Being named as the executor of an estate is a great compliment and a serious responsibility. It signifies that the person who appointed you both trusts you and thinks highly of your abilities to carry out their wishes. However you came by this appointment, it’s very important that you fully understand your role and the steps involved. A CPA can help to guide your hand as you navigate through the financial and legal complexities involved in being an executor of an estate. Following is information about what your role means, and what your duties may entail.
What is an Executor of an Estate?
An executor of an estate is a person who executes the stipulations outlined in a person’s will or estate planning document. But that’s not all that’s required of an executor. There are certain legal matters that also need to be taken care of, such as paying debts, ensuring that final tax returns are filed and, of course, distributing assets to the named beneficiaries. Local, state and Federal laws must be adhered to in all matters pertaining to the execution of an estate. Note that an estate does not necessarily—or usually—involve a huge estate with grounds and a mansion. The same term is used to describe the liquid, real and other holdings of a person who has passed away. So an estate can consist of a bank account, a house, physical belongings, digital assets, etc. Anything that the deceased person owned and left behind is the estate, basically. Finally, you should know that the tasks of being an executor of an estate can take several months or even years to complete, depending on the complexity of the estate. This is why it’s so beneficial to hire a CPA for assistance. Of course, the fees to hire the CPA would come out of the estate; the executor does not need to personally pay for such services.
Requirements of the Executor of an Estate
There are multiple duties of an executor and, make no mistake, a great number of hours need to be dedicated to these tasks. There are papers to be gone through, papers and receipts to be organized, asset access to be arranged, professionals to be contacted and more. It can be exhausting and overwhelming for a person not accustomed to all this red tape to have to go through it. Again, a CPA can be an enormous asset during this time. Specifically, here are some of the many duties of an executor:
Filing the Will and Starting Probate
Depending upon the state where the situation occurs, probate may be a part of the process. This process officially begins the administration of the estate and allows the executor to act on behalf of the deceased. If there’s no will, the estate goes through intestacy, where the state determines how the assets are distributed.
Depending on the estate’s complexity and state laws, probate can be a relatively straightforward process or a lengthy one involving court proceedings. CPAs who work with executors can offer significant value here by assisting in gathering financial documents, such as bank statements, investments, and outstanding debts, that will be essential for probate proceedings.
Identifying and Managing Assets
This includes identifying real estate, bank accounts, retirement funds, stocks, and personal belongings. The executor may also be responsible for securing and managing these assets until they can be distributed. For instance, real estate may need to be maintained or sold, and the executor must manage this process. If the deceased owned a business, this could involve complicated decisions about continuation, sale or liquidation.
Paying Debts and Taxes
The executor must notify creditors and pay any outstanding bills, including mortgages, loans, and medical expenses. Before distributing any assets to beneficiaries, debts must be settled, which can involve negotiating with creditors or liquidating certain assets to cover the estate’s obligations.
CPAs play a vital role here by helping executors prioritize payments, create an estate account, and ensure that all financial obligations are met. Additionally, the executor is responsible for filing the deceased’s final income tax return, as well as any estate taxes if applicable. Depending on the estate's value, federal or state estate taxes may be required, which can significantly impact the distribution of assets.
Distributing Assets
After debts and taxes are paid, the executor can begin distributing the remaining assets to beneficiaries as outlined in the will or, in the absence of a will, as directed by the court. This can involve transferring funds, changing property titles, and managing any disputes between beneficiaries.
Closing the Estate
Once all debts are paid, and assets have been distributed, the executor must formally close the estate. This typically involves filing a final accounting with the probate court, detailing all payments and distributions made. Once approved, the executor is released from their duties. Ensuring that the final accounting is accurate and compliant with legal standards is critical. This often requires a thorough review of all transactions and the preparation of necessary financial reports. In this regard, the help of a CPA is essential.
Serving as an executor is a significant legal and financial responsibility. Executors must navigate probate, manage assets, pay debts, and file taxes, all while adhering to the deceased’s wishes and legal requirements. For CPAs, supporting clients in this role involves providing critical advice on tax planning, asset management, and compliance with estate laws. By staying informed about the latest tax rules and probate procedures, CPAs can ensure that executors fulfill their duties effectively, helping to simplify the process during an emotionally challenging time.
by Kate Supino