So you’re the executor of an estate, most likely that of a loved one. In addition to working through your own grief, you’re now responsible for disposing of your loved one’s possessions and assets and settling any debts they owed. Some estates are small and straightforward, others large and complex, but even in the simplest estate, an inexperienced executor can make serious mistakes without the proper guidance. Below are some of the top mistakes to avoid when serving as executor of an estate (sometimes called a “personal representative”), and some suggestions for steering clear of trouble.
1. Paying Bills in the Wrong Order
The executor of a deceased person’s estate is a fiduciary, someone legally and ethically bound to manage assets in the best interests of another party. Like most executors, you are probably eager to do a good job and to take care of estate business in a timely fashion. Unfortunately, the obligations that appear urgent may in fact be less important than others you may not yet be aware of.
One example is paying bills. As executor, the deceased’s mail has probably already started coming to you, and that mail likely includes bills: medical bills from the last illness, utilities, credit card bills, and so forth. As a diligent executor, you may think you have to pay these bills immediately to keep the finances of the estate in good standing. In fact, there are different classes of debts that may be owed by an estate, and some of them, like taxes, have higher priority than others. If you pay some debts, and there later turns out not to be enough money left to pay higher-priority debts, you may have breached your fiduciary duty. You might even be exposed to personal liability for some of the debts.
Avoiding this trap is simple. Talk to an experienced probate attorney before paying anyone, so that you will understand the priority of debts. An attorney can also assist you in estimating administrative expenses, as well as any payments that need to be made to the surviving spouse and/or children.
2. Failing to Properly Notify Creditors
If you don’t pay all bills immediately, what do you do? When you receive a bill, you can use the information on it to contact the creditor to notify them of the death. But what about creditors who don’t send monthly bills?
Another mistake executors often make is failing to properly notify creditors that the deceased person has died. Since it may be difficult to know who all creditors are, notice is often given by publication. Once creditors are notified of the death, they have a limited amount of time in which to file claims. If they don’t file a claim within that time period, it is barred. However, if an executor or personal representative does not take the proper steps to give notice, creditors may be able to demand payment after the executor believed the claims period was closed. This could disrupt the estate and again, possibly result in personal liability for the executor.
3. Not Keeping Accurate Records
As a fiduciary, you are obligated not only to act in the best interests of the estate and its heirs, but to thoroughly document your actions. This seems obvious in the abstract, but in real life, it is easy to let things slip or to assume that because you have good intentions, everything will work out.
You are obligated to keep detailed accounts in accordance with probate law. If you fail to do so, you could unnecessarily extend the length, and the expense, of the probate process. You may be uncomfortable with the process of filling out schedules, documenting receipts and disbursements, and using accounting and balance sheets. You might take shortcuts, such as lumping entries together rather than itemizing them individually.
Do NOT assume sloppy record keeping won’t matter.If you are unprepared to be meticulous in the use of accounting and balance sheets, you should retain an accountant or bookkeeper experienced in probate matters to assist you. The expense of a professional is paid for out of estate funds, because these services are a benefit to the estate.
4. Failing to Inventory and Secure Property
When serving as an executor, particularly for a close family member, it is easy to be somewhat casual with assets, especially personal property. Never lend or give anyone (including yourself) estate funds or let them use the estate’s debit card. Likewise, secure other tangible assets.
You know that Mom intended granddaughter Susie to have her wedding ring—why not just give it to her now, rather than making her wait months to go through probate? The answer is that until all debts are paid or barred so that distributions can be made to heirs, the asset belongs to the estate, NOT to Susie. Estate assets must be distributed at the proper time through the proper channels, or again, you could be subject to personal liability.
As executor, one of your primary duties is to ensure that you have identified and protected all estate assets. This includes everything from costume jewelry to real estate. It’s not enough just to know where things are; they must be maintained while probate is in process. Real estate, for instance, must be secured, physically maintained, insured against loss, and have property taxes paid. If you can’t do this yourself, for instance if you are out of state, you can hire professionals to do it, and again, their services will be paid for by the estate (another reason to keep good records: heirs or the court may want to see what services the estate expended money for, and whether expenditures were reasonable).
5. Failing to Communicate with Heirs
As a fiduciary, not only are you obligated to communicate with the estate’s heirs as a business and legal matter, but doing so will also help preserve important relationships. As a Michigan probate attorney, I have seen many families in which suspicion and distrust grew because some family members couldn’t get information about how another family member was managing their loved one’s estate. Whether reasonable or not, this distrust often leads to permanent rifts in a family.
Keeping accurate records and using qualified professionals means that you will have at your fingertips the information that heirs may want and that they deserve to have. If you are open and transparent with heirs, they will be confident in your management of the estate, and legal disputes will be much less likely. What’s more, personal relationships will be preserved, and you can honor the memory of your deceased loved one together.
If you have more questions about serving as the executor of a Michigan estate, we invite you to contact our law office.
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