 Personal Finance PowerPoint Presentation Executor Prepare to get financially fit by practicing personal finance Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion making it much more easy to find what you need then can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Most of this information comes from Investopedia Executor which you can find online. Take a look at the references resources continue your research from there. This by Julia Kagan updated July 26 2022 in prior presentations. We've been taking a look at a state planning now focusing in on particular components and tools that might be used in a state planning depending on your situation. This time that being the executor first question is what is an executor and executor of an estate is an individual appointed to administer the last will and testament of a deceased person. So in prior presentations, we went through kind of like the timeline for the estate planning before the death. Of course, we're first planning and thinking we would like to be able to allocate our assets at the point of death in accordance with our wishes possibly avoid taxes if possible. And we would like to make it as easy as possible on our loved ones. The first thing that we think about typically to do that is a will that will help us to list that out. We've talked about other tools that could be used in order to make the probate process easier possibly some trusts as well. And then now we're focusing in on the executor within this context. Once again, an executor of an estate is an individual appointed to administer the last will and testament of a deceased person. The executor's main duty is to carry out the instructions to manage the affairs and wishes of the deceased. So clearly the deceased person passes away. They can't manage their financial objectives at that point in time. They can't manage their assets and liabilities. They would like to assign that we would like to assign that to someone else to be able to be managing that that typically being the executor. The executor is appointed either by the test day tour of the will. The individual who makes the will, the person typically is making the will before they're dying. Typically, we got that terminology test day tour or by a court in case wherein there was no prior appointment. So if there was no basic will, then you were going to go to the probate court oftentimes and someone still is going to have to be assigned to manage this task. If there are assets that need to be managed. So how executors work? The executor is responsible for making sure all assets in the will are accounted for along with transferring these assets to the correct parties or parties. So note that that's going to be the job. We got the assets. We got the liabilities. We have to manage that some way. Typically, you could think of it similar as though you have a liquidation of a corporation. For example, you think you might have to liquidate some of the assets in order to pay off the liabilities. For example, possibly for example, you might have a home that's a that's a significant component of the assets and you've got a mortgage that has to be paid off. So maybe you have to liquidate the home, sell it in order to pay the mortgage and then in order to be able to pay off possibly the proceeds or the rest of the assets to the individuals in accordance with the will. Hopefully some of the stuff being specified clearly in the will. So assets can include financial holdings such as stocks, bonds or money market investments, real estate direct investments or even collectibles like art. The executor has the has to estimate the value of the state by using either the date of death value or the alternative valuation date as provided in the internal revenue code. So note when someone dies, you might be subject to a state taxes. So we're going to have to value the estate. And when we do that, remember that normally we have taxation on an income tax basis as we earn it. We're taxing here in essence, the balance sheet. So you might say it's been taxed twice. Yeah, it's going to be taxed twice if you're subject to the estate tax because it's going to be taxed on the balance sheet in order to value the balance sheet for the current time frame. You have to pick a date because you have to determine what the value is as of that point of time for things like stocks and bonds. You can do that by checking the stock market clearly with things like a home or other household goods and that kind of stuff. It becomes more difficult because many of those items might be unique in nature, but that's the task. An executor also needs to ensure that all the debts of the deceased are paid off, including any taxes. So the executive, the from a financial perspective, the person who died or passed away had control most likely of some assets and possibly some liabilities. And so we're going to have to liquidate in essence that process. Typically, like with a business, you don't just give the money out to the beneficiaries at that point. Usually what you want to do is make sure you're handling and paying off the debt first, which could require some liquidation of the assets maybe in order to do that. So the reason you don't just give the money out to the beneficiaries first is because then if you haven't handled the liabilities, they're not going to give the money back most likely to handle the liabilities. So you want to do it right. You want to try to of course, you know, try to handle the liabilities, liquidate the assets with whatever you need to do in order to properly allocate in accordance as best you can with the wishes of the person who's deceased. So the executor is legally obligated to meet the wishes of the deceased and act in the interest of the deceased. So they're in essence acting as the agent of the deceased person acting in their best wishes, trying to carry out what they wanted. So the executor can be almost anyone, but is usually a lawyer, accountant or family member with the only restriction being that they must be over the age of 18 and have no prior felony convictions. Some people agreed to be an executor thinking that it will be years before they have to do any work. However, doing the job properly means going to work immediately. In other words, if Jim Morrison, the future uncertain and the end is always near, so agreeing to be an executor means that your legal responsibility could be called upon at any time. So being an executor to be prepared to act as executor, you should make sure the testator is keeping a list of assets and debts, including bank accounts, investment accounts, insurance policies, real estate and so on. So if you're the executor, it could be kind of a difficult process, but of course the person who's who may die and was going to die at some point into the future, then you're going to need to know certain things about their financial accounts, which again can be a little bit burdensome or a little bit difficult sometimes because sometimes like people like to keep that stuff kind of private and whatnot. Obviously, you need to know what's there at the point in time of death because the person who's deceased no longer is going to be there in order to help you to determine what is going on. So know where the original will and the asset list are being held and how to access them. Know the means and contact details of attorneys or agents named by the testator and what their function is. Discuss the testator's wishes as far as a funeral or memorial service, including introductions for burial or cremation. Discuss the will with the testator and if possible with the beneficiaries in order to minimize problems in the future. If you have a copy of all of these documents, again, it is important that you have the time and time to gather this information as soon as possible after you've agreed to be the executor. Executors and estate planning. Executors are key in estate planning for individuals and their families and beneficiaries. Estate planning is an all-encompassing term that covers how an individual's assets will be preserved, managed, and distributed after death. It also comes into account the management of this individual's properties and financial obligations, i.e., the debts, and the event that he, she becomes incapacitated. So clearly, if they become incapacitated, you're still in a similar situation as if there was a death involved. They can't manage their assets and liabilities and are going to need someone to help them to do that generally. Individuals have various reasons for planning and estate, including preserving family wealth, providing for surviving spouses and children, funding children and or grandchildren's education or leaving their legacy behind to a charitable cause. The most basic step in estate planning involves writing a will. So clearly, in order to have an executor to fulfill the job properly in accordance with the wishes of the person who is deceased, it would be easiest if they had those wishes laid out as best possible in a will. So other major estate planning tasks include limiting estate taxes by setting up trust accounts in the name of beneficiaries. So as the wealth or the amount of money increases, you can have more complex strategies that come into play, including possibly using trusts and establishing a guardian for living dependence. So if there are dependents that are living and someone passes away, then you want to be able to, of course, this is a plan for that, who's going to take care of them, naming an executor of this state to oversee the terms of the will, create updating beneficiaries on plans such as life insurance, IRAs and 401k plans. So oftentimes those have listed beneficiaries on them. You want to make sure that those are appropriate in accordance to the wishes of the deceased individual, setting up funeral arrangements, establishing annual gifting to qualified charities and nonprofit organizations to reduce the taxable estate, setting up a durable power of attorney to direct other assets and investments. So while it is an honor to be selected as an executor, executing a will takes more work than you might think. So it's not going to be the easiest kind of process, obviously, when someone passes away, then everything that they use to handle and manage and whatnot is no longer managed or handled by then, and that means that someone else is going to have to take care of those financial obligations at that point in time, and that's not the easiest thing to do. So before you agree to act as an executor, understand some of the hazards that can result and know how you can address some of these potential hazards so that being an executor can run smoothly. Dispute with co-executors. Often when a parent has more than one adult child, all children are named as co-executors, so as not to show favoritism. And of course this makes sense on one level, but on another level you can imagine that if you have multiple people acting as executors, it could cause gridlock and it could make it difficult to go through this whole process, especially if you've got a whole bunch of children that are involved, and those children are not basically in the same kind of geographic area, for example, or are not in easy communication, for example. In that case, I think oftentimes if you're basically just assigning all the children to be co-executors, you might be doing it because you're trying to not show favoritism, but you're doing something maybe that's going to cause more problems, right? Because there's no possible way that you cannot show any favoritism, right? You can't always be basically the good guy. So it might be easier then to say, well, you're not going to try not to show favoritism by writing the will in such a way that you're allocating as best you can, knowing that you're not going to ever please everyone, and then try to find someone, if there's someone in particular that you think that can execute the distribution of the will, particularly well, it might be best to have that individual do so, but that's just an idea. For those who are named, however, this arrangement may not work smoothly. Some children may be out of state or even out of country making it difficult to handle the hands-on activities, such as securing assets and selling a home. So obviously if the individual that has been named or one of the individuals is away or not in easy communication, the committee has to come together with every decision. It's going to make it a little bit more difficult, again, just to go through the process, which is already kind of a difficult process at that point. So some lack the financial ability to deal with creditors, understand estate tax matters, and do an accounting audit to satisfy beneficiaries that things have been properly handled. So clearly, obviously there's going to be skepticism, especially if there's a substantial amount of assets. People are going to be concerned, people are going to think that they're going to be cheated, and this kind of thing, that's just the nature of what happens. And so what you want to do, of course, is try to be as transparent as possible. And putting everybody in a committee is not generally or often may not be the way to be transparent. That might lead to gridlock, rather than transparency, which you'd like to do, is be able to make sure that the steps are being taken in such a way that is transparent. So all the information that's being shown that is being executed in accordance with a well-constructed plan, in accordance with the wishes of the person who is deceased, which is difficult. So also having multiple executor adds greatly to the amount of paperwork. So clearly, if you've got to have a committee come together for every decision, that's going to be more difficult to move forward. So for example, forms that need to be signed by all executors must be sent around to all, in some cases, scanned documents that have been signed are acceptable, but in others, only originals are acceptable. So how to solve these disputes? See if co-executors can agree to allow only one individual to serve, the others simply waive their appointment. So this waiver works well when co-executors trust the person who will serve as the sole executor. Obviously, in order for this to work, you have to have one individual that people trust in order to do that. If you have nobody that is a potential executor that you think can handle that, and nobody trusts anyone and so on, which is sadly often the case, then maybe gridlock is the only way to go, right? You have to, everybody's not going to feel safe any other way. But hopefully, you've got somebody that maybe could do it and facilitate the process and as transparent a way as possible, probably will cause less pain if there's someone that could do that. Another alternative is for all the children to decline and instead let a bank's trust department handle the job. The will may name the bank as a successor executor, so you could have a third party take on that role, which might be a neutral third party, which again could make things a little bit easier than having arguments. This costs money and it's best suited for large estates. So clearly having pain someone to do that, you're going to have to pay someone to go through that process because they're not getting any of the benefits, you have to pay them. However, using an entity rather than an individual or executor can alleviate conflicts among the children and relieve them from what could be an onerous job. So clearly, if the children are in dispute, which oftentimes happens to any individuals when there's a large sum of money and people feel like they don't trust the individuals involved and so on and so forth, then maybe it's worthwhile to pay a third party to be a non-interested third party. Disputes with heirs and executor's job is to secure the assets of the estate and then distribute them according to the deceased person's wishes and some families heirs descend on a decedent's home even before the funeral, cherry picking heirlooms and other valuables. So that's a sad situation but we know that that can and does often happen. As the executor, what we would like to do is be safeguarding the assets so that we can go through the process of basically like a liquidation type of process similar to like a corporation paying off the liabilities and then distributing the assets in accordance with the wishes of the deceased individual. Now, if people go into the home because now the home's going to be hard to safeguard because it's vacant possibly at this point in time and they take valuables, it's going to make the job a lot more difficult. They might then say, well, hey, they would want me to have it anyways but the process is that we want to first value the estate. We then want to pay off any taxes that we have to do. We want to pay off the liabilities and then make the distributions because if people start getting the distributions before that time, we're going to give out money before we properly pay off the liabilities and so on and so forth. It's going to cause problems. So obviously this is something that we have to be aware of especially if you have a vacant home after the person is deceased that unfortunately is going to make it more likely that people might try to take advantage of that situation. Also, the will may give latitude to an executor in making disbursements to heirs e.g. distributing property or selling property and distributing cash. So meaning, for example, things like the house, things like valuables, maybe you have some liabilities that they need to be paying off and they might say in the will, hey, you're going to have to liquidate some of the stuff to pay off the debts. So if someone steals the stuff then you can't basically liquidate the stuff and that's just the way it kind of has to be in order to settle most instead of the liabilities and then to distribute possibly evenly over whoever the heirs are. In any case, an executor may create family disharmony for simply doing their job. So clearly that's not going to be an easy job to do. It's going to be, it's difficult to say, hey, no, don't raid the house. I know maybe they would want you to have it right now, but it's not time to take their jewelry or something like that. I hate to be the jerk here, but as we got to look at the process, there's a process. So how to solve these disputes, secure the home and other assets as quickly as possible, inform heirs that this is the law. So obviously you want to try to be as transparent as possible by saying, hey, look, this is the process that we're going through. It's going to take some time. I'm going to try to list out everything we're doing so that you are as clear as it is possible and we're going in accordance with the normal process here. Also share information about the decedent's wishes, which may be described in the will or listed in separate document. So you're going to say, hey, like maybe they do want you to have all their jewelry, right? But it's got to go through the process to give it. You might say, hey, this is their wishes and I'm going to go through this process. And if they didn't give the jewelry to you, then I'm going to try to give it to whoever they told it. I'm going to sell it. And that's what it says for me to do by the person who died so I can properly distribute the proceeds to whoever. Then that's what we're going to do, right? So you got this separate document isn't binding on the executor, but can be a good roadmap for asset disbursement. So you want to be clear that, hey, look, this is my personal outline of what I think is going to happen at this point in time. The binding document is, of course, the will itself, not this, right? But this is my best roadmap so I can be transparent. Time drain. One of the biggest drawbacks to being an executor is the great amount of time it takes to properly handle responsibilities. For example, think of the time involved in contacting various government agencies, e.g. Social Security Administration to stop social security benefits and in the case of surviving spouse claim the $255 death benefit IRS and state tax authorities for income tax and death tax matters states unclaimed property departments to recoup utility deposits and other outstanding amounts that belong to the decedent. Streamline the process with outside help. An executor can allow an estate attorney to handle many of these matters. So if you have a larger estate then it's more likely you might need some outside professionals helping out like an attorney. However, the attorney will bill for their time and cost the estate money. So clearly you're high in professionals. They're not getting paid by the inheritance. They're going to have to be paid by fees, right? Even if an attorney uses a paralegal for various actions it can still be expensive. Also a CPA or other tax preparer can work on the decedent's final income tax return as well as an income tax returns for the estate. Where estates are modest these fees can mean little or no inheritance for some heirs. So an executor in this situation should use the services of professionals sparingly and understand the time commitment they will need to make instead. So clearly you're going to do a cost benefit kind of analysis. How many professionals do we need? What kind of professionals do we need? How big is the estate? Do we have big estate planning issues? Are we subject to the estate taxes and so on? Being organized, e.g. using a checklist list like this one from Jonathan Pond can help an executor use time most efficiently. Personal liability exposure. So an executor as an executor you must pay taxes owed before dispersing inheritance to heirs. So remember you've got kind of assets, liabilities, and then the difference kind of like the