Other Issues of Estate Administration
The executor is the person named by the descendant in the will to administer the estate. The executor has many important functions to complete, including:
- Gathering and inventorying all assets of the estate
- Appraising the assets
- Collecting any payments or debts owed to the estate
- Paying any debts owed by the estate
- Filing and paying local, state and federal taxes
- Distributing assets to the beneficiaries as stipulated in the will
The executor owes fiduciary duties to anyone who has an interest in the estate. This means that the executor owes a duty of loyalty and must act in the best interests of the estate. For example, if the executor mismanages estate assets and causes the estate to lose value, he or she can be held liable for these actions and may have to repay the estate the amount of the lost value.
Preserving Estate Assets
An important but sometimes neglected responsibility in administering an estate is to look for opportunities to preserve assets for distribution. Reducing estate taxes is one way that an estate can retain more of its wealth for the decedent's heirs. Some of the ways to accomplish this are:
- Consider whether administration expenses and casualty losses should be reported on the estate tax return or on the estate's income tax return
- Consider whether there are income tax savings opportunities on the decedent's final return (such as whether or not a joint income tax return should be filed with the surviving spouse)
- Consider whether assets should be valued at the date of the decedent's death or six months later (or, if assets have been distributed prior to six months after the decedent's death, the date of the disposition of the assets)
Probate can be an expensive, drawn-out process, especially for beneficiaries who may have to wait any where from one to two years to receive the property left to them in the will. There are certain types of assets that do not have to go through probate and become available to the beneficiaries upon death of the decedent. These generally include:
- Property owned in joint tenancy with rights of survivorship
- Payment on Death (POD) bank accounts
- Transfer on Death (TOD) securities
- Life insurance proceeds
- IRAs, 401(k)s, and other tax-deferred retirement plan proceeds
Revocable Living Trusts
Revocable living trusts are similar in form and substance to wills. These instruments allow the creator (the testator) to transfer the title of ownership of property to the trust. During life, the testator can remain in control of his or her assets, with the ability to sell, buy or transfer property as he or she wants. The trust also can be changed or terminated at any time by the testator.
Upon death, the property in the trust does not become part of the probate estate because title to the property is owned by the trust, not the decedent. The trustee designated in the revocable living trust will then be in charge of administering the trust and distributing property to the beneficiaries in accordance with the terms of the instrument.
Many people use revocable living trusts as a way to limit the amount of property subject to probate. Revocable living trusts are often advertised as a way to avoid probate all together, but often they are coupled with a will that disposes of any property not specifically named in the trust.