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The Responsibilities of the Executor of the Estate

If you're reading this post, it is likely that you recently lost someone close to you. My sincerest condolences. Dealing with the emotions of loss can be a difficult and overwhelming experience. Unfortunately, when a spouse loses their partner, or a child loses their parent, this loss is coupled with the burden of juggling the many responsibilities involved in settling an estate. Planning the funeral, paying bills, marshaling financial assets, and transferring real estate and physical possessions to their inheritors are only a few of the many duties of an executor.

This post focuses primarily on the financial assets of the estate. My goal is to provide some best practices and an outline of what to expect as you attempt to identify, locate, consolidate, and distribute the financial assets of a loved one's estate. The steps below are intended to provide a guideline that helps make a difficult and often complex situation a little less overwhelming.

Step 1: Obtain the Death Certificate

To get started, request multiple certified copies of the death certificate. The death certificate serves as the official evidence of death and will be required to complete most tasks. Even if you are a designated beneficiary of a bank or brokerage account or a beneficiary of a life insurance policy, a financial institution is not permitted to discuss the contents of any account or policy without this evidence. In most instances, the funeral director will obtain the death certificate for you. You can also obtain them through the appropriate office in your state, which may be the county clerk's office or the state department of vital statistics. The fee for a death certificate varies by state, but expect to pay anywhere from $20 to $50 per copy. It is imperative to request multiple copies, as it will save you valuable time in the long run. You will quickly realize that a death certificate is a prerequisite to the completion of most tasks associated with settling an estate.

Step 2: Identify Financial Assets

After you have made the necessary arrangements to obtain certified copies of the death certificate, begin to identify the financial assets of the decedent's estate. Ideally, the decedent will have left behind an asset inventory, which clearly outlines the description and location of the financial assets of the estate. Unfortunately, most decedents are not proactive when it comes to planning for death, so you will likely have to dig and utilize your detective skills. The best place to start is with the Last Will and Testament. In my experience, the location of the will is often the location of other important estate documents, such as trust agreements, account statements, and tax returns.

Legal Documents

Legal documents, such as a Last Will and Testament and a Trust Agreement, are critical when administering an estate. These documents serve as the foundation for the estate administration process and provide clear guidance on how the deceased person's assets should be managed and distributed. A will is a legal document that specifies how a person's assets should be distributed after their death. It allows the individual, known as the testator, to name beneficiaries, appoint an executor to manage the estate settlement process, and outline their final wishes. A will is an essential part of estate planning and helps ensure that the testator's desires are carried out and their loved ones are provided for after their passing.  A trust agreement is a legal document that establishes a fiduciary relationship in which a person, known as the grantor or trustor, transfers assets to a trust managed by a designated trustee for the benefit of named beneficiaries. The trustee is responsible for managing and distributing the assets according to the terms specified in the trust agreement. Trusts can be used for various purposes, such as minimizing estate taxes, avoiding probate, protecting assets, and providing for the grantor's loved ones. They offer flexibility and control over how and when assets are distributed, making them a valuable tool in comprehensive estate planning. Trust documents will often list the assets that were held in the trust, sometimes referred to as an "Assignment of Property." This may prove fruitful in your search to identify the financial assets of an estate. The key difference between a will and a trust is that a trust spares survivors the delay and expense of probate. Unlike a will that must be validated in the Surrogate Court via the probate process, the surrogate court does not supervise the successor trustee of the trust, and assets can be distributed promptly according to the terms of the trust.

When dealing with trusts, it's crucial to understand the concept of "titled assets." Simply listing these assets on a trust schedule is not enough to ensure they are properly included in the trust. For the trust to effectively control the assets, the grantor must formally transfer the title of each asset to the trustee's name while the grantor is still alive. A common oversight occurs when people create trusts and list certain assets on the schedule but fail to update the title documents to reflect the trustee as the official owner. If this mistake is made, the assets that have not been properly transferred will likely not be governed by the terms of the trust upon the grantor's death. Instead, these assets may be subject to the probate process, which can be time-consuming and costly. If you are handling a trust and come across a trust document with a schedule of assets, it is essential to verify that each asset listed has been correctly transferred into the trust. This extra step ensures that the grantor's intentions are carried out and that the assets are distributed according to the trust's terms, avoiding any potential complications with probate.

