How to Avoid the Top Five Mistakes Executors Make
Mistake 1: Failure to File Returns in a Timely MannerExecutors are required to file a number of tax returns and reports within a short time of a decedent's death.
Identifying these returns, the deadlines for the returns and the information needed to file them is essential. If you will be using a lawyer, and/or an accountant, documenting who will be responsible and when the returns will be filed is essential.
These returns include, but are not limited to:
state income tax returns for the decedent;
Federal income tax returns for the decedent;
;state and federal income tax returns for the estate and any trusts;
state inheritance tax returns;
state estate tax returns;
the federal estate tax return form 706; and
federal gift tax returns.
Carefully selecting a lawyer and/or accountant to manage and file these returns is one of the executors most important jobs, and can really help to limit the executor's personal liability in these matters.
Mistake 2: Failure to Obtain or Maintain InsuranceExecutors are required to keep the property safe during the estate administration. However, an inventory of insurance policies, their limits, and the due dates for coverage continuation is essential. Failure to maintain, or to obtain appropriate automobile, home owners or fire and liability damage can subject an Executor to massive liability claims.
Be sure that you and your advisors consider:
fire and liability;
claim all life insurance coverages;
apply for a return of premium whenever appropriate;
make sure that professional and tail coverages and officers and directors remain in effect as long as necessary;
if there is an umbrella policy review that
if the decedent owned real estate make sure that it is covered;
make sure that contents are covered under business policies;
if there is a business verify workman's comp and related coverages.
Mistake 3: Failure to Identify All AssetsThe failure to identify assets can cause many problems. First, the executor is failing to comply with a basic fiduciary duty. Secondly, the returns may be wrong and may require amendment and the payment of penalties and interest. Finally, court accountings and related reports may be wrong and confusion can result among heirs.
How can these problems be avoided. First, conduct a careful inventory and have assets appraised. Second, review prior years tax returns to identify stocks and bank accounts that you may not have discovered. Finally, be sure to contact the escheat office of the decedent's state of primary residency and in any states where the decedent lived or had a vacation home.
Mistake 4: Failure to Properly Liquidate or Manage AssetsExecutors are not expected to be expert money managers, property and business managers. However, they are expected to liquidate assets or, where permitted, to continue managing them with the help of experts. Failure to properly sell real estate, to liquidate or manage stocks, or a business interest can subject you to liability. If the document or state law allows for the payment of experts, and advisors, be sure to retain them to ensure that you maximize the value of assets for the heirs.
Mistake 5: Failure to Communicate with HeirsMany states require notices to heirs. However, the smart Executor will maintain contact with heirs that goes beyond the initial notices. In many states, you can avoid probate by entering into a family settlement agreement. However, this is best achieved where there is a high level of knowledge and trust established. For that reason, written status reports, telephone follow up and other contacts may be advisable. Be sure to consult your counsel to determine what is best or what is required in your particular circumstances, but a few hours of time invested in friendly and accurate communication may save time, money and liability exposure later.