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Mistakes in administering an estate as executor

On Behalf of | Dec 21, 2020 | Probate

We represent and advise Executors and Administrators to get the best results in a legal process with lots of rules, pitfalls and traps for the unwary. You may be named in a Will to serve as an Executor of an estate, or appointed to administer the estate of a loved one who died without a Will. An Executor or Administrator gathers assets, pays bills, and distributes what’s left over to the beneficiaries.  As an Executor or Administrator you are responsible to the beneficiaries or heirs to act accurately, effectively, and honestly.   Even the best Executor can make mistakes and you may be personally liable for any losses. Here are some common mistakes to avoid:

  • Confusing probate and non-probate assets – not all assets pass under the direct control of the Executor as part of the legal probate estate. Non-probate assets have a beneficiary named during the decedent’s lifetime, (e.g. life insurance, IRAs, some bank accounts). Non-probate assets pass automatically and directly to the named beneficiary and are not controlled by the Executor.
  • Not securing real estate– If there is a home or other real estate in the probate estate, make sure to change the locks, confirm homeowner’s insurance, keep pipes  from freezing or leaking, mow the lawn, or collect rents for rental property.
  • Neglecting to safeguard financial assets – an Executor’s primary responsibility is safeguarding the principal value of assets. We work with financial planners and CPAs to help Executors avoid losses. If financial assets are overly invested in wildly volatile investments, for example, it might be wise to change them to a more stable investment selection, to avoid losses.
  • Making distributions too soon – creditors must get paid in a specified order of priority. Sometimes Executors pay the wrong bills first, and can be personally responsible to unpaid creditors of higher priority.
  • Failing to keep accurate and adequate records – perhaps the single most important task for an Executor is to keep good records of all the estate transactions, bills paid and deposits made. Traps and pitfalls can include making deposits of multiple items without keeping track of the separate sources and amounts, or transferring funds between estate accounts without keeping track sufficiently.
  • Not communicating with stakeholders – Communicating with the participants along the way can prevent confusion, suspicion and resentment. People appreciate information.
  • Using estate funds for personal uses – this is stealing, obviously, a huge no-no, but we’ve seen it happen.  Enough said.
  • Trying to do it all yourself – I respect someone’s efforts to try something new on their own. However, professional help in this complicated endeavor helps to avoid and prevent mistakes and losses. .  I don’t try to do complicated projects that I know nothing about by myself, either. I pay someone who knows how.
  • Failing to claim PA Department of Treasury Unclaimed Property –   Many decedent’s estates have unclaimed property held by the Commonwealth of Pennsylvania. We regularly navigate that process.
  • Neglecting to pay estimated PA inheritance tax by the discount payment date – paying inheritance tax within three months of the date of death saves 5% on the amount of tax paid. Don’t miss this deadline
  • Not selecting a fiscal year for the estate – the estate itself is a separate taxpayer to the IRS.  Selecting a fiscal year over a calendar tax year offers planning opportunities.
  • Using the wrong assets to pay charitable bequests –   qualified charities don’t pay income tax. Individuals do.   Fulfilling charitable bequests with the right assets means the charity does not have to pay the tax that an individual beneficiary would.
  • Not preserving the spousal portability election – married couples with Federally taxable estates  – presently just over $22 million combined, and scheduled to drop to just over $11 million in 2026 – filing a Federal estate tax return at the right time documents use of the spousal exemption amount, saving huge amounts of taxes.
  • Failing to close the estate properly – a Family Settlement Agreement signed by all the parties, or a formal Account and Audit procedure in court, when necessary, protects you from any liability later.