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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:
(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.
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.
Rights of Beneficiaries
Beneficiaries in an estate have certain rights. These rights include the following:
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.
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.
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.
(When Desired, Ask for More Complete Responsibility Document)
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