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Someday, your executor will carry out the terms of your will, honoring your wishes as you’ve spelled them out. If you’re like many people, you’ve named a relative, friend, business partner or peer, in part to honor the relationship.
The job, however, entails more than you may realize. An executor’s duties are immense and time-sensitive for large estates. Would your executor be able to locate, value, safeguard and distribute the estate’s assets and pay all its taxes and debts, while accounting for all receipts and disbursements? What about managing real estate and other holdings, prudently selling assets and handling claims—even lawsuits?
Here are four questions to ask yourself when naming an executor.
If you have a complex balance sheet, your executor will need investments knowledge to ensure it is managed prudently and in accordance with any governing instruments, as your executor will need to manage your assets and evaluate how to raise cash to pay taxes, expenses and bequests.
In particular, if your estate will include specialty assets, such as a family business, oil and gas interests, or mineral rights, this will require additional professional expertise. Your executor should know how to operate, oversee or wind down these businesses.
Executors can hire accounting, legal, real estate, investment and specialized industry advisors. However, they still need fundamental knowledge, and are ultimately responsible to properly oversee such assets and to know what professionals are needed. They should be familiar with the probate, court and tax systems—and be able to operate within very strict time constraints.
Serving as executor of a complex estate can be a full-time job. Estate administration must be timely, accurate and follow the will and all applicable laws. If the executor has a career and/or a family, the duties may be too much. In addition, if you appoint an executor close to your age, they may be unable to have the time or continuity to take on the responsibilities for the entire duration of the administration process.
Your executor is responsible for many time-intensive tasks, such as collecting, safeguarding and valuing assets, preparing accountings and inventories, paying all liabilities, filing tax returns and making distributions. For these reasons, it’s difficult to find someone with all the necessary skills and time to carry out all the duties of an executor.
Naming a trusted family member, close friend or business associate might create a conflict of interest. If the executor is also a beneficiary under the will, their impartiality could be compromised. Some examples of tension we have seen:
The law may preclude a person from acting as an executor. For example, in some locations, the executor must be a resident of the state in which the will is administered. Where out-of-state executors are permitted, residency elsewhere may create unintended income tax obligations.
Executors also take on risk. Does your executor have the appetite for personal risk? Failure to properly administer an estate could result in liability for the executors—even if their error is unintentional.
Not every estate may need the services of a corporate executor—a third-party fiduciary—but some do.
Two scenarios we have seen unfold:
Case study 1: A family member is overwhelmed
The ranch owner: The owner of a 200-acre ranch died recently, survived by his ex-wife and five adult children. His estate comprised various assets, including the ranch, livestock, interests in oil and mineral fields, and real estate across the Midwest, along with an investment portfolio of fixed income and some equities.
The executor’s challenge: The eldest daughter had been named by her father as the sole executor. Her mother (the ex-wife) filed claims against the estate and her four siblings, two of whom were not gainfully employed, and sought immediate distributions and continuously pressured her for them. The executor, with a full-time job and two young children, had neither the time nor the specialized knowledge to properly consider the merits of selling the oil and mineral interests (or how to value them), and was reluctant to liquidate assets for taxes and other estate expenses.
Appointing a corporate co-executor made sense for her, as she needed the resources and knowledge to properly administer the estate as well as meet deadlines while continuing to manage the ranch—plus the experience and objectivity to manage the siblings’ demands and expectations.
Case study 2: The well-equipped executor
A simple estate: A matriarch of a family recently passed away from a terminal illness, leaving behind her husband and adult daughter. Her estate included a large investment portfolio, mostly of stocks, and the main residence in Malibu. Under her estate plan, she had left all the assets to her husband, and appointed him as executor.
The executor’s approach: The husband hired a skilled attorney, and was able to dedicate the necessary time and resources to administering the estate. Because of his late wife’s planning, he was able to carry out his executor’s duties thoroughly over the next few years.
Great care in appointing your executor is an important part of making sure your vision for your legacy is carried out as you intend. For some estates, professional support could make all the difference.
Reach out to your J.P. Morgan team to help you examine your estate, discuss a plan that serves your goals, and consider your choice of an executor in light of these four questions.
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