Independent Executor Rights and Duties
How do I administer an estate?
Each estate is, of course, unique. The information provided here is intended as a mere overview. It is by no means comprehensive. Both the estate’s attorney and accountant should be involved throughout the administration of the estate, so problems can be identified and advantages taken of choices or opportunities that may be available to the decedent’s estate.
What is an independent executor?
The independent executor is considered the personal representative of the testator who appointed him or her. In addition to serving as the representative, however, the independent executor also assumes a position of trust for all those who have an interest under the will.
What are the duties of an independent executor?
The primary duties of the executor are to collect and preserve the assets of the estate, to pay all debts and taxes, and finally, to distribute the remainder of the estate as provided by the will. Court supervision of these duties will be minimal in the case of an “independent” executor. Normally, after the initial admission of the will to probate, the only further court action necessary will be obtaining court approval of an inventory of the estate. This inventory is prepared and filed with the court by the independent executor with his or her attorney’s assistance. Certain other required documents, such as notices to creditors and closing letters from taxing authorities, will simply be filed with the court.
A bank account (and possibly a money market fund or savings account) should be opened by the independent executor. It should be opened in the independent executor’s individual name “as independent executor” of the decedent’s estate. The bank will request a taxpayer identification number. The attorney or accountant will file an application for this number. Death certificates will be needed for a number of matters (insurance policies, social security benefits, federal and state estate tax returns). These can be obtained from the funeral home or the Department of Vital Statistics.
When does an independent executor have the right to act?
The independent executor does not become empowered to act until the court has admitted the will to probate and has appointed the independent executor. Therefore, it is normally advisable to begin the probate proceedings as soon as possible after the death. An application to probate the will is filed by the attorney, and a hearing will then be held 10 or more days after the application is filed. At that hearing, a personal friend of the decedent or a family member will give certain information to the court. If the independent executor is the person giving the information or is present at the hearing, he or she may take the Executor’s Oath at the hearing, after which the court will issue “Letters Testamentary.” The Letters Testamentary are evidence of the independent executor’s authority and will frequently be requested by parties dealing with the independent executor during the administration of the estate. Additional letters can be obtained from the court at any time during the administration. If the decedent owned real property in another state, it will normally be necessary to take certain actions in the courts of that state as well. Avoidance of probate of real property in other states, could have been avoided with a living trust.
How does an independent executor evaluate the needs of the surviving spouse, children, or other beneficiaries?
The independent executor may need to discuss with the surviving spouse, children, or other beneficiaries, the financial condition and anticipated needs of the beneficiaries during the administration of the estate. After consulting with the estate’s attorney and accountant, a schedule of the interim distributions can then be planned by the executor.
What about recordkeeping for the estate?
One of the most important and time-consuming responsibilities of the independent executor is to keep adequate records during the administration of the estate. This should begin almost immediately following death and be continued until the final distribution of the estate is made. It is absolutely necessary to begin the recordkeeping process promptly, since it is very difficult at a later date to reconstruct the financial affairs of the estate. The estate’s accountant will be able to assist the independent executor in setting up the books and financial records for the estate.
What must be done to finalize the decedent’s personal and financial affairs?
The independent executor should consider what needs to be done to finalize the decedent’s personal and financial affairs. The following are examples of the types of activities the independent executor will need to undertake:
Arrange to terminate or alter services and deliveries supplied to the decedent, if necessary. The post office should be supplied with a forwarding address for the decedent’s mail if appropriate. If there are credit cards in the decedent’s name, attention should be given to terminating the credit, after considering any need for the surviving spouse to have access to credit cards. If services are necessary for the maintenance of real property, arrangements should be made for the services to be continued. The decedent’s employer or business associates should be contacted. The independent executor may need to take steps to ensure that an active business keeps operating, or that a business be sold. The independent executor should also ascertain whether any death benefits or insurance benefits are available. The independent executor should notify the appropriate family members that they may be eligible for certain social security benefits or veteran administration benefits. A small lump-sum death payment may also be available to persons covered by social security. The social security offices prefer to deal directly with the persons eligible for benefits, and are usually quite helpful in this regard. Insurance policies should be located and delivered to the named beneficiary so the beneficiary can apply for the benefits. The policy and a certified copy of the death certificate should be presented with the claim. If the claim is mailed to the company, it should be sent by certified or registered mail. Before submitting any insurance policies for benefits, the independent executor should make a copy of the entire policy and all attachments, as they are frequently requested during the estate tax audit. The independent executor should determine whether it is advisable to continue various types of liability and loss of insurance coverage and, if so, take any steps necessary to continue such coverage.
If I am the independent executor, how do I prepare a preliminary inventory?
As soon as possible, you should make a general inventory of the assets and liabilities of the estate and present it to the attorney. This will give the attorney the ability to determine the approximate size of the estate and to identify any assets that may need special attention or that may be eligible for certain tax elections. In order to prepare the preliminary inventory, you will probably want to question the decedent’s family, business associates, accountants, and attorney. You should also examine checkbooks, tax returns, financial statements, and the decedent’s other business records. You should make a detailed inventory of all items in the decedent’s safe deposit boxes before anything is removed.
The independent executor is required to file an inventory with the Probate Court. While this is due 90 days after the independent executor’s appointment, it is normal for an extension to be requested so any property interest required to be included on both the estate tax return and the inventory is consistently described and valued.
