So you’ve been named as the personal representative (“executor” or “administrator”) for someone’s estate. It’s important to understand your responsibilities because mistakes can be expensive. Four of the most common mistakes involve taxes, timing of distributions, creditors, and taking actions that you may not know are problematic.
Taxes
Personal reps prepare and file tax returns and pay taxes owed by certain deadlines. The final individual income tax filing is due by April 15 in the year after the decedent’s death. There may also be estate income tax and estate tax obligations. Failing to properly handle the decedent’s and the estate’s taxes can lead to fines and penalties from the IRS and state tax authorities. Hiring an estate attorney can help you avoid problems.
Finishing too quickly
It is normal to want to settle and finalize the estate process as quickly as possible. Heirs want to receive their share of assets and may pressure the you to make distributions quickly. But this can be risky for a couple of reasons. If a creditor is “known” or “reasonably ascertainable” by you, then the creditor must receive personal notice of the notice to creditors within a certain time frame. If you distribute the estate before that claim period is ended, you might have to ask heirs to return some or all of their inheritance to satisfy the creditors. If the money has been spent already, the situation becomes even more problematic, as the estate is still responsible for satisfying debts.
There’s also a risk that assets will be missed if the estate is distributed too quickly. With the proliferation of accounts offering paperless communications, you could initially miss a bank or investment account when gathering and distributing assets. Take the time to properly administer the estate. You’ll limit the risk that you’ll need to go through the same process many times.
Obligations to Creditors
There are several scenarios related to creditors’ claims that can be problematic for you. When creditors demand payment from an estate that has sufficient assets to pay all claims, personal representatives are expected to make timely payments. There are also state statutes that govern the order of creditors’ claims. In an estate that has more assets than liabilities, not following this order isn’t necessarily critical as long as valid debts are timely paid and paid in full. However, if you’re dealing with an insolvent estate with more debts than assets, you must carefully follow this prescribed order and prorate payments accordingly. An estate attorney can help you stay out of trouble.
Other Liability Risks
Remember, you must take reasonable steps to safeguard and protect assets from the time you start until assets are distributed and the estate is settled. For example, if you use a deceased parent’s vehicle and damage it, you could be to make responsible to the estate and its heirs to fix the vehicle. If there’s real estate owned by the estate, you owe a duty to protect the property until it is sold or retitled. It’s important to keep property insurance in force and to take reasonable precautions to make sure that the home is maintained throughout estate administration.
Choose an Experienced Estate Attorney as Your Guide Being an executor or administrator for an estate without a knowledgeable, experienced guide to walk you through the process, can expose you to multiple risks and liabilities. Protect yourself by hiring a skilled estate attorney.