Thursday, March 25, 2010

Choose your executor wisely

We've been posting tips this week on Twitter @family_finances about creating a will, which is absolutely essential. We got a question from a follower about how to choose an executor. This is critical for your estate plan.

Question: I am planning to have a will written soon. How do I choose an executor? Should it be one of my adult children? An attorney? Are there professional executors?

Answer from Dan Danford: There are a number of things to consider. How complex is your situation? Are there a lot of things to sell? Is the estate large enough to file an estate tax return, and pay estate taxes? How about a final income tax return? How clean are the titles to your various assets?

Basically, the executor (called a personal representative in our state) is charged with tying up loose ends. They liquidate accounts, pay bills, collect debts, sell property, files reports, and finalize all financial aspects of your life. If you own most things jointly with your spouse, and your financial life isn't too complex, then a child or other relative can probably handle it. There's still one more test: would they want to? Paperwork can be burdensome, and some folks aren't tuned to that kind of chore. So, even if they can do it, is it something they'd welcome?

If that's not the case, a professional approach makes more sense. Some states have special fiduciary provisions that allow qualified people to work professionally as executors. In most places, your choices are going to be a bank trust department or attorney. The major complaint about this approach is cost; that is, professionals get paid for doing what a family member might do for free. But - and this is important - you're hiring someone with genuine expertise. In a complex estate, that can actually save money. They know taxes. They know investments. They know real estate markets. They probably know the Probate Judge! Truthfully, in many cases, it's money well-spent.

Of course, they don't know your family as well as you do, and that could be a challenge. On the other hand, it could be a good thing. Bottom line? You know your situation better than anyone else, and you need to decide who will settle your estate. It can save a lot of heartache later.

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