If you have already named an executor for your estate, then you have taken the first steps to making sure your family and loved ones will be taken care of after your passing. But, unfortunately, many executors end up making costly mistakes which lower the value of the estate you worked your whole life to build up, and your beneficiaries are the ones who lose out. Below we take a look at common mistakes that executors make and what steps you can take to avoid them.
Not Understanding the Executor’s Duties
An executor will be in charge of making sure all of your assets are properly distributed. Clearly this is a lot of responsibility, and you want to name an executor you can trust to handle your property when you are gone. But in the pursuit of finding a trustworthy executor, many people name close friends or family members as executors despite the fact they may be ignorant of the executor’s duties and/or financially unsophisticated. This can lead to all sorts of problems, including the loss and depletion of estate assets, or beneficiaries simply never getting paid or facing long, expensive probate battles. By naming a sophisticated individual who understands the duties of an executor – such as an estate planning attorney or CPA – you can minimize these risks.
Unnecessary Delay Leading to Loss of Assets
Even where an executor might understand his or her duties and have the resources to carry them out, an executor who does not timely take action to settle the affairs of the estate and make sure beneficiaries are paid can leave the estate open to attack by creditors and false claims of entitlement. Even without those threats, needy beneficiaries may not get the benefits you intended them to receive in a timely manner when an executor does not make overseeing your estate a priority. To avoid this, make sure you name an executor who will take timely action on your estate and who understands the urgency of attending to your affairs after your passing.
Making Payments Out of Priority
Probate law provides a framework by which creditors, taxes, and beneficiaries are to be paid, and when the estate does not have the funds to pay each one of those parties in full, someone will be left with less than what they may have been expecting. When lower priority debts are paid before their time, the estate can find itself the subject of costly litigation, lowering the amount available for everyone. Again, working with a sophisticated executor such as an attorney or CPA who understands probate will help to avoid this issue.
Engaging in Risky Investment Choices
Some but not all estates give executors the ability to make discretionary choices with assets, either during the probate process as part of funding trusts. Thus, an executor may have the ability and even the responsibility to invest estate funds, but when an unsophisticated and/or foolhardy executor makes risky investment choices (say, choosing to invest in a risky start-up over blue-chip bonds), it is your beneficiaries who pay the price. Provide specific investment guidelines for executors, make the investment choices prior to your passing, or name an executor who understands sound investment strategies.
Poor Handling of Real Estate
Real estate is often one of the most valuable assets in an estate, and how it is handled can have an enormous effect on the value of your estate and what is available to your beneficiaries. When real estate belonging to a recently deceased is quickly sold on the market with little repairs, evaluation of tax issues, or marketing efforts by unsophisticated sellers, tens and even hundreds of thousands of dollars can be lost, and those losses make their way to your beneficiaries. Work with your executor to create clear strategies for the disposition of your real estate to obtain the highest price possible.
See What a Pasadena Probate Attorney Can Do For You
Christopher B. Johnson is an estate planning and probate attorney in Pasadena, CA who has helped thousands of individuals and families over the past 18 years in creating and reaching their estate planning objectives as well as in navigating probate issues. Schedule a consultation with him today to discuss your estate planning goals.