Written by: Deborah Cartisser
If you learn that a good friend or relative wants to appoint you as their personal representative in their will, what do you need to know before accepting the appointment? The personal representative (formerly called an executor/trix) is responsible for all the duties centered around settling an individual’s estate and no matter how simple the finances are, there is a lot of work to be done. There are also things you should consider and evaluate before accepting this role.
What are the Duties of the Personal Representative?
You must file the will with the probate court, notify all the beneficiaries in writing, publish a death notice so that any creditors can be informed of the death, create an inventory and valuation for each asset owned, gather any income or payments owed to the decedent, pay debts of the decedent and taxes. Final taxes are due within 9 months of the date of death, so you need to ensure there is enough cash on hand to cover this expense. You can file an extension to turn in the tax return later, but the estate tax owed must be paid by 9 months from the date of death. Once taxes are paid and a release has been obtained from the taxing authorities, the personal rep distributes the assets to the beneficiaries. While this sounds straightforward, there is a good deal of work that goes on behind each of these tasks. It is recommended that you enlist the help of a CPA and an estate attorney for a taxable estate.
Before getting started, multiple copies of the certified death certificate should be obtained. The will needs to be filed with the probate court (get help from an attorney). The court will produce Letters Testamentary which allow the personal rep. to act on behalf of the estate. In addition, the personal rep. must have a complete understanding of the assets the decedent owned, where they are held, and how each is titled. If you are considering accepting this appointment, ensure you have a complete inventory of the assets they own. A complete estate inventory must be created for the tax return, with a value ascribed to each item. A date of death statement should be obtained for each account. The estate value of a marketable asset is determined by getting the high, low and mean market price for the asset on the date the estate owner died. For illiquid assets, like real estate or collectibles, you must pay for a professional to provide an appraisal of the asset(s). The personal rep. must contact insurance companies to have insurance policies paid out and the custodians of retirement accounts to inform them of the death. The personal rep. should maintain a file for every account and track all the conversations as well as the dates they mail legal correspondence to the custodian of each asset. You will need to follow up on all paperwork to ensure instructions are properly followed. All assets will need to be transferred out of the deceased’s name into a new estate account. An accounting of each asset will be created to track all the activity since the date of death to record on the final tax return. (Enlist the help of a CPA here, who is familiar with filing estate tax returns.) It’s a good idea to cross-reference the prior year’s tax return to ensure you have not missed any accounts or sources of income owed to, or owned by, the decedent.
Before Agreeing to This Responsibility, What Should You Know?
What is written in the will? Who are the recipients of the assets? Are there any contentious relationships? Has anyone been left out of the will deliberately? Does the estate owner anticipate any issues among the beneficiaries? Are there any unusual or difficult assets to value? Has the estate owner made a list of all the assets and all the institutions from which they draw income or benefits? Spend time with the estate owner in advance so you understand all that is in the estate, account numbers & contact information for each institution that holds assets, and how each asset is titled. Are assets held in joint name, in single name with a transfer on death, or in trust? Be sure to get clarity on all this while the estate owner is alive. If the beneficiaries are contentious, or relatives have been left out of the will, or a lawsuit is likely, you might want to pass on this appointment as the estate settlement could become quite complicated and you may have issues with personal liability.
Enlisting Professionals
Unless you are a professional personal rep., or someone who does this for a living, you should enlist the help of a professional. In a simple estate, you may only need an attorney to help you to get the will probated and letters testamentary produced by the court. Before starting on the job as personal representative, determine if you need to fill out an estate tax return for either federal or state, in addition to the decedent’s final tax return. Does the decedent have a CPA you can enlist to prepare both the final tax return and the estate return if needed? Keep in mind that not all CPAs prepare estate tax returns. No matter how simple the estate settlement, you should have a professional working alongside to help provide guidance and to ensure you are proceeding correctly. Manage expenses by staying organized and remembering that all correspondence with the attorney is billed by the hour. The personal representative hires the outside professionals and the estate pays for their services. The personal representative is responsible for ensuring the attorney and CPA are performing their duties and the bills for their services are reasonable.
Personal liability
A personal representative is personally liable for any actions made in bad faith, or conducted as part of mismanagement or breach of fiduciary duty. The personal rep. has the obligation to act in the best interest of the beneficiaries of the estate at all times. This is his/her fiduciary duty. The beneficiaries of the estate can sue the personal representative personally for a breach of fiduciary duty. Read the will to determine if there is language offering you any protection while serving in this role.
Before accepting the role, find out if the beneficiaries are adversarial or contentious. Avoid any issues calling your professionalism into question by being exceptionally organized. Have a tracking system to record all activity pertaining to each account and every asset held in the estate. Record notes on all conversations with custodians, or the companies that hold the assets. Put all correspondence to the attorney and the CPA in writing. Communicate with the beneficiaries in writing, informing them of the process, timing, and expectations as each step unfolds. Let them know that typically distributions are not made until after the taxes are paid and a release of the estate is given by the taxing authority. This can be a year or more in some cases. Get started immediately, gathering statements from each account as of the date of death. For assets, like real estate, that don’t have a statement available, enlist a professional to provide a valuation. This role is time-consuming and requires attention to detail every step of the way. If you don’t have the time or you sense that the beneficiaries may be difficult, consider declining the appointment.
What Can Go Wrong?
Problems with the Will
Is the will contestable? Was it changed recently? Was the estate owner competent when the will was signed? Did anyone have undue influence over the estate owner when the will was drafted? Is one of the beneficiaries singled out and favored over the other beneficiaries? Was the will properly signed and executed? Has a newer will surfaced, different from the one thought to be the most recent? Is the estate plan drastically different from an earlier version? Before the estate owner dies, meet the estate planning attorney who drafted the will and review the most recent draft. Get information about family members and any issues the attorney finds noteworthy.
Problems with Estate Assets
Has there been a loss of market value in any of the assets, due to decisions made by the personal rep? Have any assets been sold for less than they are worth? Are there illiquid assets and is there a plan to value and sell the assets? In this arena, enlist the help of a professional financial manager, especially if the estate owner was already working with someone. Document all decisions that are made and ensure they are based on the highest and best interest of the beneficiaries.
While you may consider it an honor to help a friend or family member tie up their financial affairs, ensure you are prepared and know what you are getting in to. Understand that this will be a time-consuming task for several months. Read the will, meet the attorney who drafted it, understand family dynamics, get a list of everything that is included in the estate, enlist professional help, and keep impeccable records. If you conduct your due diligence in advance, you should have a smooth estate settlement process.
If you have further questions regarding the responsibilities of being a personal representative in a will, please contact one of our experts today to discuss!
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