Handling the Estate

If you die without a will (also known as dying intestate), the probate court will appoint a person, called an administrator, who will collect your assets and pay your debts (including taxes). Then, after the time period set by state law, the administrator will distribute your assets to those people entitled to receive them. If you have a will, you get to choose this person (or a professional fiduciary, such as an attorney or bank) to handle these duties.

Rather than being called an administrator, a fiduciary that is nominated under a will is referred to as an "executor" or sometimes as a "personal representative." We'll use the term "executor," which is more commonly used than "personal representative."

Did You Know? An important part of handling an estate is gathering the deceased's financial and asset information. The IRS may be able to help accomplish this task by disclosing a deceased's tax return information to any distributee of the estate under the provisions of a will or applicable state intestate law. In order to obtain access to the return information, a distributee must make a written request to the IRS, accompanied by proof of: (1) the decedent's date and place of death and state of residence; and (2) his or her relationship to the decedent (such proof may include, for example, a copy of a birth certificate, baptismal certificate, school record or insurance designation). The individual requesting access must also include a written statement, as well as supporting documentation, showing that he or she has a material interest that will be affected by information contained in the deceased's return. Supporting documents may include, for example, a copy of the petition for probate or comparable pleading required to initiate the proceeding for the administration of the estate. Additional information or documentation may be requested by the IRS in order to establish the nature and extent of the individual's material interest in the return.

Although an executor basically has the same duties with respect to an estate as an administrator, the law treats these fiduciaries differently, based on the fact that you chose the executor. Because of this, it is presumed that you have greater trust in your personally nominated executor than you would have in a court-appointed administrator.

Accordingly, state law will give you much greater latitude if you chose to waive the requirement that the executor post bonds, and will allow you to give your executor the power to enter into transactions, and make investments, that the court would consider to be too risky to let an administrator get involved with. Thus, if you want your executor to continue to have your business run as a going concern once it becomes an asset of the estate, you'll need to give the executor the authority to do so. But, because the law looks at small businesses as among the most risky investments to keep in your estate, you may find that your executor will not agree to serve unless you include in the will a provision that will exonerate it for losses to business profits or value that occur during the period when it stays in operation.

Even with such an exoneration clause, an executor may not be willing to accept the office if taking control of an ongoing business is part of the job. As a fiduciary, the executor can't share in any of the profits if it does a bang-up job of running the company; it can only be exposed to the time requirements and the difficulties of operating it under difficult circumstances (and possibly the hostility or threatened lawsuits from heirs). This makes it all the more important that you have a concrete and workable plan for the succession of your business's management and ownership.

You can choose an individual, or a corporate fiduciary, to serve as your executor. You can also have more than one executor. In this case, they will be called "co-executors." Regardless of the number of executors, and whether they are individuals or corporate fiduciaries, they will be entitled to reasonable fees - set by the probate court - for performing their duties.

So which should you choose, a corporate or an individual executor? Because it is in the business of performing fiduciary services, you can expect that a corporate fiduciary would have the advantage of having a staff of people who are experienced in handling estate work. Such a fiduciary can be expected to be more knowledgeable of probate rules and deadlines than would most individuals serving as executor. The possible disadvantages of the corporate fiduciary include three:

• Unlike some individuals, who serve as executors without fee, a corporate fiduciary will definitely charge a fee.
• As a business venture, it's much less likely that a corporate fiduciary would want to hold on to, or manage, any risky investments (like a small business), even if the fiduciary has the authority to do so under the will.
• Some of your relatives may think that it's an honor to be named as executor of your will - although they may change their mind once they see how much work is involved! And other family members may feel that a corporate fiduciary would give much more impersonal service when compare with another family member.

An individual, such as your spouse or another family member, serving as executor will presumably be more likely to have the heirs' trust than would a corporate fiduciary. Such an individual is usually in a better position to know the deceased person, his family, and financial set-up. Also, individuals serving as executors often elect not to accept fees for their services, to the benefit of the persons receiving property under the will. The possible disadvantages to an individual serving as an executor include:

• Little or no knowledge of estate matters. Although the executor will normally engage the services of an attorney to help with the settlement of the estate, the executor's inexperience may result in difficulty both for the executor and for the estate beneficiaries.
• Bias or pressure from family members. While an individual executor's knowledge of family members may be a great advantage, it may also prove detrimental as well. The individual may come to the office with allegiance to some of the family members, at the expense of others. Further, even though the individual serving as executor - like all executors - has the duty of treating all estate beneficiaries fairly, the executor may feel pressure from some family members to take an action that would help them. This would be particularly likely if the executor were a close family relative.

You may be able to get the benefits associated with both a corporate fiduciary and an individual executor by naming one of each as co-executors. State law will normally give you the right to determine the categories of estate decisions that require both their consents, those that only the corporate co-executor can decide (such as dealing with investments), and those that only the individual co-executor can decide (such as more personal matters, like determining which pieces of personal property goes to which beneficiaries).

Your choice of an executor will be an important factor in how smoothly your estate is handled. You'll want an executor who will be able to deal with all estate beneficiaries in a way that will avoid friction, and foster any needed compromises and agreements among them. You'll want an executor who will work hard and work efficiently, so that everything is done on time; thus avoiding court delays and continuances. In probate matters, time is money, and an attorney's time spent in court is big money.