As you put together your estate plan, an important choice you’ll need to make is who will be your executor—that is, the person (or institution) who will make sure the instructions you leave in your will are followed. After all, a will isn’t an incantation that magically deposits inheritances into your heirs’ bank accounts—someone has to make that happen. And while you may think the identity of your executor is a minor detail, your choice of executor can make the difference between an orderly distribution and an all-out war over your assets. There’s no one rule for picking a good executor—as with many things in life, the best choice depends on your personal circumstances. This article will help you evaluate your options.
First, a quick summary of an executor’s responsibilities. Your executor is in charge of essentially three tasks: (1) collecting your assets, (2) paying any outstanding bills/debts/obligations, and (3) distributing the leftovers according to your will. While these sound relatively simple, they often require the executor to work with attorneys, accountants, and financial planners. Your executor may also need to settle disputes between beneficiaries or oversee challenges to the validity of your will. The whole process can take up to several years, especially when disagreements arise. In short, serving as executor is a big deal.
For these reasons, a good executor is level-headed, honest, responsible (if not sophisticated), and diplomatic. Ideally, this person (or institution) will be familiar with your assets and will live in-state (an out-of-state executor will have to appoint an agent to receive service of process in North Carolina). After you choose your executor, you should choose at least a couple backups; if you don’t and your primary executor is unable or unwilling to serve, a court will appoint someone. Whomever you plan to choose, you should talk to that person (or institution) first to make sure they’re willing to serve and find out whether they expect to be compensated for their efforts.
Should I Choose a Family Member as my Executor?
Most people assume they’ll name a family member, especially a spouse or adult child, as executor. There are clear advantages here—the family member presumably is familiar with your assets, knows you and your beneficiaries, and is more likely to be willing to serve for free, especially if the family member-executor is also a beneficiary under your will.
On the other hand, family members, especially those who are also beneficiaries, are unusually likely to face conflicts of interest—that is, having to choose between his/her own personal interest and that of the other beneficiaries. The family member also likely already has relationships with the other beneficiaries, which may make things easier if the relationships are positive or more difficult if there were pre-existing rivalries or disagreements. If other beneficiaries think the family member-executor has mishandled a conflict or financial task, the beneficiaries may try to hold the executor liable. The family member-executor will also be personally liable for any unpaid estate taxes (if applicable) and fines for late filings. These problems can potentially be solved by adding an independent third party, such as an adviser or bank trust department, to serve as co-executor with the family member (but see below for additional considerations around professional executors and co-executors).
Should I Choose my Business Associate as my Executor?
If you run a business, choosing a business associate as your executor may seem like a bright idea—you already know this person is trustworthy and responsible—but this is another choice that may give rise to conflicts of interest. If the executor is tasked with selling the business, the associate might have to choose between serving the beneficiaries’ best interests (which is his/her duty as executor) and preserving his/her own employment situation. (For example, the business associate-executor might demand an unreasonable price for the business to discourage buyers that might put him/her out of a job.)
If you run a business, instead of choosing a business associate or relative as your executor, consider choosing (as either sole executor or co-executor) a third party who’s knowledgeable in your field. This person can dispose of your business interests more wisely than a relative who’s clueless about your industry and won’t have the conflicts of interest of a business associate.
Should I Use a Professional Executor?
In light of the potential conflicts of interest and need for expertise that can arise during estate administration, another option is to hire a professional to be your executor. The options include an individual adviser, such as your estate planning attorney or financial adviser, or a corporate fiduciary, such as a bank or trust company. The upside is that this person/institution will be a neutral third party who knows the ropes and is more likely to carry enough insurance to cover any potential liability; a bank or trust company will also have the benefit of being “immortal,” so there’s less need to name alternates.
The obvious downside to naming a professional as executor, however, is cost. Any fee charged by an executor (as well as expenses incurred during administration) will cut into the amount that gets passed on to beneficiaries. In North Carolina, an executor can charge up to 5% of the value of the estate unless the will specifies otherwise, and many institutional executors will require you to insert language allowing them to charge “according to their usual fee schedule.” Deciding whether to name a professional executor often becomes a balancing game between cost and other factors. Typically, the bigger the estate, the more potential for complications and conflict, so the more beneficial a professional executor might be.
Should I Appoint Co-Executors?
Some sources give a blanket warning against appointing co-executors, arguing that having multiple executors makes it hard to get things done. For example, when parents name all their children as co-executors out of a sense of fairness, sibling rivalries can lead to gridlock. Likewise, for people who have been married more than once, naming a second or third spouse as co-executor with children from a previous marriage can be a recipe for discord. To be sure, naming co-executors without considering the individuals’ ability to work together is a bad idea.
However, naming co-executors can be productive if well thought out. For example, the problem of one executor having a conflict of interest can be helped by adding an independent third party, such as an adviser or bank trust department, to serve alongside the conflicted person. Picking one co-executor who knows the family members and one who has legal or financial expertise can be a good idea.
If you decide to name co-executors, consider assigning specific duties to specific executors in your will. For example, an approach popular with small business owners is to appoint one friend/family member and one person with business expertise and put the latter in charge of tasks related to the business. Likewise, if one executor lives out of state and would be inconvenienced by the need for frequent trips, you could appoint a co-executor who lives in your city to handle clerical details.
Picking your executor is an important decision, but making a wise choice can save your loved ones a lot of grief, hassle, and expense after your death. If you have any questions, please post a comment below or send me a message here.