So You Were Named to Serve as an Executor … Now What?
An Executor of an estate has many duties beginning at the moment the testator dies and continuing until all beneficiaries have been paid and the estate is closed. Depending on the size of the estate and challenges which may be present, an executor’s role could continue for years.
Most Executors will hire an estate attorney to help guide them through the often daunting process of settling a decedent’s estate, including the probate process. In New York, the Executor is appointed by the Surrogate’s Court in the county where the decedent resided in a proceeding called “Probate”.
The first step of the probate process is having the will validated by the court, or accepted as authentic, and the appointment of the executor named in the will. This process usually takes about a month. New York will sometimes penalize an executor for not submitting a will for probate within a reasonable amount of time if a creditor or beneficiary suffers financial harm because of the delay. Once the Will is admitted to probate, the Executor is appointed and may proceed to administer the estate. Before the Will is probated, the person named as Executor in the will has no authority to act.
Below is a basic checklist an Executor should follow:
- Make a list of the decedent's assets and protect them by notifying the financial institutions of the death and your appointment.
- Obtain professional appraisals of real property and personal property (e.g. art, jewelry, furniture), if needed.
- Once you have collected some funds, open an estate checking account.
- Determine if there are creditors of the estate and whether their claims are valid.
- Pay estate debts and expenses (e.g., funeral expenses, court fees, attorney fees, appraisal costs, etc.).
- Keep careful and detailed records of financial transactions (i.e., make a ledger and record all income and expenses).
- Have the decedent’s final income tax return and estate income tax returns prepared and filed, if needed.
- Federal and State estate tax returns should be prepared and filed on time, if required.
- Pay the balance of estate funds to the beneficiaries of the will.
Are you entitled to be paid for your services?
Most states do allow for commissions to the Executor for rendering services to the estate. The law typically sets the amount of compensation, which will differ depending on the state. New York allows Executor Compensation by Statute as set forth in SCPA 2307.
Keep in mind that commissions received by an Executor is taxable income and therefore, must be reported on a personal income tax return. Any funds you receive as a beneficiary are not considered taxable income. Before accepting your commission, the tax implications should be discussed with your accountant.
Will an Estate Tax Return Need to Be Filed?
An estate tax return must be filed if the estate is subject to federal and/or state estate taxes. The taxes must be paid within 9 months of the date of death. Currently, only estates above $5,490,000.00 must file an Federal Estate Tax Return and only estates above $5,250,000.00 must file a New York State Estate Tax Return.
Filing the taxes late or incorrectly may result in penalties. The unknowing Executor may be held personally liable for such penalties.
What is Fiduciary Duty?
The Executor has a fiduciary duty to the estate as well as its beneficiaries and creditors. This means that they are held to a very high standard of care. An Executor must be extremely faithful towards the estate, its beneficiaries and creditors and must not put their own interests ahead of that duty. If the executor breaches their fiduciary duty, the executor could be held legally liable for any losses suffered by the estate or the beneficiaries. An executor can be removed by the beneficiaries for breach of fiduciary duty and could be subject to restitution of any financial losses to the estate and the beneficiaries, as well as face criminal charges if the executor committed any crimes such as embezzlement of estate assets.
Serving as an Executor is a big responsibility, especially if the estate is large and has substantial assets. That is why most Executors wisely hire a competent estate attorney.