What you need to know as the executor of an estate

December 30, 2021

Handling financial affairs of a loved one’s estate requires organizational money smarts. These helpful tips have laid the groundwork to make the process easier for yourself.

 

Losing a loved one is devastating enough, add to that being the executor of their estate and it can feel overwhelming. Being responsible for the deceased’s property and carrying out the directions in their will can also be complicated. Here are a few things to know to make the process go more smoothly.

 

You are entitled to an attorney

Your loved one may already have an attorney who drafted their estate documents. If that is the case, your first step should be to contact them to learn more about your duties and so they can file any necessary paperwork to officially appoint you as executor. Even if your loved one did not have an attorney it may be a good idea to hire one. They will be familiar with probate laws, which vary by state, and they can help you with your duties as executor.

 

You have a fiduciary responsibility

As the executor of an estate, you have a fiduciary responsibility to act in the financial interest of the person who has died. And you should fulfill the desires expressed in the will to the best of your ability. One of your first tasks is to notify creditors, banks and other entities of the death. This includes cancelling credit cards and recurring payments or subscriptions. If your loved one was collecting Social Security benefits, contact the Social Security Administration.

You’ll need to figure out on a case-by-case basis how creditors and debt collectors intend to move forward. Your priority should be finding out what the estate owes to whom and when it needs to be paid. If the estate cannot pay all its debts in full, you’ll need to negotiate debt forgiveness with creditors. A probate attorney can be especially helpful here.

 

Securing and appraising assets

It’s a common misconception that heirs immediately become the rightful owners of the property and assets willed to them. However, the executor is responsible for ensuring that the estates’ debts and creditors are paid before any other distribution happens. It’s ideal to not sell property specifically bequeathed to someone. Even so, some valuable items may need to be sold to keep the estate solvent.

Before you sell anything, you should have any property appraised and the value of investments documented at the time of death. This will help when it comes to filing the estate’s taxes and for any other reporting requirements.

But be careful, if distributions are made before all estate debts are settled, you could be held personally liable for coming up short.

 

Pay the debts, bills and taxes

It’s advisable to open a separate bank account and to put the estate’s funds there so you can use them to make related payments. A separate account will also help you keep track of your transactions but it’s a good idea to keep paper receipts as well. Ensure that creditors, bills and taxes are paid in full and any other claims on the estate are made before you make any distributions to beneficiaries.

Also know that the estate will typically pay for funeral expenses and other costs related to your loved one’s passing.

An important thing to note is that an estate is a taxpaying entity separate from the person who died. So, an executor may have to file different types of tax returns. In order to file income tax for the estate, the executor will need to acquire a new tax identification number (called an employer identification number or EIN) from the IRS. Your attorney can help with this.

 

Keep beneficiaries in the loop

It’s a good idea to meet with the beneficiaries as soon as possible to go over the estate holdings and to explain the timeframe involved with the distribution of the inheritance. Also, consult with your attorney on any specific gifts outlined in the will.

After completing most or all of the financial business, you can start distributing the estate’s property and funds. Is it your responsibility to make distributions that honor the will. This work can be time consuming so check to see whether you may be entitled to compensation for your work as executor.

Any payments that are going to you or someone related to you should be carefully documented to avoid any misunderstandings.

 

Work with a finance professional

A skilled accountant can make sure the estate’s money is paid out in a way that will incur the fewest taxes. They can also advise you on ways to keep the estate solvent while you are managing the assets, especially if the will calls for establishing a long-term trust fund. But be aware, distributing money over time will mean you need to continue filling out taxes for the estate until the trust is dissolved.

 

Close the estate

When all the assets have been distributed and financial matters are settled, you’ll need to file paperwork with the IRS notifying them that you are no longer the fiduciary for the estate.

Being named an executor of an estate at a time when you’re grieving, can be overwhelming. But you are not alone. There are plenty of people and resources to help you along the way and, ultimately, to help honor your loved one’s wishes.

 

For more information on things you may need to know if you’re settling the financial affairs of a loved one who has passed away, find more resources here

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