Five Errors in Estate Planning that are Executor Mistakes

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Federal estate tax

So You Are Named An Executor

Administering a trust or an estate is an important responsibility, this is the role of an executor. In addition to keeping track of all relevant assets, income and expenses, executors must attend to the interests of the beneficiaries while often undergoing the grieving process themselves. Review the following to avoid making the most common executors mistakes to avoid long term  problems:

Common Executor Mistakes

  1. Failure to Consider Carrying Costs

Carrying costs can quickly accumulate and eat away at the value of an estate. When it comes to the estate settlement process, time is money. The executor must ensure that ongoing costs such as property taxes, insurance and lawn care or snow removal are met, while acting decisively to liquidate assets that cost the estate money. Other costs may include making necessary repairs and reviewing insurance coverage for a vacant home. We recommend that the executor organizes the sale or transfer of the home as soon as is practicable to avoid bigger executor mistakes.

  1. Failure to Consider Opportunity Costs

Just as the value of a decedent’s residence is subject to carrying costs, there are opportunity costs to leaving assets in an estate as well. Inflation will inevitably diminish the value of assets held in an estate. Some assets are subject to unexpected losses and could be put to better use in other investments. Also assets could be used to pay down debt and thereby reduce interest payments and fees. Over time, these opportunity costs can reduce a person’s legacy by 10 percent per year or more. A prudent executor works quickly to gather and distribute all assets from the estate as soon as is legally permissible, giving the beneficiaries the opportunity to use or grow their inheritance.

  1. Sentimentality and Slow Decision Making

As the executor of a loved one’s estate, you will need to process your own grief while also making practical decisions. It may be helpful to think of your role as an executor as a professional responsibility, separate from your obligation to the decedent as a family member or friend. This will give you the distance to make business-like decisions for the estate, and not sink into sentimentality. The decedent trusted you to be organized, diligent and professional in carrying out their final wishes in a prudent and expeditious fashion. If the decedent was a loved one, it may be beneficial – even healing – for you and other beneficiaries to spend some time examining their possessions and revisiting memories.

  1. Not Hiring Professional Help

Many individuals adopt a “do it yourself” approach to administering an estate instead of hiring professionals, such as accountants, appraisers, lawyers and contractors. What many people don’t realize is that by “DIY-ing” it, the savings to any one beneficiary is low, but the liability for the executor can be extremely high. If you or another non-professional unknowingly violate building codes, miss deadlines, or simply fail to acquire necessary licenses or permits, beneficiaries may seek to impose liability. In addition, a good accountant and attorney are well worth their fees for what they may save you in taxes and time. This is a very common executor mistake.

  1. Ignoring the Calendar

Be sure to keep track of tax filing dates, real estate cycles, and seasonal costs. For most clients, filing estate and trust income tax returns on a calendar year (vs. fiscal year) basis. As a result, you  want to keep an eye on the calendar to reduce the number of years required for filing returns. Imagine a client who passed away late in the year.  Most likely, it is impossible to close out his or her estate in a few months. Therefore tax returns may be required for two years at least.

Real estate cycles are also important to keep in mind regarding the sale of the decedent’s home. This is usually the largest asset. You must allow appropriate time to clear out a residence. This includes making needed repairs and hiring professional cleaners to present the property in a good light. Do not embark on a program of major capital improvements. Realtors say that March, April and May are the best months to list a home. Accordingly, November and December are the worst.

Summing Up

As you can see, an executor is trusted with dozens of projects, many of which interrelate. We want to avoid executor’s estate planning mistakes. We know delays at any stage can lead to bigger disruptions and big estate planning mistakes. It can create enormous opportunity costs which in turn can result in liability to the executor or trustee. Navigating the winding path between decisive action and careful consideration can prove tricky. We highly recommend the guidance of a seasoned professional. Remember this might be your first time serving as an executor, it is definitely not ours at Anthony J. Madonia & Associates. Our attorneys have collectively spent over 100 years administering trusts and estates. They can guide you on the long road to the conclusion of the estate administration process. All the while, they provide an independent perspective removed from difficult emotional circumstances you will be handling.