The Role of Executor: An Honor and an Obligation

By Leah D. Hokenson, Esq.

The last will and testament is one of the most important estate planning documents. It helps direct your legacy after death. Beyond the decision of how best to direct your interests, you must name an individual or corporation to guide that directive. This person or entity will become known as your executor or personal representative. Executors act as fiduciaries (individuals or corporations) with a legal obligation to act in the best interest of another party. Because the executor only steps into their role at your death, your ability to monitor their actions and choices cease to exist the moment the executor becomes charged with fulfilling them when the will is admitted to probate.

If you do not name a fiduciary in your will, it becomes the responsibility of your family to petition the court for authority to act. This creates unnecessary expense and delay. It also may not be the person you would have selected. Concerns to take into account when appointing a fiduciary are their age, health, and availability. You want someone capable and able to act on your behalf after death. Another important consideration is having a successor named. This means having a second choice in the event the first person or entity named cannot or will not accept the appointment. If there is no successor, a court proceeding becomes necessary. Depending on personal circumstances and family dynamics, you can consider individuals as well as corporate entities to act on your behalf. It is important to be aware that the executor is compensated by statute. Depending on the state, the relevant rules will dictate what financial compensation your fiduciary will be entitled to for administering your estate.

The choice we make for our executor should be thoughtful and rational. Acting as an executor requires an acumen for both financial matters and personal dynamics. The executor’s duty is to carry out the terms of the will. Within that duty, there are four main responsibilities. The first is to marshall the assets of the person who has died – the decedent; the second to determine and raise cash needs; the third to pay debts, administration expenses, and taxes; and finally, to make distributions. This sounds very straightforward; however, each responsibility presents its own set of challenges.

Marshaling Assets:

Executors may or may not have comprehensive access to information from the decedents in advance of their death about the value of their assets and where they are located. More often than not, it quite literally becomes a treasure hunt. The executor must ensure everything the decedent had is valued, insured, collected and maintained. This can range from obvious assets like the decedent’s primary residence, to more obscure ones like a stock certificate for a closely held corporation in Texas that issued a dividend in the form of oil royalties to the decedent in 1930. One important clue is the decedent’s past income tax returns. The executor must be nimble and thorough to ensure each piece is properly accounted for and gathered.

Determining and Raising Cash Needs:

The executor must very quickly determine what the cash needs of an estate will be. They work with the attorney and tax advisors to estimate what it will cost to run the estate. As with any of these four pillars, there is a wide range of what those needs can be. Is there an operating business, and if so, what are the costs (payroll, unemployment insurance, rent, maintenance, etc.)? Is there a surviving spouse and does he or she have access to funds of their own for living expenses? Are there assets that need to be maintained and insured for the time being until disposition takes place further into the estate’s administration? Things as simple as the outstanding electric bill, to the complexity of any income or estate tax liability, will dictate how much liquid is needed and when. The second prong of the analysis is where does the money comes from. It is a question of liquidity. Are all the assets liquid (checking, savings and brokerage accounts) or does the decedent have only illiquid assets (real estate, art, operating a business…)? The answer to that question will then determine what steps need to be taken, if any, to secure the assets and ensure there is sufficient liquidity to satisfy cash needs.

Pay Debts, Expenses and Taxes:

Once the executor has determined the cash needs and raised the necessary liquidity, it is their obligation to make sure all the debts (anything the decedent owed on date of death) and administration expenses (expenses that occur after the date of death) are satisfied. The executor is also charged with satisfying any tax liability. There are four tax filings that may be the obligation of an executor: the final income tax return of the decedent, any prior and final gift tax returns, the annual fiduciary income tax return for the estate, and the estate/inheritance tax return. These returns have federal and state counterparts.

Make Distributions:

The final obligation of an executor is to make distributions to the beneficiaries. Once the executor is clear that the estate’s debts, expenses and taxes have been satisfied, and all the assets have been collected and properly valued, the executor will make distributions and account for its actions to the beneficiaries. It is not as simple as writing a personal check and putting it into an envelope. The executor, as the fiduciary, will look for a release from the beneficiaries to approve the actions the executor took with respect to the distributions to be made. The executor should make best efforts to satisfy the bequests as soon as possible as it is the bequests that truly express the decedent’s legacy. What I do not layout here is the legal and tax support that is needed for the fiduciary: the court filings, tax analysis, drafting, accounting and the winding down. At each stage, these professionals play crucial roles to buttress the fiduciary through the course of an administration. It is an executor’s obligation to act for the benefit of the decedent and the heirs. Selecting a capable executor is an act of trust and confidence that can help ensure that your wishes are properly fulfilled.

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For queries on an executor, designations contact Elizabeth Edds Kougasian, Esq. at 718-518-2000, ext. 2689 or email ekougasian@calvaryhospital.org.