An executor is the person you appoint to handle the settlement of your estate after your death, taking your estate through probate, a court-supervised process that closes your affairs in the state you were living in at the time of your death. .
Typically, the executor is a spouse or close family member, but you can appoint a professional executor, such as a bank, lawyer, or professional trustee in a trust company. In all cases, an executor has a fiduciary duty to be honest, impartial and financially responsible, and should be someone you trust to carry out your wishes as set out in your will. Remember to name one or two backup executors in case the main executor rejects the job.
NAME YOUR EXECUTOR IN YOUR WILL; RESPONSIBILITIES
For the court to accept your appointed executor, you will need to name that person in your will. If your executor meets the legal requirements of your state and is otherwise fit to serve, the court usually approves the request. The duties of your executor may include:
• Search and recovery of your assets, including unpaid debts owed to you
• Inventory and expertise of your assets
• Notify your creditors (eg credit card companies, banks, retail stores)
• Filing of an income tax return and payment of inheritance tax, if applicable
• Pay debts or other taxes
• Distribute your property according to your will and the law
• Provide a detailed report of how the estate was settled to the court and all interested parties
If you do not name an executor in your will, or if the executor cannot serve for any reason, or if you die without a will, the court will appoint an administrator to settle your estate.
Also, managing an estate can be a lot of work, and it is fair and reasonable to compensate an executor for their efforts. You can decide to bequeath a percentage of your assets to them as part of your will; usually this can vary between 1% and 5% of the value of your estate.
DOCUMENTATION OF YOUR ASSETS AND LIABILITIES
To make life easier for your executor, it’s a good idea to have records showing where your assets and liabilities are located, as well as a contact list for advisers who have direct knowledge of your affairs. Having up-to-date balance sheets and cash flow statements is invaluable, as well as an inventory of assets prepared by your financial advisor. It’s also helpful to have a spreadsheet listing all of your financial accounts, online account IDs, and contact information for your attorney, financial advisor, and tax preparer.
Be sure to include any beneficiary-directed workplace retirement plans, such as a 401(k) or 403(b), IRAs, and life insurance policies. And it’s a good idea to report all assets without a beneficiary designation, such as vehicles, cash in a savings account, savings bonds, stock certificates, valuables, and other property. . Leaving clear instructions on how you want these assets to be distributed among your heirs, such as filing forms payable on death (POD) with your bank, will make the process of settling your estate much easier for your executor. Review these beneficiary designations regularly to ensure that they still reflect your wishes.
Finally, if your estate contains a trust, you will want to ensure that your appointed executor is willing to perform the terms of the trust, as they can often reflect complex asset management arrangements for the benefit of another person. Make sure your executor reads the trust document before agreeing to serve as a trustee.
PREPARE TAX DECLARATIONS AND ANSWER BENEFICIARIES’ QUESTIONS
Generally, taxes must be filed for the deceased in the year of death. But the issue of taxes will often arise more broadly when beneficiaries ask about inheritance tax and taxes on distributions. Unless you are also the beneficiaries’ tax advisor, you should recommend that they consult their tax advisor to understand the tax implications of their inheritance.
You may have questions about inheritance tax. For an estate to be subject to federal estate tax, it must exceed $12.06 million for a single person or $24.12 million for a married couple. But many states have their own estate or estate tax laws with much lower thresholds — $3 million in Minnesota and $5 million in Maryland, for example.
Other tax issues that may arise include how the inherited IRA, annuity distributions, and capital gains are taxed, including whether the asset in question received a base increase. Since tax matters get complicated quickly, you will want to consult your tax advisor and recommend that beneficiaries do the same.
The opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations to any individual. Wealth Enhancement Group does not provide tax or legal advice.
Bruce Helmer and Peg Webb are financial advisors at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at [email protected]. Securities offered by LPL Financial, member FINRA/SIPC. Advisory services offered by Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
