Fiduciary Obligations, Portability, Disclaimer Option, Contingent Executor, Costs
A person with a simple estate can afford to name an executor or executrix for purely emotional reasons, e.g., a spouse or a friend. But, in today’s complex financial environment, it’s rare to have a simple estate and so the choice of an executor with good judgment and business acumen and who understands the details of your estate is critical.
Your executor also may have to contend with disputes among your heirs and life insurance beneficiaries, and there is the chance that someone may challenge your will or any trust agreements you signed during your lifetime. Here are some guidelines to consider in selecting an executor.
#1. If your executor doesn’t have investment or real estate management expertise, you may wish to specify certain individuals or firms with whom he or she should consult on decisions in those areas.
#2. Don’t automatically name your spouse as sole executor. That may be appropriate if your estate will be simple. But if your estate will include such items as a business, or investment income that must be re-invested periodically, you may be better off naming co-executors, e.g., a spouse and a financial institution.
#3. Consult with your lawyer as to whether you can make your recommendations binding on your executor; state law can vary on this issue. Discuss the blank-check or disclaimer option whereby your spouse can change the amount and form in which the assets are received.
#4. Be sure your executor and lawyer understand the Portability Option whereby the surviving spouse can use any part of the $5 million estate tax exemption not used by the decedent’s estate. This option will substantially reduce estate and gift taxes.
#5. Discuss the job with your executor before naming him or her to determine willingness to serve. Be sure he or she understands the commitment being made. Also provide for an alternate or contingent executor just in case your primary executor is unable to perform or becomes sick or disabled before the estate is settled.
#6. Costs also should be considered. If an individual outside your family acts as an executor, he or she may want to be compensated for the services. You can specify the fee. If a financial institution is selected, fees will vary depending on the size of your estate and state law.
The burden of an executor is great. Some complex estates can take a year or two to settle, much longer if disputes arise. In addition, the personal and financial liability of an executor is significant since the responsibilities are fiduciary. So select an individual or firm who is up to the task and one who does not have a conflict of interest.
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