3 Common Mistakes Executors Make and How to Avoid Them
Many people are suddenly thrust into the position of being the executor of a loved one’s estate, and have no idea what to do or how to best proceed. It can be overwhelming. I want to share with you some common mistakes that I’ve encountered with executors in the hopes that you can learn what not to do. Please note, the concerns below are for people that have not done proper trust based planning. Properly drafted and maintained trust based planning (which we recommend for all of our clients) avoids many of the pitfalls below by allowing your trustees to stay out of the courts and public altogether during the administration of an estate.
Mistake #1 – Distributing Too EarlyInexperienced executors are prone to make distributions too early and without protecting themselves from liability when that distribution is initiated. When you are an executor and you get money, there are important considerations that have to be made concerning probate, court procedure, and taxes. If the executor simply hands out money to a relative, it is considered an “at risk distribution.” This means, you, the executor could be held personally at risk if the proper protocols were not followed.
A way to avoid this issue is, if you distribute money from the estate, have a document signed by the beneficiary making clear that they are obligated to give the funds back if the estate needs those funds for other expenses. Even better, sit down with an experience estate planning attorney and go through all your options before making any distributions. This could avoid the hassle of having to get back distributions already made in the event there are still taxes or debts of the estate to be paid.
Mistake #2 – Failing to Properly Advertise the Estate
The appointment of an executor and the existence of the estate may need to be advertised. Why? Because if there are debts owed, creditors have the right to be notified so they can make a claim against the estate. For example, pursuant to Maryland Code Estates and Trusts § 8-103 a creditor has the right to assert a claim six months after the date of the decedent’s death, or two months after the personal representative provides formal notice to the creditor. In Washington DC, pursuant to Code § 20-903, claims against a decedent’s estate must be filed within 6 months of first publication of the estate or within 6 months of the personal representative’s notice of appointment. Virginia is different. Under Virginia Code § 64.1-173, there is no defined period of time for a creditor to file a claim against the estate. Rather, the claim period is defined by the time period that the estate is kept open. So basically this means a claim can be filed as long as the estate remains open.
Generally, it is a good practice to notify all the known creditors as soon as possible of the death. Many institutions are willing to work with executors and even lower account balances and fees due.
Mistake #3 – Failing to Properly Close the Estate
Executors who have properly distributed most of the estate may get tripped up at the very end by failing to properly close the estate. This could vary greatly by the size of the estate, and whether it is administered through the courts or not. Some common ways estates are closed are: (1) filing a family settlement agreement (a.k.a. receipt release and indemnification agreement) with the court showing that all beneficiaries are in agreement that they received their share of the estate, or (2) going through a court accounting process where a judge ultimately approves of the distributions.
In addition, it is recommended to work with a CPA to ensure all tax matters are closed out or accounted for before the estate is finished with administration.
I strongly urge my clients to keep estate administration in the family as much as possible. This allows the family to retain more control over the process. The planning beforehand really dictates how much flexibility a family has in their options for administering an estate. Remember, properly drafted, funded and maintained trusts can help your family from staying out of court, and saving save them thousands of dollars in potential attorney’s fees.