How do I manage the assets?
As independent executor, you should collect the assets of the estate. Bank accounts and savings certificates can be transferred to the independent executor upon presentation of a certified copy of Letters Testamentary. The independent executor may request the assistance of a stock broker to aid in the transfer of the decedent’s securities. Transfer agents usually require an Affidavit of Domicile and certified copies of the death certificate, will, and Letters Testamentary. If the decedent was the owner of the stock or assets of a closely held business or professional practice, immediate attention should be given to the decision as to whether the business or practice should or can be maintained by the estate. If the decision is made to sell, potential purchasers should be contacted and negotiations commenced before values decline.
When and how do I give notice to creditors?
Within one month after receiving Letters Testamentary, a notice to all creditors of the estate must be published. While the attorney will normally prepare the notice, it must be signed by the independent executor. In addition, within two months after receiving Letters Testamentary, the independent executor must give personal notice to secured creditors of the estate.
What about income tax considerations?
Most estates contain income-producing assets, which require the independent executor to file income tax returns for the estate. These returns are normally prepared by the estate’s accountant after consultation with the attorney. In addition, a final income tax return for the decedent must be filed for the year in which he or she died. If the decedent was married, a joint return may be filed including all of the decedent’s income up until the date of death. The independent executor should also be alert for the possibility of an income tax refund due the decedent and should apply for it if one is due.
An estate is not required to use a calendar fiscal year but instead may select another fiscal year. Substantial income tax savings and deferrals can usually be accomplished by a careful selection of the estate’s fiscal year, so the estate’s attorney and accountant should be called upon to make recommendations in this respect. This should be selected (or at least considered) early in the estate administration so that a short fiscal year can be selected if desirable.
The provisions of the 1986 Tax Act now require estates to make estimated income tax payments, although not until after the close of the estate’s second taxable year. At the appropriate time, the independent executor will need to work with the estate’s accountant in determining the correct estimated income for payment for the estate.
If the decedent owned any interest in any partnership, there are certain tax elections with respect to the basis of the property that should be considered. In some cases, additional tax benefits can be obtained if the partnership agrees to elect to alter the basis of the assets in the partnership with respect to the decedent’s share.
Certain administrative expenses, such as executor’s fees, attorney’s fees, accountant’s fees, appraiser’s fees, court costs, expenses of preserving and distributing the estate, and expenses of selling property are deductible either on the estate tax return or on the income tax return of the estate. The decision as to how to derive the greatest benefits from these deductions will be determined by the independent executor, the estate’s attorney, and the estate’s accountant.
What about an estate tax return?
A federal estate tax return is due in many estates. If a federal return is required to be filed, a state inheritance return must also be filed. The estate tax return and the payment of any tax due is the duty of the independent executor. Normally, of course, the return is prepared by the estate’s attorney working with the independent executor and the estate’s accountant. Generally, it will be the independent executor’s duty to supply the information needed to prepare the return.
The estate tax return is due within nine months from the date of death, unless an extension is obtained. An extension to file the return is generally available, although an extension to pay the estate taxes is rarely available. Thus, all estate taxes must generally be paid nine months from the date of death. There are some circumstances-e.g., where the estate owns a sufficient interest in a farm or family business or where the payment of the tax by the due date constitutes a hardship to the estate-in which the time for the payment of estate taxes may be extended. Relatively few estates will qualify for this, however. The independent executor should obtain approximate valuations of the assets as soon as possible, so a determination can be made as to whether assets should be sold to pay taxes and, if so, when they should be sold.
If the total value of all assets in the estate (before any deductions for debts and other expenses) is less than $600,000, no estate tax return is required. It is normally necessary, however, except in estates for which it is clear the assets are well below that figure, to proceed as if preparing an estate tax return so it can be determined that no filing is in fact required. In addition, it is important to have the information available should the IRS ever claim that a return should have been filed.
Since the estate tax return requires considerable information and documentation (such as appraisals) for its filing, it is necessary to begin gathering the information for the return as soon as possible after the death of the decedent.
When and how are distributions made from the estate?
The timing and nature of the distributions from the estate to beneficiaries will depend upon the financial condition of the estate (including the amount of any debts owed by the estate and potential tax liability) and of the individual beneficiaries, as well as the tax consequences of the distribution. Before any distributions are made, the executor should consult with the estate’s attorney or accountant or both.
The IRS has an unrecorded lien on real property owned by the estate if an estate tax return must be filed. Particularly when the executor considers selling real property, the executor should consult the estate’s attorney regarding this issue. A procedure is available to the Independent executor should he or she need to obtain a release of the lien either for distribution or a sale of the property. The release will be issued if, in the judgment of the district director, it will not jeopardize the ability of the IRS to collect any outstanding balance or potential deficiency. Because obtaining the release may take a few weeks, it is generally advisable to begin this procedure early if the Independent executor anticipates selling property.
Because a final distribution normally will not be made until after the estate tax return has been audited or the estate has received a letter stating no audit will be made, it is likely the surviving spouse or other beneficiaries will desire some distributions prior to the final distribution. In addition, for tax purposes it is usually desirable to make interim distributions.
Any distribution will have a tax effect, so no distributions should be made until the consequences of those have been discussed with the estate’s attorney and accountant and the tax effects have been taken into consideration.