Account Statements

Account statements will be very valuable in your hunt to identify the financial assets of the estate. An account statement will give you the title and registration of the account, account number(s), account holdings, name of the financial institution where the assets are held, and contact information of the advisor, broker, or agent associated with the account. Don't worry if the statement is old – it still provides a great starting point for a phone call.

Tax Returns

A decedent's tax return can provide invaluable insights into their financial world. Tax returns offer a wealth of information that can help executors uncover hidden assets and piece together a comprehensive picture of the decedent's financial life.

Income Sources:

One of the most valuable aspects of a tax return is the information it provides about the decedent's sources of income. Various tax forms can point to the existence of financial accounts that may have gone unnoticed. For example:

• W-2 forms indicate employment income and may reveal the presence of a 401(k) or other employer-sponsored retirement account.
• 1099-INT forms report interest income from bank accounts, certificates of deposit, or other interest-bearing accounts.
• 1099-DIV forms show dividend income from investments, such as stocks or mutual funds, held in brokerage accounts.
• 1099-R forms report distributions from retirement accounts, like IRAs or pensions.
  

By carefully examining these income sources, executors can create a list of financial institutions and accounts that require further investigation.

Investment Activities:
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In addition to income sources, tax returns can also shed light on the decedent's investment activities. Schedule D of a tax return reports capital gains and losses from the sale of investments. This information can be incredibly useful in identifying brokerage accounts or other investment holdings that the decedent may have owned. By noting the specific transactions and the financial institutions involved, executors can contact these companies to gather more information about the accounts and their current status.

Itemized Deductions:
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Itemized deductions on a tax return can also provide valuable clues about the decedent's financial activities. For instance, mortgage interest deductions can reveal the existence of real estate properties and the associated mortgage lenders. Property tax deductions can help identify real estate holdings, while charitable contribution deductions may provide leads on donor-advised funds, charitable trusts, or other philanthropic vehicles the decedent might have established.

Business Interests and Partnerships:
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For decedents who owned businesses or had partnerships, their tax returns could contain additional schedules that provide crucial information. Schedule C (Profit or Loss from Business), Schedule E (Supplemental Income and Loss), and Schedule K-1 (Partner's Share of Income, Deductions, Credits, etc.) can offer insights into the decedent's ownership interests, business assets, and other related financial matters that need to be addressed during the estate settlement process.

Trusts and Estates:
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Furthermore, if the decedent was the beneficiary of a trust or estate, their tax return might include Schedule K-1 (Beneficiary's Share of Income, Deductions, Credits, etc.). This schedule can help identify the trust or estate in question and the decedent's beneficial interest in the entity.

If executors don't have access to the decedent's tax returns, you can request copies from the IRS. To do so, they'll need to provide a copy of the death certificate, a copy of Letters Testamentary or Letters of Administration, and IRS Form 4506-T (Request for Transcript of Tax Return). Although the IRS will only provide transcripts of tax returns rather than exact copies, these transcripts still contain valuable information to aid in the search for financial assets.

Step 3: Locate Financial Assets

Once you are armed with certified copies of the death certificate and any financial documents you were able to uncover, it is now time to contact the financial institutions. Dial the number on the statement, press the prompt for "Customer Service," and when a representative answers the call, tell them that you need help. Let them know that you are the surviving spouse/beneficiary/executor of an account held with the firm, and you need some assistance locating the account. Provide the representative with an account number (from the statement), or you can provide the representative with the social security number of the decedent.

Be advised that – and this is important – the amount of information the representative can provide you depends on how the account is titled and structured. For example, if the account was titled in joint names with rights of survivorship (JTWROS), upon death, you automatically assume authority of the account. If you are a designated beneficiary on a retirement account, you will receive authority of the account once you provide a copy of the death certificate and a copy of your photo ID. If you are neither an account holder nor designated beneficiary, you will not receive authority of the account until the assets pass through probate. If you are not an account owner or designated beneficiary, the representative is not authorized to disclose any information about the account until they receive Letters Testamentary and a copy of the executor's ID. Letters Testamentary are issued when a will is validated via probate and legal authority is given to an executor to act on behalf of the estate. The information received in this step is vital in determining the complexity of settling the financial asset component of the decedent's estate.

