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Executors have a tough and often thankless job. They have to marshal all the estate’s assets, file tax returns, and distribute property according to the will. Sometimes, they make mistakes. Here’s a look at the most common ones:
Paying bills too soon. Executors often see bills arrive in the mail and decide to pay them right away to avoid any problems. But this can actually create problems.
There’s an order in which bills must be paid: Items such as taxes, funeral expenses and the costs of estate administration typically take priority over credit card statements, for instance. If an estate turns out to have a lot of debts (perhaps the person who passed away had an unexpected tax bill), and the executor has paid off low-priority debts first, there might not be enough money to pay the high-priority debts, and the executor might be personally liable for them.
It’s best not to pay low-priority debts until the estate administration has been completed, or at least until you know exactly what the estate’s tax and administration liability will be.
Paying heirs too soon. Often, beneficiaries are impatient to receive their inheritance and pressure the executor to start making distributions. An executor can get into trouble if he or she makes distributions quickly and it later turns out there aren’t enough remaining assets to pay off the estate’s debts.
A related issue is that an executor has an obligation to secure and properly value estate assets. If beneficiaries are using “self-help” to make off with personal property – vehicles, artworks, furniture, a piano – before the executor can have them appraised, the executor could be liable. It’s an even bigger problem if a family member takes an asset that the will says should go to someone else.
In our next installment, we will discuss additional mistakes frequently made by executors.
If you have any additional questions or would like to schedule a free consultation, please feel free to contact us at your earliest convenience.