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DUTIES OF AN EXECUTOR AND
TRUSTEE
The
duties and obligations of an executor in relation to accounting for
beneficiaries include the following:
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Accurate accounting records must be maintained in
relation to all estate assets. The executor will need to have these
accounts approved by the beneficiaries periodically and at the
conclusion of the administration of the estate.
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Estate money cannot be mixed with any other money.
A separate account must be maintained for all estate funds.
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The source data (receipts, cancelled checks, bills,
etc.) must be maintained in order to prove the accounts, if that
should be necessary.
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Beneficiaries who are entitled to share in the
residue of the estate are entitled to require that accounts be
provided to them from time to time. These beneficiaries are
entitled to look at the source documents in order to verify the
information that is contained within the accounting.
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There are rules that govern
the type of investments that can be made by the executor.
These provisions may be set out in the will. If they are not,
there are rules created by statute. A
breach of the rules with respect to investing
by an estate is a breach of trust.
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Executors have to make beneficiaries aware of their
rights with respect to information, and with respect to requiring
that accounts be proved in court, if the beneficiary wishes.
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Executors owe a duty of care to an estate and its
beneficiaries. Claims in negligence can be made against estate
trustee for a number of reasons, including the following:
(a)
If an executor makes investments that
are not authorized by a will or by the law or if the investments do not
generate an appropriate rate of return, a claim in negligence may be
advanced against the executor for any loss incurred ;
(b)
An executor should make an appropriate
blend of investments. Some of these investments will be income
generating and some will be capital in nature (stocks). An executor
should obtain the advice of a financial advisor prior to making any
investments although, it is presently considered that a mix of 60%
income-generating and 40% growth investments is an appropriate mix of
investments for estates;
(c)
There is generally little point in an
executor considering investments in a speculative investments. If a
speculative investment is highly successful, the estate will benefit
although, the executor will not necessarily, directly benefit. In the
event of a loss, the executor may be found liable to the estate for the
entire amount of the loss and have to pay it to the estate together with
interest.
(d)
An estate trustee has an obligation to preserve and maintain all
estate assets. If there are estate assets such as equipment or
vehicles, they must be properly secured (i.e. in a safe place) and maintained;
(e)
The executor must make all appropriate
elections and filings under the Income Tax Act in a timely fashion, or
they may be responsible for any loss occurred by the estate.
In the event
of a court supervised review of the accounting, all financially
interested beneficiaries must be notified.
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Executors Compensation
Many people feel uncomfortable accepting payment for helping out family
members during a tough time. And there’s nothing wrong with serving as
an executor without pay.
But if you’re weighing this decision, remember
that being an executor requires a commitment to working on behalf of the
estate beneficiaries for months or even years. It’s a big responsibility
to deal with other people’s money - and there may be a
lot of work required.
Executors are
entitled to compensation for the work that they do for the
administration of an estate. The general rule is that an executor is
entitled to 2.5% of the assets of the estate gathered in, 2.5% of the
value of the estate assets distributed, and 2/5 of 1% of the average
value of the estate, if the estate is invested for a period time. In a
typical estate where the assets are gathered in and distributed
relatively quickly, the executor’s compensation would be 5% of the value
of the estate.
The amount
of the executor’s compensation may be adjusted up or down based upon a
number of factors. These factors include:
(a)
The total value of the estate;
(b)
The complexity of the estate;
(c)
The time spent by the executor in the
discharge of their duties;
(d)
The skill displayed by the executor in
the administration of the estate;
(e)
The degree of care exercised by the
executor;
(f)
The results of the administration and
any investments made by the executor.
Generally at
the conclusion of an estate (or periodically during the administration
of the estate, if the estate is administered over a period number of
years), the beneficiaries are asked to approve the level of executor’s
compensation. If the beneficiaries do not agree (or cannot legally
agree because of the nature of the beneficiaries – for example if one of
the beneficiaries is a minor or mentally incompetent), then the
executors have to have the compensation fixed by the court.
There used
to be a rule, which prohibited an executor from “pre-taking”
compensation before it had been approved by the beneficiaries or fixed,
by the court. This rule has been modified by recent court decisions.
As a result, an executor is entitled to “pre-take” compensation before
it has been approved by the beneficiaries or by the court. It is still
generally prudent do obtain beneficiary or court approval before taking
the compensation. In the event that compensation is pre-taken, if it is
ultimately determined by a court to have been excessive, the executor
will be required to pay the excessive amount together with interest.
The
preparation of accounts, income tax returns, management of investments,
and other estate administration are the duty of the trustee. In
appropriate cases, these functions can be delegated to qualified experts
(accounts, lawyers, property managers, etc.) and the cost of such
experts will be paid in addition to the executor’s compensation.
