Personal Representatives (Executors and Administrators)
When you die, you leave an estate that consists of your property, as well as unpaid bills and debts. Your property must be distributed to your heirs or to your beneficiaries and your unpaid bills and debts must be paid.
You can appoint someone in your will to administer your estate, called an executor, or sometimes, when the executor is a woman — executrix. However, if you do not appoint an executor in your will or you die intestate, then the court will appoint an administrator (or administratrix) for your estate who performs the same functions as the typical executor. Because the executor and the administrator perform the same functions except that one is appointed by the will and the other is appointed by the court, the term personal representative is increasingly used as a gender-neutral term to describe either. However, the term executor is still most frequently used for either sex.
When you die, your will is submitted, usually by someone in your family, to the probate court of your domicile at the time of your death, even if you died in another county or state.
Selecting An Executor
You can select almost any adult who has reached the age of majority to serve as your executor. There are only a few legal restrictions: no minors or incompetent people, and many states prohibit convicted criminals from serving as executor. If the estate consists of a business or real estate, it may be necessary to nominate an executor who is located close by, for it would be difficult to manage those assets remotely. However, geographic proximity will not be as important if the estate consists mostly of online accounts and other easily managed assets.
The executor must be willing to serve, since administering an estate can require a great deal of time and specific knowledge about the assets in the estate. Hence, discuss the position with the person before naming them as the executor in your will. Executors are fiduciaries, so your executor will be exposed to potential liability. They can be sued by beneficiaries for conflicts of interest, breach of confidentiality, failure to protect or preserve estate assets, failure to file timely and proper tax returns or maintain adequate records, breach of confidentiality, failure to exercise due care or diligence or prudence or for breaching the duty to make discretionary decisions personally, without delegating such decisions.
Also specify a successor executor so that if your 1st choice is unable to serve for whatever reason — because he changes his mind or because he died, or for any other reason — then the successor executor would take over. Even if the executor is a lawyer, a bank or trust company, they may go out of business and be unable to accept the position, possibly because of a conflict of interest.
An executor should be selected for their knowledge of the specific types of assets in the estate, such as a business, real estate, or an antique collection. An executor who knows the business will be better able to manage it. One who is familiar with antiques, coin or stamp collections, or other special types of assets will be better able to appraise the value of those specific assets and may be able to sell them at a higher price.
If you name co-executors then stipulate whether any one of them could serve alone if the others fail to serve.
You can also make conditional appointments, such as requiring that the person attain a certain age or completing college. You can also choose someone to select the executor when you die.
Although not a requirement, your executor should be a resident of your domicile because he must collect and distribute your property and may have to appear at the probate court. Hence, if he lives out of state, then he will incur greater travel expenses that must be paid out of the estate, and if the executor is not a resident of the state of your domicile, a resident agent in the domicile state may have to be hired to transfer real estate.
If your estate is modest and your property is liquid and you do not anticipate any family disputes, a family member may serve as the executor; otherwise nominate someone outside of the family to lessen the probability of family disputes or resentments. For larger estates — and for proportionally larger fees — professional executors, such as an attorney, or a bank or trust company, can serve as the executor. If you do appoint a professional executor, then also name a family member to act as co-executor with the professional, with the power to remove or change the professional executor without going to court, so that your family retains more control. Otherwise, dissatisfied beneficiaries must go to court to remove the executor and appoint another.
Appointment of the Executor
Note that although you can name an executor in your will, the court must approve the executor. However, the court will usually accept the person that you nominate. When the executor is appointed, he or she must take an oath before an officer at the local probate court promising to uphold the provisions of the decedent's will. The position usually lasts from 9 months to 2 or 3 years, although will contests and tax problems can extend that duration, sometimes for several years.
Your choice for executor must be clear and definite in your will; otherwise the court will appoint an administrator, who will also be allowed to collect administrator fees from your estate, instead of, for instance, a family member who may have been willing to serve for free.
Even if your nomination for your executor is clear, the court appoints an executor only after notice is given to all interested parties so that they can contest the appointment if they object. If no one objects, then the appointment of the executor usually accompanies the notice for the probate of the will. If an interested party does object to the appointment, they must have a valid legal reason. Simply because the beneficiaries think that the executor will not be good enough or may be unfriendly to family members is not enough to prevent the appointment.
In most states it takes 30 to 60 days for the court to appoint the executor. However, a temporary executor or administrator may be appointed if an estate matter requires immediate attention. However, the temporary executor only addresses what needs to be done immediately until the named executor takes over.
When the appointment is made, the court issues letters testamentary to the executor (or letters of administration to an administrator selected by the court), which legally allows the personal representative to act on behalf of the estate.
