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DEFINITIONS Fiduciary -A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Executor -A person named by you in your Will to carry out the provision of your Will. Trustee - The person or entity who is responsible for holding, investing and distributing the assets of a trust. Attorney in Fact - One who is appointed to act (as agent) for another (principal) under a power of attorney. The scope of the agent's authority is limited to that given by the power of attorney, which may be limited to one specific act or may be broader. Health care representative (also called health care agent) -The person selected in a health care power of attorney to make decisions about medical treatment and other health care matters for the individual who signs the document. EXECUTOR DUTIES An executor's job comes with many legal obligations. Under certain circumstances, an executor can even be held personally liable for unpaid estate taxes. Let's review the major duties involved, which we've set out below. In General, the executor's job is to: 1. Administer the estate, i.e., collect and manage assets, file tax returns and pay taxes and debts and 2. Distribute any assets or make any distributions of bequests, whether personal or charitable in nature, as the deceased directed (under the provisions of the will). Let's take a look at some of the specific steps involved and what these responsibilities can mean. Chronological order of the various duties may vary. Step 1: Probate. The executor must "probate" the will. Probate is a process by which a will is admitted. This means that the will is given legal effect by the court. The court's decision that the will was validly executed under state law gives the executor the power to perform his or her duties under the provisions of the will.
Step 2: Manage the Estate. The executor takes legal title to the assets in the probate estate. The probate court will sometimes require a public accounting of the estate assets. The assets of the estate must be found and may have to be collected. As part of the asset management function, the executor may have to liquidate or run a business or manage a securities portfolio. To sell marketable securities or real estate, the executor will have to obtain stock power, tax waivers, file affidavits, and so on. Step 3: Take Care of Tax Matters. The executor is legally responsible for filing necessary income and estate-tax returns (federal and state) and for paying all death taxes (i.e., estate and inheritance). The executor can, in some cases be held personally liable for unpaid taxes of the estate. Tax returns that will need to be filed can include the estate's income tax return (both federal and state), the federal estate-tax return, the state death tax return (estate and/or inheritance), and the deceased's final income tax return (federal and state). Taxes usually must be paid before other debts. In many instances, federal estate-tax returns are not needed as the size of the estate will be under the amount for which a federal estate-tax return is required. An employer identification number ("EIN") should be obtained for the estate; this number must be included on all returns and other tax documents having to do with the estate. The executor should also file a written notice with the IRS that he/she is serving as the fiduciary of the estate. This gives the executor the authority to deal with the IRS on the estate's behalf. Often it is necessary to hire an appraiser to value certain assets of the estate, such as a business, pension, or real estate, since estate taxes are based on the "fair market" value of the assets. After the filing of the returns and payment of taxes, the Internal Revenue Service will generally send some type of estate closing letter accepting the return. Occasionally, the return will be audited. Step 4: Pay the Debts. The claims of the estate's creditors must be paid. Sometimes a claim must be litigated to determine if it is valid. Any estate administration expenses, such as attorneys', accountants' and appraisers' fees, must also be paid. Step 5: Distribute the Assets. After all debts and expenses have been paid, assets will be distributed. Extra attention and meticulous bookkeeping by the executor. Frequently, beneficiaries can receive partial distributions of their inheritance without having to wait for the closing of the estate.
WHO SHOULD SERVE AS EXECUTOR? The executor's legally imposed fiduciary duty is to act in all ways in the best interests of the estate and its beneficiaries. The duties of an executor can be difficult and challenging and should not be taken lightly. We believe an executor needs not only the skills, training, and experience necessary to do the project casual or part-time attention is not likely to achieve success. Under increasingly complex laws and rulings, particularly with respect to taxes, an executor can be in charge for two or three years before the estate administration is completed. If the job is to be done without unnecessary cost and without causing undue hardship and delay for the beneficiaries of the estate, the executor should have an understanding of the many problems involved and an organization created for settling estates. In short, an executor should have experience. WHO DO YOU SELECT How do I choose an executor?Co-Executors vs. One Executor Most people name their spouse or an adult child. Common sense, conscientiousness, and honesty are the main requirements. An executor who needs help can hire lawyers, accountants, or other experts, and pay them from the assets of the estate. The person you choose should be honest, organized, and good at communicating with people. If possible, name someone who lives nearby and who is familiar with your financial matters; that will make it easier to do chores like collecting mail and finding -important records and papers.
ON THE OTHER HAND How complex is your estate? Family Dynamics are a Factor -Do your children get along -Problem of the "controlling" child -Are your children too busy? -Resentment issues -Procrastination issues Will the people retain proper professionals or try to do it themselves? Under all circumstances, consultation with a lawyer is critical so that issues are not missed (Example: Estate Recovery) POWER OF ATTORNEY DUTIES The Attorney-in-Fact is responsible for making decisions about money, property, or both belonging to the Principal, and to spend the Principal's money, property, or both on the Principal's behalf, in accordance with the terms of this Durable Power of Attorney. This Durable Power of Attorney is valid only if the Principal is of sound mind when the Principal signs it. When acting in the capacity of Agent, you are under a duty (called a "fiduciary duty") to observe the standards observed by a prudent person, which means the use of those powers that is reasonable in view of the interests of the Principal and in view of the way in which a person of ordinary judgment would act in carrying out that person's own affairs. If the exercise of your acts is called into question, the burden will be upon you to prove that you acted under the standards of a fiduciary. The Agent, also called an Attorney in Fact, is not entitled to use the money or property for his or her own benefit or to make gifts to yourself or others unless the Durable Power of Attorney specifically gives the authority to do so. As the Agent, the authority under this Durable Power of Attorney will end when the Principal dies. Violation of the fiduciary duty under this Durable Power of Attorney, may lead to liability for damages and may criminal prosecution. HOW SOPHISTICATED ARE YOUR AFFAIRS? SAME CONSIDERATIONS AS WITH EXECUTOR HEALTH CARE AGENT - New Jersey - Name one (not co)
Choose someone you trust. Your agent needs to be willing and able to make potentially difficult decisions about medical treatment for you. Discuss your desires, values, fears, and preferences about medical care in various situations. The more your agent knows about you and your values, the more likely he or she will be to make the kinds of decisions you would make if you were able. TRUSTEE -Depends on type of trust Some require greater expertise (such as special needs trust) Consider dynamics between individuals May not be advisable to name sibling as trustee of other siblings trust How long with the trust last (age considerations) Naming guardian of individual as trustee COMPENSATION Constitutes Taxable Income Executor - Assets: 5% on first $200,000, 3.5% on excess Income 6% Attorney in Fact - Reasonable Compensation Trustee Income - 6% Corpus - $5.00 per thousand dollars on first $400,000 |
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