State rules vary widely. California, for example, lets an executor
charge 4% of the first $100,000 of
an estate's value; for a $1
million estate,
the fee is $23,000.
A
most complex fee schedule, California, provides for different percentage
amounts depending on the size of the estate -- the executor may receive
up to 4 percent of the first $100,000 of
the estate, up to 3 percent of the next $100,000 and
up to 2 percent of the next $800,000.
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When creating an estate plan, it may be necessary to name a
trustee to handle your assets.
 A
frequent example is when you create a revocable living trust to
pass on assets to your children. You must name a trustee to
manage those assets. You might name yourself as trustee,
although some situations may require that it be another
individual or organization. An issue to consider are the trustee
fees. Trustees assume responsibilities when managing assets, and
the fees can compensate them for their time and efforts.
Yahoo
Finance’s recent article entitled “Trustee
Fees: What Are They and Who Pays?” explains
that trustee fees are a payment for services rendered. A trustee
can be an individual or an organization, like a bank, wealth
management company or other financial institution. Trustees will
do various duties, depending on the instructions in the trust
document. However, their primary job is to make certain that the
assets held in a trust are managed according to the trust
grantor’s (creator’s) wishes for the trust’s beneficiaries.
The trust creator will usually set out the terms
of payment for a trustee in the trust document. Let’s look at
some different ways to structure trustee fees. One fee structure
is to pay the trustee a set percentage of the assets in the
trust each year. This is typically used with larger trusts with
significant assets that continually appreciate or generate
ongoing income. With a smaller trust, a different fee structure
might be used. Instead of a percentage, you might pay the
trustee a flat dollar amount, each year. If they don’t have as
many duties, they could be paid an hourly rate.
When drafting a trust document with the help of
an experienced estate planning attorney, the grantor can set the
terms of payment, including capping how much can be paid in
trustee fees.
If a trust doesn’t mention trustee fees in the
trust document, state law can determine the fee. Typically, fees
can either be charged as a percentage of assets or as a
percentage of transactions associated with money moving in or
out of the trust.
There are no set rules for calculating the amount
trustees can charge for their time. However, there are some
common guidelines. In many instances, a trustee will charge a
minimum of 1% when dealing with larger trusts with significant
assets. Smaller trusts frequently use a flat fee model. The fees
are paid out of the trust’s assets. Fees are typically paid
quarterly.
Trustees are also entitled to reimbursement for
any expenses, such as travel expenses, storage fees, taxes,
insurance, or other expenses they incur related to the
management of the trust. These expenses are reimbursable,
regardless of whether the trust document specifies any
guidelines for reimbursement.
The trustee fees are tax deductible to the trust,
and the fees are considered taxable income for the trustee. If
you’re uncertain what to pay (or what to charge if you’re acting
as a trustee), speak with an estate planning attorney.
Reference: Yahoo
Finance (Aug. 14, 2020) “Trustee
Fees: What Are They and Who Pays?”
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Rights of Beneficiaries
Beneficiaries
in an estate have certain rights. These rights include the following:
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The right to be notified when the estate trustee
(executor) applies to court for a Certificate of Appointment of
Estate Trustee (probate). A beneficiary may make representations to
the court whether or not the beneficiary has any objection to the
proposed executor being appointed.
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An estate beneficiary is entitled to information
concerning the original assets to the estate and in relation to the
ongoing accounting of the estate. If the executor does not produce
this information voluntarily, a beneficiary may require that the
executor complete a court supervised review of the accounts.
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A beneficiary is entitled to receive their
entitlement under the estate in a timely way. The length of time
will depend on the nature and complexity of the estate. Generally,
if the executor completes the administration within one year, they
will not be criticized.
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Prior to the completion of the estate, a beneficiary
is entitled to see a complete list of all of the accounting for the
estate and any relevant other source documents (receipts, invoices,
cancelled checks, etc.).
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An executor is entitled to compensation. The
beneficiaries are entitled to review and approve or disapprove of
the level of compensation. If the beneficiaries do agree with the
level of compensation, a court must set it.
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If a beneficiary is unhappy with the job that is
being done by the estate trustee, that beneficiary can apply to the
court for an order to remove the trustee. A court will remove a
trustee if their removal is justified.
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Contact an attorney
licensed and experienced in your state for your state law.
We can
assist finding attorney.
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DUTIES OF AN EXECUTOR
The
executor of an estate is named in one's will and has many duties and
responsibilities, including the following:
1. Find
the latest will and read it.
2. File a petition with the court to
probate the will.
3. Assemble all of the decedent's
assets.
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Take possession of safe deposit box
contents.
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Consult with
banks and savings and loans in the area to find all
accounts of the deceased. Also, search for cash and other
valuables hidden around the home.
