Once people become the executor (or administrator) of an estate, they get a little bit confused about what they do (and can’t do) next.
Obviously, I can’t talk about everything here in this short column, but here are some basic pointers about your duties as an executor of an estate. When you are the executor, you are responsible for everything that goes in and out of an estate. That includes the big things like real estate and investment accounts, and the small things like old ashtrays and the jar of pennies on the dresser.
The law says you can’t distribute anything until you have paid off all the creditors. A creditor is someone that the person who died owes money to. You may not know right away who the creditors are. That’s why you have to put an ad in the paper called a “notice to debtors and creditors” which puts people and financial institutions on notice that the person has died and tells them who the executor is. It lets them know that they should tell you how much money the person that died owed them. This is called a ‘claim against the estate.’ You might think that no one reads those legal notices in the paper, but a lot of companies do to check and see who they need to contact to get their money.
Many times, family members are creditors. Funeral expenses are something that the estate should pay, not the relatives of the person who died. Often, the surviving spouse, or parent or child or the person who died pays the funeral expenses, and then can get reimbursed from the estate once there is an executor appointed by the probate court.
It’s really important to open up a separate estate account at a bank. It doesn’t matter which bank. It can be the same bank that the person who died used, or it can be the bank that you use. It’s just important that you keep everything absolutely separate. If you don’t do this, it is called “commingling of funds” and it can get you in a lot of trouble down the line.
Even though you can’t distribute any of the assets until after you’ve run the notice to debtors and creditors in the paper and you’ve waited the appropriate amount of time to see if any creditors contact you, that doesn’t mean you can’t start liquidating assets. Sometimes, owning an asset will cost the estate money. Like a house or a car, for instance. A house may cost a monthly mortgage, plus taxes and insurance, not to mention electric bills and maintenance, etc. Keeping the house may not be the best idea, financially, for the estate. You can sell the house while you’re still waiting to see which creditors there are so long as you don’t distribute the proceeds of the sale to the heirs – you simply put the proceeds in that estate account we’ve talked about until you figure out what bills you have to pay.
What you have to do is assume the worst: that someone is at some point going to ask you to account for every single penny and every single dishtowel that was a part of the estate. Because they might. You need to be able to pull out an account journal (I’m a big fan of three ring binders) and have a receipt or invoice for every expense and a paper trail for every transaction. For every piece of physical property you’ve given away, keep track and estimate its value. It might have no monetary value, only sentimental value. Odds are, no one would pay any money for the pinch pot you made in camp when you were seven, or for the stained apron you always remember your mother wearing, but you wouldn’t throw them away for the world. The antique cabinet, however, might have some value, so make sure things are being distributed equally monetarily in proportion to what the will says. Otherwise, you’ll have a fight on your hands. As always, things can get complicated fast. If you have questions, you’re better off having a consultation with a lawyer than guessing and getting it wrong. It’s always cheaper to do things right in the first place.
Nothing in this article should be construed as legal advice. It is being offered for informational purposes only.