Top Five Mistakes Made by Executors

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Being an executor isn't easy. There's plenty of paperwork to be done, lots of interaction with government agencies, registries and lawyers. There are always beneficiaries putting on pressure to do things more quickly. And if all of that weren't tough enough, an executor risks personal liability for any mistakes he or she makes.

It's not surprising that executors make mistakes. In the interest of informing present and future executors, here is a look at the top five mistakes executors make:

1. Ignoring inconvenient or unpopular parts of the Will

Executors frequently feel that they have a better, or "more fair" idea of how an estate should be distributed than is directed by the Will. However, it's not their choice. Their job is to distribute the estate according to the Will, not to re-write it. An executor might be less tempted to change the distribution if he or she kept in mind that for every person who likes the new distribution, there is at least one person who is outraged by it. If the executor fails to follow the distribution under the Will, he or she may be responsible for paying the disappointed beneficiary out of his or her own personal funds.

Executors ignore other parts of the Will too. For example, an executor might sell an asset and give the beneficiary the proceeds, even though the Will directed that the asset be given in specie. The executor might give trust funds to children at a younger age than that directed in the Will. He or she might forgive loans that were to be collected. None of these things are within the authority of an executor and each exposes the executor to potential liability.

2. Keeping secrets and failing to communicate

Executors are often secretive to the point of being furtive. Nothing is going to fuel speculation and suspicion on the part of beneficiaries more than being kept in the dark. An executor must respond to reasonable enquiries from the residuary beneficiaries of an estate. They are entitled to it, and responsible for policing the actions of the executor. They are entitled to see the Will and all of the documentation filed with the court. Believe me, if beneficiaries can't get the informaiton they're entitled to, they will suspect the worst. Perhaps executors don't realize that as soon as the frustrated beneficiary hangs up the phone, his or her next call is to a lawyer.

Time and time again I hear stories of family members who are presented with complicated, mysterious documents by an executor and being told to sign them, without being given any information about what's going on. Any executor who treats important legal issues this way should expect pushback from the beneficiaries. This is a textbook example of how to start an estate dispute.

The failure to communicate even reaches to co-executors. Sometimes a person will act for weeks or months as an executor and not reveal that there is a co-executor appointed until he or she is forced to do so because a financial institution refuses to go further without both signatures.

3. Treating estate money as their own

Perhaps this is the reason for the secrecy mentioned above, but many executors either don't know or ignore the limits of their role. Executors have been known to pay off their own debts, make loans to family members and buy into business ventures, all with estate funds. None of this is lawful, and executors may be forced to repay those funds out of their own money.

Even executors who are honest make mistakes with estate money. For example, many executors don't see a problem with using estate funds to fly in family members from all over the world to attend the funeral, and using estate funds to supply those family members with hotels, transportation, meals and sometimes even clothing to wear to the funeral. These are not estate expenses. The executor could end up paying for all of that himself or herself.

4. Failing to deal with debts and taxes before paying beneficiaries

I suppose it's a natural human reaction to ignore unpleasant things, but this can't apply to executors who must prepare tax returns. By law, debts of an estate, including tax liability, must be paid before beneficiaries receive their shares. It isn't easy to resist the pressure from those who want their money now, but an executor who pays beneficiaries without having cleared all debts and liabilities may be personally responsible for paying those debts.

5. Trying to do everything cheaply

It's certainly not a bad idea to keep estate administration costs low, but unfortunately the way many executors go about that actually ends up costing the estate more money. "Keeping costs low" seems to translate into forgoing professional help in many cases. For example, they try to do tax returns without the help of an accountant, which means they miss eligible deductions and elections. They also miss filing deadlines, and so incur interest. They try to sell real estate without a realtor and settle legal disputes without a lawyer. They sell assets without appraisals and invest money with no guidance. Very few people can do all of these things well, particularly at the same time as keeping their full-time job and family going.

The best way to avoid these five main errors is to stick to the Will, take your time and ask for professional help when you need it.