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Transfer all securities to his or
her name (as executor) and continue to collect dividends and
interest on behalf of the heirs of the deceased.
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Find,
inventory and protect household and personal effects and
other personal property.
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Collect all life insurance proceeds
payable to the estate.
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Find and inventory all real estate
deeds, mortgages, leases and tax information.
Provide immediate management for rental properties.
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Arrange ancillary administration
for out-of-state property.
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Collect monies owed the deceased
and check interests in estates of other deceased persons.
4. Find and safeguard business interests,
valuables, personal property, important papers, the residence, etc.
5. Inventory all assets and arrange
for appraisal of those for which it is appropriate.
6. Determine liquidity needs.
Assemble bookkeeping records. Review investment portfolio. Sell
appropriate assets.
7. Pay valid claims against the
estate. Reject improper claims and defend the estate, if
necessary.
8. Pay state and federal taxes due.
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File income tax returns for the
decedent and the estate. .
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Determine whether the estate qualifies for "special use
valuation" under IRC Sec. 2032A, the qualified family-owned
business interest deduction under IRC Sec. 2057, or deferral of
estate taxes under IRC Sections 6161 or 6166.
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If the surviving spouse is not a U.S. citizen, consider a
qualified domestic trust to defer the payment of federal estate
taxes
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File Federal Estate Tax return and
state death and/or inheritance tax return
9. Distribute specific bequests and
the residue plus obtain tax releases and receipts as directed
by the court. Establish a Testamentary Trust (or pour over into a
Living Trust), where appropriate.
10.
Prepare statement of all receipts and disbursements. Pay
attorney's fees and executor's commissions. Assist the
attorney in defending the estate, if necessary.
Return to LegacyChange Home Page
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LOIs (Letter of Instruction) may
also include whatever you think may help the people you
leave behind or who would take over if you are not capable.
A letter of instruction, or LOI,
is a good addition to the documents included in your estate
plan. It’s commonly used to express advice, wishes and
practical information to help the people who will be taking
care of your affairs, if you become incapacitated or die.
According to this recent article “Letter
of instruction in elder law estate plan can help with
managing important information” from
the Times Herald-Record,
there are many different ways an LOI can help.
In our digital world, you might want to use
your LOI to record website names, usernames and passwords
for social media accounts, online accounts and other digital
assets. This helps loved ones who you want to have access to
your online life.
If you have minor children who are
beneficiaries, the letter of instruction is a good way to
share your priorities to the trustee on your wishes for the
funds left for their care. It is common to leave money in
trust for HEMS—for “Health, Education, Maintenance and
Support.” However, you may want to be more specific, both
about how money is to be spent and to share your thoughts
about the path you’d like their lives to take in your
absence.
Art collectors or anyone who owns valuable
items, like musical instruments, antiques or collectibles
may use the letter of instruction as an inventory that will
be greatly appreciated by your executor. By providing a
carefully created list of the items and any details, you’ll
increase the likelihood that the collections will be
considered by a potential purchaser. This would also be a
good place to include any resources about the collections
that you know of, but your heirs may not, like appraisers.
Animal lovers can use an LOI to share
personalities, likes, dislikes and behavioral quirks of
beloved pets, so their new caregivers will be better
prepared. In most states, a pet trust can be created to name
a caregiver and a trustee for funds that are designated for
the pet’s care. The caregiver and the trustee may be the
same person, or they may be two different individuals.
For families who have a special needs member,
an letter of instruction is a useful means of sharing
important information about the person and is often referred
to as a “Letter of Intent.” It works in tandem with a
Special Needs Trust (also can be known as a Supplemental
Needs Trust), which is created to leave assets to a person
who receives government benefits without putting
means-tested benefits in jeopardy. If there is no Special
Needs Trust and the person receives an inheritance, they
could lose access to their benefits.
Some of the information in a Letter of Intent
includes information on the nature of the disability, daily
routines, medications, fears, preferred activities and
anything that would help a caregiver provide better care, if
the primary caregiver dies.
The LOI can also be used to provide basic
information, like where important documents are kept, who
should be notified in case of death or incapacity, which
bills should be paid, what home maintenance tasks need to be
taken care of and who provides the services, etc. It is a
useful document to help those you leave behind to adjust to
their new responsibilities and care for loved ones.
Although you can do a LOI without the help of
an attorney, it is recommended that you visit with your
elder law attorney or estate planning attorney so that your
LOI doesn’t have any conflicting provisions with your estate
plan. The last thing you want to do when you are trying to
help those who survive you is to actually make it more
difficult. Your attorney will help guide you through the
process and make sure your LOI compliments and enhances your
planning.
Reference: Times
Herald-Record (Sep. 8, 2020) “Letter
of instruction in elder law estate plan can help with
managing important information”
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