Step 4: Consolidate, Distribute, Liquidate

After you locate the financial assets of the estate, you must determine how the assets are to be administered. Will you consolidate and transfer the assets into your name? Liquidate the assets to pay estate bills? Distribute to multiple inheritors according to the terms of the will or trust? Each estate is a unique situation. Before moving forward with this final step, I would advise developing a plan that outlines the final outcome of the assets and the best course of action to achieve this outcome. Depending on the complexity and size of the estate, it may be prudent to seek the help of a professional. Regardless of the plan you establish for the assets, the complexity and length of this final step will be determined by the structure of the accounts and title of the assets.

• Accounts with Designated Beneficiaries:
  If you are a joint account holder or the designated beneficiary on the account(s), the process is relatively simple. Provide the financial institution with a copy of the certified death certificate and a copy of your driver's license, complete any corresponding new account paperwork/authorization forms required by the financial institution, and the assets will be transferred into your name.
  

• Accounts without Designated Beneficiaries (Probate):
  If the financial assets were not titled in a manner to efficiently transfer to the rightful heir upon death, the administration process becomes more complex, as the assets must first pass through probate. For example, assets held in the decedent's name alone, payable to the decedent's estate, or held jointly as tenants in common are subject to probate. I have covered probate and probate avoidance more extensively in a previous post, but probate is a fairly straightforward process of providing court supervision to the administration of an estate. A will must be submitted to the Surrogate Court and validated through probate. Letters Testamentary will then be issued, giving the executor authority over the estate.
  

Note: If you must maneuver the probate process, it may be prudent to seek the help of n estate attorney.

In addition to Letters Testamentary, an executor must also obtain a federal taxpayer identification number for the estate and an Affidavit of Domicile when probate is required. As soon as you are appointed as executor via Letters Testamentary, you will need to apply for a federal taxpayer identification number (also known as a TIN or EIN) for the estate. It serves the same function as a Social Security number does for an individual, and you absolutely need one before you can open any estate bank or brokerage accounts or transfer any assets to the name of the executor or the estate. You can apply for an EIN online. An Affidavit of Domicile is a notarized document issued by a governing court that verifies where a deceased person resided at the time of death, which will be needed to determine which state may levy death taxes against the assets of the decedent.

Once you possess the newly issued Letters Testamentary, federal taxpayer identification number, and Affidavit of Domicile, you are now ready to revisit the financial institution and move forward with the asset administration.

Unlike an account with a designated beneficiary, where assets transfer directly to the beneficiary, when assets pass through probate, the assets must first transfer into an estate account before distribution to the rightful heirs (hence the newly obtained EIN). An estate account is essentially a short-term account created to preserve assets and facilitate the consolidation and distribution of probated assets. Once assets are transferred into an estate account, the executor has full control of the assets. They can liquidate and issue a check made payable to "The Estate of [Decedent's Name]" or transfer the assets into an account in the names of designated inheritors according to the terms of the will.

Depending on the complexity of the estate and the level of planning of the decedent, this process can overwhelm even the most prepared. The steps above should provide enough guidance to get you started. The only guarantee when settling an estate is that no two estates are identical. Be prepared to come across issues not covered in this post. Each state has different laws. Each financial institution has different procedures. Move at your own pace. Letters Testamentary do expire, although the specific time frame can vary by state. In most cases, Letters Testamentary are valid for a set period, often ranging from 6 months to 2 years from the date they are issued. The expiration date is typically specified on the document itself, so keep this in mind if you are navigating probate. Be thorough, ask plenty of questions, and take copious notes at every step of the way. Be persistent and diligent in your follow-up with the financial institutions. The unfortunate truth is that financial institutions do not like to see financial assets leave their firm, and as a result, representatives may drag their feet when processing your requests. Don't let this happen However, it's essential to remember that if an institution holds your assets, you are a paying customer, and they have a responsibility to serve your needs. Good luck, and remember, Third Executor is always here to help.

Email us at contact@ThirdExecutor.com or call 212-328-0610.