Estate Planning: The Role of the Executor

Wills are typically read days after a death, which is typically too late to help people who must make immediate decisions. The best way to ensure your wishes are carried out is to create a separate document spelling out your requests. Tell your executor where to find it when the time comes, or better yet, give it to the executor before your passing.

An executor is a person, (persons), or institution appointed by a testator (the person creating their will), to carry out the terms of the will. An executor is trusted with the responsibility for winding up someone’s financial affairs after death. This role requires the person to protect a deceased person’s property until all debts of the deceased are paid, taxes are paid, and expenses for administering the estate are paid. The executor is also responsible in seeing that what is left is transformed to the people or institution that is entitled to it.

The executor has a fiduciary duty to the estate as well as to the beneficiaries and creditors. This means that the executor is held to a very high degree of care and must not put his or her own intake ahead of that duty. Executors have a number of duties:

• Find the deceased person’s assets and manage them until they are distributed to beneficiaries.
• Figure out who inherits property.
• File the will in the local surrogate court.
• Handle day-to-day details.
• Set up an estate bank account.
• Use estate funds to pay continuing expenses.
• Pay debts
• Supervise the distribution of the deceased person’s property.
• Get fair market values for the assets of the estate.

The legal process that incorporates the executor, legal counsel, and the surrogate court is called probate. It includes:

• Proving in court that a deceased person’s will is valid.
• Identify and conduct an inventory of the deceased person’s property.
• Having the property appraised, if necessary.
• Paying debts and taxes.
• Distributing the remaining property as the will directs.

A Structured Sale through a DST is the most complex of all capital gain deferral methods discussed. A Structured Sale through a DST is essentially an installment sale between yourself and an independent trust. The trust must employ a trustee that is truly independent from the owner/beneficiary. If the IRS should determine that this is a “sham trust,” the income from the initial sale is taxed as though the trust did not exist. The advantages are all of the advantages of an ordinary installment sale but without the disadvantages of the ordinary installment sale. Instead, it has its own disadvantages and they are significant. First, the seller would have to give up control of their property to the independent trustee. Another is that the there is little to no guidance on this by the Internal Revenue Service. This is not covered in the Internal Revenue Code that governs installment sales nor is there any case history.

Capital gain strategies for tax-deferral or tax-exclusion can be complicated and confusing to many, so it is critical that real estate owners review capital gains and depreciation recapture taxes with their income tax advisors, especially the tax-deferred and tax exclusion options available to them.