everyone agree on a system you'll use to distribute the assets before starting. It could be simple, like drawing a name out of a hat for items one at a time, and then reversing the order when finished, or providing all family members with numbered cards they can attach to household items prioritizing their interests. Once everyone agrees on a system, it helps move the process forward.
The executor is caught in the middle and thinks they're doing the correct process. But if household items are not specifically listed in a will with an heir's name, it becomes very difficult.
A checklist for managing an estate
Everyone has the right to decline executor duties. Ringham recommends you communicate this quickly, especially if the person creating the will or trust is still alive, allowing them to find another person they trust. For those who decide they want to proceed as an executor, keep the following in mind:
- Get 20 or more original death certificates;from the funeral home or the county where the person passed away to assist with anything requiring a title change. It takes time and money to get them at a later date, slowing the process down.
- You'll be responsible for overseeing payment of estate taxes and ongoing expenses. If the decedent was retired and paying estimated taxes on a quarterly basis, as executor of the estate you'll now be responsible for managing those payments.
- Assets in the estate may benefit from a step-up value. If securities or real estate are in the decedent's name, you have two options to set a new valuation for those items: the date of death, or an alternative valuation date of six months after the date of death. Keep in mind, if market values change significantly between the two dates, it may affect the value of the asset and possibly estate taxes. Work with your attorney and CPA to determine the best plan for the estate.
- You have a fiduciary duty to follow the word of the will or trust. Relatives may not agree with decisions you make, and legal action is a possibility. Negotiation and mediation are two ways to help family members reach an agreement.