Common Executor Mistakes
Serving as an estate executor covers a wide range of responsibilities, involving a number of other people and organizations. Here are some of the common mistakes executors make, and how to avoid them:
When Dealing with Heirs
When dealing with heirs, the key is to be fair, communicate relatively frequently and transparently, and to keep in mind that ultimately you are in charge (within the confines of the law). Common executor mistakes include:
1) Favoring Anyone (including Yourself)
An executor has a fiduciary duty to act in accordance with the best interests of the estate ... even if this is not in the executor's best interests. In addition, while an executor does have wide latitude in making decisions about the estate, an executor must not financially favor one heir at the expense of another. And while it's not illegal to favor one heir in terms of allowing him or her first choice of assets, best practice for an executor is to try to treat everyone fairly and equally. See Fiduciary Duty.
2) Forgiving Debts of Heirs
In some cases, a decedent dies with an heir (or multiple heirs) owing the decedent money. As an executor, you do not have legal authority to simply forgive (i.e., cancel) such debts: it would be unfair to the other heirs. See Heir Debts for alternate ways of handling such situations.
3) Notifying Heirs-at-Law
In many states you must notify heirs that you intend to start the probate process, or that you have received appointment as executor of the estate. As part of that process, the executor is often required to notify heirs-at-law, who are people that would inherit if there were no will ... even if there is a will, and they are excluded. Check with your local probate court for specific requirements.
4) Making Distributions Too Soon
Heirs are often impatient to receive their inheritances, and don't understand the intricacies of estate settlement. It can be tempting to make some distributions before the final stages of the process, especially when heirs are in financial distress. If you are going through probate, early distributions likely require permission from the court, but in any case, there are risks associated with early distributions. For example, previously unknown debts may affect distribution amounts for all heirs, and it may be difficult to reclaim funds you have already distributed.
See Making Distributions for distribution best practices, and see also Inheritance Advances for other ways of dealing with early distribution requests.
5) Limiting Communications
In a recent EstateExec study, 44% of respondents indicated that they had experienced or knew of family conflict due to the estate settlement process, sometimes escalating into actual lawsuits. Keeping heirs informed about the process, and progress along the way, can go a long ways towards reducing suspicion and anxiety: see See Dealing with Heirs.
When Dealing with Creditors
When dealing with creditors, in most cases you can simply pay the bills and move on. However, claims that unexpectedly surface late in the process (or even after you have completed the settlement) can be be quite problematic. Here are a few of the common mistakes executors make:
1) Not Providing Notice of Death
In some states you are required to notify creditors of the death and instruct them to contact you for any claims they may have; in other states this is optional. In all cases, though, this notification protects the executor from liability and enables the estate to wrap up more quickly, because these notifications reduce the time creditors have to make claims.
Publishing a notice of death in a newspaper available locally covers creditors you don't know about, but you are usually required to directly contact creditors you do know about (or should know about). See Finding Debts: Notice for state-specific information.
2) Unnecessarily Acknowledging Debt
If the statute of limitations for a given debt has expired, the debt is considered barred, meaning that no legal action can be taken to collect the debt. In many states, however, acknowledging indebtedness in writing, or making a partial payment, can restart the clock, so executors need to take care not to inadvertently make a debt collectible that otherwise would not have been. See state-specific Estate Debt and Claim Limitations.
3) Paying Bills Too Quickly
It's tempting to get on top of things, be efficient, and just pay all bills as soon as you become aware of them. However, there is a strict order for who has priority access to estate funds, and if you pay bills and then later don't have enough funds to meet other, higher-priority obligations, you could be personally liable for the early payments.
While there may be some small bills that it's just easier and better to pay along the way, such as utility bills so the pipes don't freeze, especially if you think the estate is solvent, best practice for most bills is to wait until the creditor claims period has expired and you have a definitive, defensible understanding of overall estate finances. Even if you think the estate is clearly solvent and this payment timing won't matter, be aware that occasionally very large historical tax obligations (which have a high priority) unexpectedly become known later in the process. See also Resolving Debts.
When Managing Assets
An executor has a duty to protect and manage an estate's assets during the settlement process. Here are some common executor mistakes regarding assets:
1) Overlooking Valuable Assets
It can be difficult and take time to find and accurately value all estate assets, and it is not uncommon for executors to miss bank accounts, valuable collectibles, and even unclaimed pensions. See Finding Assets for help with locating assets, and Determining Value: Household Contents for help in identifying which items in the home may be particularly valuable.
2) Playing the Market
As an executor you have a duty to protect the assets of the estate ... and to manage those assets prudently. These two directives can sometimes appear to be in conflict: it's not necessarily prudent to liquidate all assets and sit on cash for a lengthy estate settlement process that may take years. On the other hand, investing in penny stocks or foreign currency exchanges is definitely not prudent.
This is where judgment comes into play. If you are dealing with significant sums, and are not an experienced, sophisticated investor, you may want to enlist the help of professional advisors. In the end, complaints to the court about losing money are considered much more seriously than failing to make as much money as you might have. See also Financial Advice.
3) Protecting Vacant Homes
Executors should generally ensure that all major assets are protected by insurance as they would be under normal circumstances, and frequently don't understand that typical homeowner's insurance does not cover a home when it is left vacant for an extended period of time. Fortunately, this can be addressed by working with the insurance company before there are any claims. See Protect Unoccupied Property.
A few other common executor mistakes:
1) Falling into Disarray
Serving as an executor entails a wide variety of detailed responsibilities and actions, and it's important to get organized from the beginning ... and stay organized. It's quite common to imagine you will remember everything you've done or plan to do, only to later realize you don't at all remember why you did something, or even that you did it. Best practice is to use a tool like EstateExec to organize your actions and plans, especially if the court or an unhappy heir later challenges you and you need to produce clear records of the process. See also Fiduciary Duty: Record-Keeping.
2) Donating to Charities
While donating a portion of an estate to charity seems commendable on the surface, an executor doesn't have the authority to take such action unless it is prescribed in the will, or if the donated items have no real value and no heirs want them. See also Charitable Donations.
3) Forgetting the Intangibles
The estate settlement process was established long before the existence of online media accounts such as Facebook and LinkedIn, and thus an executor has no legal duty to do anything about these accounts, but it can still be nice to memorialize or shut down these accounts if they played a significant role in the deceased's life. See also Online Media Accounts.
4) Failing to Act
It's not uncommon for an executor to become so overwhelmed with grief, or even just the magnitude of the task, that he or she simply shuts down and stops doing anything, even as heirs plead for action. It's important to realize that there are deadlines for certain tasks, and that the executor has a responsibility to settle the estate in a reasonable timeframe (some states explicitly quantify this requirement, sometimes within as little as a year, although most often it is left unspecified).
You can do this. EstateExec provides detailed task lists and instructions, and can provide access to professionals to help with every aspect of the settlement. On the other hand, if it really is too much for you, it is permissible to step down and allow someone else to take on the responsibility. In fact, if the executor continues to fail to act, the heirs or even the court itself may attempt to initiate such a replacement.
See also Timeline and Rite of Passage.