What is an Executor or Administrator?
The executor or administrator is the individual appointed to administer a decedent's estate. An executor or administrator is under a fiduciary duty to estate. Which means that he or she is subject to the highest standard of care. A fiduciary is expected to be extremely loyal to the estate and its beneficiaries. He or she must not put his or her personal interests before the duty. While an executor must insure that the decedent's desires expressed in the will are carried out, the administrator must insure that the estate is settled according to the laws of intestacy. Essentially, an executor or administrator must protect the decedent's property until all debts and taxes have been paid, and ensure that what's left is transferred to the people who are entitled to it.
How Does the Executor or Administrator Get Appointed?
To get appointed you must file a proceeding in court. When the Will is admitted to probate, you will be appointed executor of the estate and proceed to administer the estate. If there is no Will, the you must file an Intestate Administration proceeding in court. The court will then appoint you administrator and you will have all of the powers of an executor.
What To Do After You are Appointed
If you have an attorney, your attorney will guide you through the steps of administering an estate. If you don't, you will need administer the estate on your own. A simplified summary of duties follows. --Inventory and safeguard the decedent's assets. Obtain appraisals if necessary. It will be your job to open an estate account into which you will deposit the assets you have collected and liquidated. --Determine whether there are any claims against the estate. Some states may require you to publish a notice in the paper notifying creditors that they will need to make a claim. --Pay valid debts and expenses. --Keep meticulous financial records of your acts as fiduciary. --File the decedent's final income tax return and fiduciary income tax returns, if needed. --File and pay Federal and State Estate Tax Returns, if needed (see below). --Distribute the balance of funds to the beneficiaries of the Will or to the intestate distributees.
Don't Get Caught by the Estate Tax Trap!
If you are the fiduciary of an estate that is subject to federal and/or state estate taxes, you must file a return and pay the tax within 9 months of the date of death. File it late or screw it up and there can be penalties, for which you are personally liable. Do not confuse the Estate Tax Return with an Income Tax Return. They are separate and distinct taxes and some estates are subject to both. At the end of this guide, you will find a web link with more information on Estate Taxes which will help you determine if you need to file a return.
Is an Executor or Administrator Entitled to Compensation?
Generally, yes you may be entitled to compensation (commissions) for your service as the fiduciary of the estate. The rate of compensation is normally set by law and varies from state to state. You should be aware that compensation received by you as executor or administrator is taxable to you as income. On the other hand, funds received by you as a beneficiary are not considered taxable income. Before accepting any compensation, you should discuss the issue with your tax advisor. Finally, whether or not you are entitled to compensation may be dependent upon the terms of the Will.