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Choosing an Executor

A crucial part of any complete financial plan is the estate plan that specifies how your assets will be distributed upon your death.  The cornerstone of an estate plan is the will, the purpose of which is to communicate your intentions for your estate.  In the absence of a will (also known as “dying intestate”), these decisions are governed by the laws of the state in which you live.  While most people are familiar with the process of creating a will, individuals tend to be less informed regarding the necessity of an executor.  The executor is the person who is named in the document to implement the directions of the will.  This article will describe the duties and responsibilities of an executor, and provide guidelines to consider when selecting your executor.

Will with Pen

An executor has a number of tasks to complete on behalf of the creator of the will in question, also known as the testator (derived from “last will and testament”).  The executor is responsible for settling the financial affairs of the testator in the manner that most closely aligns with the desires established in the will.  This includes gathering the assets of the estate, contacting any creditors and settling outstanding debts, distributing the remaining assets among any stated heirs or other beneficiaries specified in the will (such as trusts or foundations), and ensuring that any taxes, estate-related or otherwise, are calculated and paid.  The executor must also deal with any outstanding estate-related legal issues, as well as with basic duties such as closing any open accounts, canceling memberships and subscriptions, and in many cases ensuring that funeral costs are covered.

Clearly this is a critical and somewhat technical position and if an executor is not specifically named by the testator, one will be appointed by the court.  As most people would not want their affairs decided by a court-appointed stranger, it is prudent to identify a potential executor while creating your will.  There are a number of things that should be considered when choosing a potential executor, not least of which is the fact that you are asking that person to take on a large and possibly unpleasant responsibility.  Executing the directions of a will can be time consuming, and it can put the executor in the middle of family disputes.  Be sure that you discuss the necessary commitment involved with any potential executor before selecting them to determine if they are willing to take on the responsibility.  Additionally, there are certain groups of people that are ineligible to become an executor.  Under U.S. law, minors, convicted felons, and non-US citizens are not eligible to be named as executors.

Assuming you have potential candidates who are both willing and eligible to become your executor, you must then consider if they would be well suited for the position.  While the law does not require an executor to have prior legal experience, we recommend finding someone who has strong organizational skills, and has the mental acuity and mindset to deal with what may be quite complicated legal and financial issues.  They also should be trustworthy and reliable, since you will be entrusting this person with the disposition of your estate when you pass away.  The age and physical health of the candidate must also be considered, since you want to minimize the possibility of your executor predeceasing you.  In addition to naming a primary executor, it is highly recommended that you also select an alternative executor (or even multiple alternative executors), in the case that the original executor is unable or unwilling to perform their duties.

While there is no obvious choice of executor which will be perfect in every case, some common choices are family members, close family friends, or professional advisors.  Family members, such as adult children, are a natural choice for many, though a poorly written or ambiguous will could easily cause strain between the executor and other family members who may feel that they are being slighted.  Siblings or family friends are other frequent choices, as they may have a better understanding of the financial desires of the testator than their children, but this does not rule out the possibility of family conflicts.  Also, with friends and siblings, the age of the executor must be considered for the reasons mentioned above, while children are guaranteed to be at least somewhat younger than the testator.  With both friends and family members, the qualifications (and temperament) must be carefully considered as well in order to avoid future conflicts or difficulties.  While it is not required that a executor is paid for their services (in the case of a non-professional being selected), it is a common practice that the executor is compensated for their time and effort with a portion of the estate, often 1-2%.

The final common choice to act as an executor is a professional advisor, such as the family attorney or CPA, a bank, or another related institution that specializes in estate planning and affairs.  This approach has its own set of advantages and disadvantages.  The use of any professional will involve fees and possibly other costs, and the professional is unlikely to be as familiar with the testator as friends or family members.  On the other hand, a professional will likely have experience and expertise in this area, which can help to smooth the estate transition process.  This can be particularly useful in the case of complicated estates, such as those with large asset levels or complicated tax situations, or any estates that contain a business.  This can also be a good choice if a family conflict over the estate is anticipated, as a professional will be able to act as a disinterested outside party.

Although none of us enjoy contemplating our own mortality, planning for your estate after your death is a key component of your financial plan, and careful estate planning can avoid any number of future problems and complications.  When creating a will and choosing an executor, we encourage you to consider the criteria outlined above.  Then, talk with your potential executor before selecting them to ensure that they are willing and able to take on the responsibility.  If you have never considered estate planning or would like to be put in touch with an estate planning professional, please feel free to contact us at Empirical for advice and recommendations.

 

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About Lorne Enquist

Lorne is a Certified Public Accountant and holds a Masters of Professional Accounting in Taxation. As a Financial Advisor for Empirical, Lorne manages portfolios and shares his tax consulting experience for strategic tax planning for Empirical clients.

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