There are two duties most people would gladly put off as long as possible: The first is writing a will, and the second is updating it to reflect changed circumstances. Whenever you decide to get around to this task, it’s crucial to name the right executors.
Regarding the first chore, my client roster includes recalcitrant individuals who’ve yet to write their wills. I regularly remind them how badly things could turn out if they fail to do so. For instance, their assets might wind up with individuals they never intended to benefit or consider less-than-deserving of their largess than others.
Regarding the second, I tell those who heed my homilies that costly and expensive events could occur if they neglect to update their wills to reflect changes in their lives. They often ask what I mean by “changes.” In response, I cite events like moving to another state, entering into a marriage or ending one, experiencing significant increases or decreases in their net worth or having heirs unexpectedly predecease them.
I also exhort clients to think carefully when selecting or replacing executors, the persons who are the key figures in the settling of their estates. They’re best served by individuals willing to take jobs that are potentially time consuming and demanding. As for wannabe executors, I tell them to reflect on how badly things can end up if they make mistakes (more on that in a moment).
Let’s start by going down the list of an executor’s duties. The first is to assemble and value all of the deceased’s assets. Executors have to ferret out records for bank accounts, brokerage accounts, tax-deferred retirement accounts and insurance policies, as well as other assets like real estate, art, jewelry and automobiles.
Besides those chores, executors need to unearth information about debts, mortgages and tax records and figure out if the person had safe deposit boxes, made loans to family members or others or made charitable pledges.
Their next responsibility: Pay all bills and charges. Executors typically turn to professionals for those tasks. The list might include the timely filing of the deceased’s final income tax return, federal estate taxes, state inheritance taxes and the estate’s income tax return, along with the payment of any money owed.
When can executors distribute assets in accordance with wills? The answer: Only after they’ve valued assets and paid bills. Their final responsibility is to submit accountings to the courts (usually designated “probate” but sometimes called “orphan’s” or “surrogate’s”) for everything they’ve done.
That’s how the story usually ends. But many executors belatedly learn their reliance on the counsel of attorneys, accountants and other professional advisors doesn’t relieve them of responsibility for mistakes.
Suppose the IRS says some taxes remain unpaid or a few forms were filed late. The agency’s Stepford response is to bill the executors. After all, the law says they’re personally responsible in those kinds of situations. The courts routinely uphold IRS assessments of taxes, penalties and interest charges.
In a subsequent column, I’ll discuss two cases in which the courts agreed with the IRS that executors who failed to obtain the proper tax advice had to personally foot the bills for estate taxes and penalties.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting).
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes...