When life ends, be ready for the red tape
The duties of an estate executor
By Gene Walden
From The Minneapolis StarTribune
There’s nothing more final than death, but when life ends, the red tape begins.
Whether you’re planning your own estate or you’re involved in the dissolution of the estate of a friend or family member, it’s helpful to understand the duties and responsibilities of the executor or “personal representative” who is charged with settling the estate.
As the personal representative of the estate, you would have to deal with a mountain of complex and time-consuming responsibilities. You would deal with the courts and the attorneys and all creditors and tax collectors, and keep all the parties named in the will up-to-date on the status of the proceedings. And if you don’t keep the process moving, you could face the wrath of a lot of angry beneficiaries who are impatiently awaiting their distributions.
“The beneficiaries have a right to be informed and the personal representative has a duty to do that,” says Timothy O. Davis, an attorney who heads up the estate planning division of Hellmuth & Johnson in Eden Prairie. “If the personal representative fails to keep the beneficiaries informed or fails to devote the time and attention needed to keep the probate process moving, the beneficiaries can bring action to remove that person for failure to administrate the estate in the proper fashion.”
The personal representative is typically named in the will of the decedent. If no representative is named, the court will appoint one. “The priority is generally spouse first and children second,” says Davis. “Usually the children can decide among themselves who that person should be. But if there’s a dispute, the judge can appoint an outside party as the personal representative.”
The personal representative does receive some money for the time and effort he or she puts in, although it is expected to be a reasonable amount. “It is normally about $25 an hour and up,” says Davis. “Compensation is based on time spent, talent brought to the job and results achieved.”
Here’s a laundry list of some of the duties you would face as a personal representative:
· Contact all pertinent parties, including the spouse and children, all persons named in the will, all persons who would have a claim on the estate if there were no will, the commissioner of human services, and, in certain cases, a foreign consulate and the Attorney General’s office.
· Value all assets, including securities, bank deposits, insurance policies, annuities, real estate and business interests, and submit an inventory to the court and beneficiaries.
· Safeguard the estate by properly managing property and investments. For instance, you might need to secure vacant real estate, provide casualty insurance and keep a securities portfolio from losing too much value in a down market. “If you’re not sure how to handle the investment portfolio,” says Davis, “you should get professional advice immediately on what to keep and what to dispose of. You should also approach the other beneficiaries and get their input on whether or not they are willing to take the market risk.”
· Liquidate assets as needed to pay expenses, taxes and claims.
· Publish a notice to creditors and notify those who are “reasonably ascertainable” creditors, and then pay all appropriate debts and expenses.
· Participate in any litigation that involves the estate.
· If the estate is insolvent, handle all claims according to statutory requirements.
· Prepare and file tax returns for the decedent, and review income tax returns for the past five years to make sure they have been accurately filed. If an audit is required, you are compelled to participate in that.
· Tally all receipts and disbursements to determine the assets on hand for distribution, then submit that filing to the court and to the beneficiaries.
· Distribute the real and personal property to those individuals as deemed by the will (or other means), and make arrangements for distributions to minors, such as trusts, custodial accounts, conservatorships, or protective orders.
· Close the estate.
What can go wrong?
In addition to long delays caused by an inattentive or incompetent personal representative, several other things can bog down the process and jeopardize the assets.
If there is no will, the case may need to go through the courts to settle the estate, which could take months or years. Even if there is a will, that will can be challenged in court, which would also hold up the distributions. The estate could also face court challenges from creditors who might dispute the decision of the representative.
Settling tax issues can also slow down the process. “Estates large enough to require federal and state estate tax returns will require about two years to complete because all estate tax returns are audited,” says Davis.
The worst case scenario would be that the personal representative absconds with the money without paying creditors or beneficiaries. “I’ve seen that happen two or three times,” says Davis. “If you don’t trust the personal administrator, you should tell the court that you want the person bonded in the amount of the estate.” The bonding will cover the distributions if the personal representative absconds with the assets.
In any estate matter, it takes a lot of patience and persistence—and often considerable time and effort—to settle the estate.