PLEASE NOTE: The maximum number of comments this system will allow is 200, and this post now has more than 200 comments. IF YOU POST ON THIS THREAD, I WILL NOT BE ABLE TO SEE OR RESPOND TO YOUR COMMENT. Please feel free to ask your question on any thread with less than 200 posts. 

PLEASE NOTE: The maximum number of comments this system will allow is 200, and this post now has more than 200 comments. IF YOU POST ON THIS THREAD, I WILL NOT BE ABLE TO SEE OR RESPOND TO YOUR COMMENT. Please feel free to ask your question on any thread with less than 200 posts.

Home-made wills - common mistakes people make

We are all entitled to write our own Wills without asking a lawyer for help. The problem is that people who are not trained in the law almost always make mistakes and they never find out about them. Their families left behind after the person dies are the ones who find out about the mistakes.

I estimate that 90% of the clients I've met over the years start off their conversations with me by saying that their affairs are simple and they want simple Wills. In some cases it's true that they only need simple Wills. But in most cases they only think they need simple Wills because they don't know what needs to be in a Will.

There are some basic elements that must be in every Will. They are:

• appoint an executor
• appoint a guardian for minor children
• describe a distribution of assets
• give the executor the powers he or she needs to carry out your instructions

Sounds simple doesn't it? But let's look at that third element for a moment. Describe a distribution of assets seems easy enough. Most people who write their own Wills will say something like "I leave everything to my wife." But what happens if your wife dies before you do? Who gets your estate then? The children? Do they get equal shares or have you helped one of them a lot during your lifetime? Does "children" include step-children? Did you know that it automatically includes illegitimate children? How old do the children have to be to inherit? Who looks after the money for minors? Can they use any of the money on an emergency basis? What if you leave everything to your wife but you were married before and have children from that marriage? How do you plan to deal with that?

A very common mistake in home-made Wills is to think that everything will be exactly as it is today when you pass away. People don't think about whether someone else will die first or that they will have grandchildren etc.

Tied into that is the common mistake of making things too simple, as in the example of "I leave everything to my wife". That's fine if your wife survives you and you do not have minor children of a previous relationship, but it just doesn't cover enough possibilities.

Another issue with home-made Wills is that people, again keeping things too simple, do not properly describe either the gifts they want to leave, or the people they want to leave it to. They just aren't clear enough. For example, a person might say in his Will that "I leave my wristwatch to Joe." The person who wrote the Will knows who Joe is. But what if that person has an uncle named Joe who has a son named Joe Jr who in turn has a son named Joey? Who gets the watch? And what if the person actually owns two watches? One might be worth $25 while the other is worth $2,500. Which one did he mean to give to Joe? Will there be an argument over it? This kind of description lands estates in courtrooms to clarify what was meant.

An even bigger problem is that of giving the executor enough power and authority to carry out your instructions. Say you own a house, and the house is sold so that the money can be shared among all of the beneficiaries of your estate. Did you know that the sale has to be approved by all of the beneficiaries? What if one of the beneficiaries is a minor? Do you know who has to sign on behalf of the minor? And did you know that you can eliminate this whole issue by putting one short, specific power in your Will?

Home-made Wills almost never contain any powers at all, never mind a full set that would allow smooth administration of the estate. Your executor must call on helpers such as accountants, realtors, lawyers and appraisers. Your executor has to complete tax returns in a way that is in the best interest of the estate. Your executor has to invest the money in the estate, either for a short time while the estate is administered or for a long time until minors reach legal age. There are dozens of responsibilities attached to being an executor and your Will should contain all the powers the executor will need to do the job without resorting to asking the court for permission or clarification.

Finally, a mistake that is often made with home-made Wills is that they are not properly executed. There are laws that set out the requirements for signatures and witnesses and people who are not lawyers don't always know what those laws are. For example, if one of your witnesses is also a beneficiary, that beneficiary can't inherit anything from you.

When clients ask "Can I do this?", I always respond that in estate planning, that's not the question. The question is "Should I do this?" So while you can write your own Will without legal advice, should you?