Most people know that they should have a will, but few individuals understand how important it is to select the right executor to help manage their affairs and distribute their assets to heirs upon their death. The fact is that picking the "right" executor will mean that loved ones will receive their inheritance on a timely basis. Picking the wrong one could lead to lengthy delays, tax problems, and possibly even a contested will.

In order to provide a better understanding of why it is so important to select a capable executor, we'll explore what happens to your estate (and the executor's involvement) after you pass away.

Key Takeaways

  • Choosing the wrong person to handle your estate could lead to tax problems and delays in distribution.
  • The executor identifies creditors and notifies them.
  • The executor is also responsible for closing the estate.

Your Estate Is Opened

In order to officially "open" your estate in the U.S. and begin the process of probating your will, the executor will file paperwork with the county where they state that they are the executor and will be representing the estate. The executor must also then notify creditors and/or other interested parties of your death and their right to make a claim against your estate.

Some probate courts will require that certified letters are sent to potential creditors. Others simply require that a notice be published in a local newspaper. But in any case, it is up to the executor (with some help from the court) to identify those creditors and to properly notify them. To be clear, notification errors could lead to lawsuits from beneficiaries, heirs, and/or creditors. Therefore, the task definitely warrants a mature individual.

So what is probate? For those unaware, probate is a process conducted by a court (typically referred to as a probate court) that determines the validity of the deceased's will. The court also helps to identify and locate beneficiaries and supervises the distribution of assets. (Find out how to avoid probate costs in Avoiding Unnecessary Probate Costs.)

Collecting Assets

It is the executor's job to take an accurate inventory of the deceased's assets. This includes making a list of all bank, brokerage, and retirement accounts, as well as any property the deceased owned. Additionally, an inventory of personal effects, such as collections, antiques, or other valuables must be tabulated and presented to the probate court for review.

Obviously, this can be an extremely time-consuming task. It may mean going through the deceased's personal paperwork for information, interviewing heirs, or perusing ownership documents at the local town hall. And again, the information is expected to be accurate and complete so that the heirs receive their inheritance(s) on a timely basis.

Managing the Estate

The executor is charged with using the estate's funds to pay any bills that the deceased had outstanding (such as utility or credit card invoices) at the time of his or her death. The executor must also collect any money that is owed to the deceased. This is extremely important because the money must then be passed on to the beneficiaries according to the provisions of the will.

If a business is involved, the executor may have to buy or sell certain assets, make payroll distributions, and otherwise temporarily run the enterprise (or at the very least, find someone to do it) until it is passed on to heirs (again as per the provisions of the will).

In short, this means that having a business-savvy executor is also a must.

Dealing with Taxes

It is up to the executor to find an attorney or an accountant to calculate any estate taxes that are due (or do it themselves), and then to file the appropriate tax return to make the payment. In addition, the executor is responsible for filing a final income tax return (Form 1040) for the deceased. The purpose of this is to pay any taxes that are due on income that was earned in the last year of the deceased's life, and/or to receive any refunds (that would ultimately be passed to the beneficiaries). Again, these tasks require an intelligent, disciplined individual who is able to appreciate the implications of his or her duties.

Closing the Estate

This is a process where the executor must prove to the probate court that he or she has adequately notified all potential creditors of the deceased's death. The executor must also prove to the court that he or she has paid all bills and taxes that were due. As part of the process, the executor may also have to show releases from the state that all liabilities have been settled, and provide a thorough accounting of any income earned or disbursements made by the estate after the death of the deceased.

The executor is responsible for everything, from opening the estate to managing debt and inventory to closing the estate and distributing assets.

Distributing Assets

After all debts have been settled, it is up to the executor to distribute the assets to heirs as per the provisions of the deceased's will. This may mean paying funds to heirs directly, or, if the will provides for it, funding a trust for minors.

While this may sound like an easy task, it isn't. After all, the executor may have to deal with jealous family members or others that feel cheated that they didn't get their due. Therefore, it's up to the executor to meet with and explain the distributions to heirs. In other words, to be a "people person." Incidentally, the goal here is to prevent will contests (where an entity files suit trying to obtain funds not bequeathed to them in the will), which could drag the distribution process out even longer.

Choosing the Right Person

Most individuals tend to choose family members or other close friends or relatives to act as an executor and to administrate their wills upon their death. But because of the intricacies that go part and parcel with the job, people must realize that the most competent individual (not the closest in relation) should be chosen. As mentioned before, this does not mean that the chosen individual must do everything themselves. Executors are allowed to hire others to help with various aspects of the process (such as an accountant to help with the taxation portion).

With that in mind, if you don't have a friend or a relative that you think can complete these duties in a satisfactory manner, don't worry—attorneys, accountants, and other professionals can act as an executor for a fee, usually derived from the deceased's estate. And while that fee may be in the hundreds or even thousands of dollars (depending upon the size of the estate and difficulties involved), it may be worthwhile, especially if it means your family will receive their inheritance intact and on a timely basis.

Bottom Line

Most people assume that being an executor is an easy task that anyone can manage, but because the probate process is so involved and may entail interaction with tax and legal professionals, only an intelligent, dependable person should be named as executor.