asset or the accounting equation, assets minus liabilities, the net value of the estate. You've got to pay off the liabilities before you start giving the money to the heirs because if you don't, and you don't pay off the liabilities, you're not going to get the money back from the heirs. So the heirs are probably, it's just like a partnership liquidating where the partners all want their money. And you have to say, well, no, I'm not going to give you the money until I've handled the liabilities yet. I'm going to go through the process. So if you pay heirs first and do not have sufficient funds in the estate's checking account to pay taxes, you are personally liable for the taxes. Well, many estates no longer are concerned about federal income taxes because of high exemption amount. So you got the 11.58 million for the estate taxes. So many people are going to be below that threshold, possibly not subject to the estate taxes, which is nice. But it could change in the future. So just remember if you're planning long term, that number could change based on politics. Many states continue to impose state taxes on smaller estates. So states could have their own state taxes that could be different or smaller amounts being subject to it than the federal tax. The value of the estate for death tax purposes is greater than the probate estate. The assets that do not pass automatically to name beneficiaries and includes all assets in which the decedent has an interest, e.g. IRS annuities, life insurance owned by the decedent. Explain to heirs who are eager to receive their inheritance that you are not permitted to give them their share until you have settled with creditors, the IRS, and others with a claim against the estate. Again, this could be difficult. It's just like when you're doing accounting for a partnership that's liquidating. They want their money now. They feel like they're going to get cheated if they don't make, you know, possibly. So you got to say, hey, look, I'm doing as transparent as I can. I got to go, I got to pay off the liabilities first before I pay you. Creditors cannot go after the process of a life insurance policy that has a specific beneficiary, however. Make sure to understand the extent of the funds needed to pay what's owed. So what is another word for executor? An executor is one who handles the wishes and instructions set out in a will. Other terms for this rule may include the will's administrator, enforcer, or steward, or the test day towards a personal representative, agent, or fiduciary. A female executor is referred to as an executrix. I'm not sure I've ever used that word. I still would call them an exec, but maybe I, okay. An executor is an executor the same as a trustee. The two rules are similar, but an executor carries out one's will often under the supervision of a probate court while a trustee is responsible for one's trust. In some cases, the two may be the same individual, although they don't have to be. Can an executor also be a beneficiary? Yes, it is not uncommon for a will's executor to also be named beneficiary. And obviously that would kind of be the case. That's what you would kind of expect to be the case because if they weren't the beneficiary, then they'd be a third party and you would think that you'd be paying them. They would be like a banker or something that you'd be paying for them completely separate. They have no personal engagement in it. You could have funds for the executor in any case, but in any case, you would think possibly they'd be a beneficiary as well. However, this can create accusations of perceived unfairness or conflicts of interest. Clearly that could be one of the issues. You have one person you claim to be or gave the power to be an executor and if there's not trust in the whole kind of group, then that can cause conflict. Then you could say, well, I'm just going to make everyone co-executors, but again, if there's no trust, that's probably not going to alleviate the conflict. It's just going to mean now that you've got a different kind of gridlock. So in any case, do co-executors get paid? Do executors get paid? Executors are often entitled to payment for their time and effort, either through the terms of the will or under state law pertaining to reasonable compensation. So you might get paid, of course, for your time, even if being a beneficiary, but that's still probably cheaper than hiring, say, a banker or someone that's not involved at all to basically be the executor. This can come in the form of a percentage of the estate's value, a commission on the transaction involved in settling the estate as an hourly rate or a flat fee. An executor may choose to decline compensation. So obviously, if you're a beneficiary and you're doing it for the deceased individual, maybe you don't need compensation as well since you possibly are a beneficiary in any case. What is a gift left in a will called? A gift left in a will is known as a bequest or legacy. What's the bottom line? An executor is the individual who carries out one's last will and testament, ensuring that the stipulation and wishes of the deceased are carried out properly. Subject to probate court oversight, this will often include dispersing the estate's assets, paying any taxes due, and covering outstanding debts. People often name the executor to their estate in their will prior to death, and the absence of a named executor a probate court will assign one instead.