In most states the executor must post a bond or promise to pay for any damages that may result from the mismanagement of the estate. In many states, the bond or promise must be backed by a surety, who guarantees that if the executor cause losses to the estate and doesn't pay them, then the surety will pay. Most states allow the testator to dispense with the executor's bond, which most testators do because the executor is often a family member or a personal friend. But if the state does not allow the dispensation of a bond then it may allow the dispensation of the surety bond, instead. But if a bond or surety is required, then the executor will not be appointed by the court until the bond is paid or posted. Additionally, some jurisdictions may require that an out-of-state executor post a bond.
Executor's Duties and Powers
Although Probate Estate Administration provides more detailed information about the powers and duties of the executor, here is a brief overview.
Your executor collects all the property of your estate, from which he pays all estate expenses and taxes, and distributes the remainder of your property according to the terms of your will. If you have property in another state, then the ancillary administration required to dispose of or transfer the property under that state's laws can only take place after the will is validated and your executor is appointed. Your executor then handles the ancillary administration of the property.
Provide a document listing all your assets, so that your executor can easily collect and account for those assets. Provide passwords to your software and online accounts. Inform a close family member or the executor where this document is located. It may be prudent to keep multiple copies in various locations. However, if your executor does not have a list of all your assets, then the executor must spend time gathering the information. Most of this information can be gained from examining your tax returns and checking accounts.
Generally, the law provides the executor with all the powers necessary to carry out the terms of the will. Sometimes the testator will explicitly list the executor's powers in the will or in a document incorporated by reference, or the testator may grant the executor the statutory powers which many states provide in their legal code. However, even if no powers are granted, the courts presume that the executor has the basic powers necessary to carry out the terms of the will. However, an executor must obtain formal permission from the court to sell real estate.
Generally, executors can employ agents, attorneys, stockbrokers, and anyone else necessary to effectively administer the estate. The executor is also usually granted:
- the power to exchange, mortgage, or lease property;
- to lend or borrow money on behalf of the estate;
- to file a claim for the estate;
- or to defend against a claim against the estate.
However, if the testator had a business, then the executor must be given the specific power to continue the business; otherwise the court may require it to be sold.
If the executor resigns, then he must provide a final accounting to the court and the beneficiaries at the time of his resignation.
Executors generally charge a fee for their services; however, the fees must be reasonable. Generally, the executor's fee is commensurate with the size of the estate, even when its administration is relatively simple. The executor's fees should be approved by the court prior to payment and is usually taken from the residuary estate. However, after the executor files a report with the court and with the beneficiaries, a beneficiary can object to the fee if it is deemed excessive.
A family member will often serve without compensation, but if the estate is large enough to be subject to the estate tax, then it might be prudent for the executor to take his fee, even if he is a beneficiary under the will, because it could save on taxes if the executor's tax bracket is less than the estate tax rate.
Executor's fees are usually established by state law as a sliding percentage, ranging from 2% to 5% of the estate. In some states, co-executors would each receive the full fee, while in most other states, they must divide the fee. Executors could also get more compensation over the standard fee if they provided extraordinary service, such as selling real estate, defending a claim against the estate or defending will contests, or for handling a complex tax situation.
The testator can also specify the amount of the executor's fee, or even specify that the executor be paid an hourly rate, and the executor will generally be bound to accept the fee if he accepts the position. However, some states will allow the executor to take a reasonable fee if the court deems that the testator's fee was too low for the amount of work required.
If the executor is an attorney, then he has a right to collect an executor's fee for administering the estate and an attorney's fee for providing any legal work for the estate. However, all fees must be approved by the court before they are paid.
Tax Tip: If the estate will be subject to estate tax, then naming the beneficiaries as co-executors and paying them an executor's fee will save on taxes. The executor's fee can be deducted from the estate. Since the marginal rates on individuals will be lower than the 40% rate on estates, at least some tax will be saved. For instance, if 5 children are the beneficiaries of a $10 million estate, then, by serving as co-executors, the children can earn $100,000 each as an executor fee, allowing them to deduct the total of $500,000 from the estate, thereby saving 40% of the $500,000, or $200,000 in taxes. If the children are in the 25% tax bracket, then the total marginal tax on their executor income will be $125,000, thus saving $75,000 in taxes.
Removing An Executor
Removing an executor requires an adversary proceeding where both parties and their counsel must argue before the court to determine whether the removal of the executor is justified.
The court will remove the executor only if he is incapable of performing his duties or is unsuitable for the position or otherwise becomes disqualified, such as being convicted of a crime, or he is incarcerated. Generally, the executor's behavior, such as paying too slowly, being unfriendly, or not investing funds the way beneficiaries want is usually not enough to remove the executor. Unsuitability may result from a conflict of interest or misconduct by the executor, which could include stealing from the estate, failing to file an inventory, failing to file a report either with the court or with the beneficiaries, or from failure to obey a court order, or to perform duties as an executor. The executor can also be removed for mismanaging the estate.
If the court approves of the executor's removal, then he must pay his own legal fees and may have to make restitution to the estate for any damages, including the return of fees previously paid to him. The successful party will have their legal expenses reimbursed by the estate — either the beneficiary or other interested party that was successful in removing the executor or the executor if he prevails.