By Carl "Skip" Rapp, CEO, Executor's Resource, Inc.
Choosing an executor is one of the most important things you'll do as part of preparing your estate. Done right, it can ensure a smooth transition for your family, relieve some of their stress and help them to remember you in the right way. Done wrong, it can cause more than just hard feelings.
There are three general types of people to choose as your executor: the close family member, the professional or a hybrid of the two. How can you ensure that you are selecting the best option for your situation?
A recent study showed that there is mass confusion over what the role of an executor actually entails. Start your decision making process by considering the fiduciary nature of the position and its duties. These include: gathering the assets of the estate, filing tax returns, paying the estate's taxes and other debts, settling business interests, filing an accounting with the probate court, distributing property to intended beneficiaries.
Selecting a Non-Professional Family Member
The individual you name can be your spouse, domestic partner, sibling, adult child, or a friend. They technically need not have any special training but there is some preferred knowledge and character traits that should be considered.
Estate planning attorney Walter Kingsbery says you should choose someone who is responsible, trustworthy, and is comfortable working with professionals such as lawyers and accountants. The person shouldn't be a procrastinator.
"You pretty much want somebody who will do the work and not get mixed up with the emotional aspects," Kingsbery says.
Remember that the executor's position is a job, and the executor is entitled to reasonable compensation. Commonly a family member who acts as executor will forego payment or be paid hourly by the estate for his or her work.
Talk with your preferred "candidates" and make sure the communication goes both ways. It's not the best practice to just surprise someone with the job title after your death. Address any potential conflicts of interest. Make sure your executor knows that he will be a fiduciary, and that he can resign.
Avoid Non-Professional Co-Executors
Selecting multiple non-professionals to serve as co-executors may bring more challenges than you intend. Be aware that each will have to sign court filings and other important documents throughout the entire process (which can be anywhere from several months to several years).
Do you reasonably feel that your co-executors can collaborate together and still meet the necessary court driven timelines? Are they on speaking terms today? What if they aren't in the future?
Bottom line: if you have dysfunction in your family (and who doesn't?), naming multiple individuals who can't get along today as your co-executors will not inspire a sense of togetherness. Given the way family dynamics work and the complexity of your estate, you may feel more comfortable selecting a professional executor.
Professional Executors
There are numerous options for professional executors - a bank, a trust company, an attorney, an accountant, in some instances, even a financial planner. You can name a person who is employed by the firm, or just the organization itself if you wish.
These professionals can assist a non-professional with carrying out executor duties - they charge an hourly rate. They can also serve as the sole executor and carry out all duties as required - earning a fee that is sometimes based on a percentage of the gross estate. This fee covers the time spent in settling your estate, as well as a premium for the fiduciary risk that accompanies the role.
The pros to this approach are multiple in that these individuals have the knowledge, expertise, and prior experience associated with executor responsibilities. They create efficiencies through the network of other professional contacts they have, such as ordering appraisals to value certain assets, knowing whom to call within the court system in your locale, among others.
Unlike your family member, the professional executor may be more emotionally able to act after your passing. If family conflict exists, the professional would not get personally or emotionally involved or upset. This approach tends to work well with large or especially complex estates.
Some cons: Some feel that appointing a professional executor would be a cold experience for the family. Some even argue that the professional executor path is unattractive because of their distance from the family's day-to-day life and unique needs.
Hybrid
To achieve the combination of close personal knowledge of your family's situation as well as gain access to professional expertise, some choose a family member and a professional executor to serve together.
Summary of action steps in choosing your executor
- Learn. Learn about the nature of an executor's responsibilities and the estate settlement process.
- Consider. Think about your personal situation and what your preference might be - individual, professional, or hybrid approach. You may want to talk it over with your financial advisor, estate planning attorney, or other industry professional with whom you are presently working.
- Interview - Individual Path. If you choose the individual (or hybrid) approach, think about the family members that you know and trust who meet the criteria for the job. Make a list of pros and cons about each potential candidate. Speak with those individuals to get their reactions and feedback.
- Interview - Professional Path. If you choose the professional or hybrid path, ask your financial advisor, attorney, or other industry professional for recommendations of professional executors within your community. Set up appointments to meet and interview those individuals.
- Select. Select your executor, and a contingent executor. It's always good to have a back up plan. Record your choice in your will, letter of instruction and other estate related documents. If you are changing executors, ensure you update your documents accordingly.
- Communicate. Have a follow up conversation with your appointees. Meet annually with these individuals/professionals to review, update, and otherwise familiarize them with the locations of the things they'll need. Speak with your family members to let them know whom you have selected and why.
Ultimately, there is no right or wrong answer to what is the best choice for an executor. It really depends on what gives you as the estate owner peace of mind to know that your instructions and wishes will be carried out in the manner that you specify. What is the right choice, however, is addressing the situation now and being proactive about it.
