A personal representative (PR) (also known as an executor) is a person (or entity) appointed by a person drafting a will (the testator) to carry out the terms of the testator’s will. Most people choose their most trusted friend or family member to serve as PR. Hopefully, most people choose someone that is not only trustworthy, but is also intelligent, diligent, and prepared for the responsibility. Being a PR is an honor and a great responsibility.
Being a PR is not an easy job. It requires a significant time commitment, some level of acumen in the areas of finance and recordkeeping, and mediating between heirs or beneficiaries. Importantly, in some circumstances PRs can be personally liable for mistakes in executing a will. Below we provide a few tips for PRs to help them avoid common mistakes (and potential liability):
1. Prioritize Properly.
While it is within the job description of the executor to pay bills and creditors, this does not mean they need to be paid on the day they arrive. Paying for expenses should not necessarily be on the top of the executor’s priority list. Prioritize incorrectly and there may be exposure to personal liability for the executor. While you may pay personal debts as soon as possible, you may want to wait until the bill is due to pay estate creditors.
2. Manage the Minutiae.
PRs are often surprised to find out how many items are included in the estate. As soon as possible after the death of the testator, the PR should create an inventory of all of the assets in the estate (the inventory may need to be submitted to the court as well). There may be circumstances under which one or more beneficiaries may be given an asset prior to settlement, but for the most part, the assets will remain part of the estate until it is settled.
The PR will be responsible to ensure that assets are properly maintained during the settlement of the estate. If the property needs to be moved from its current location (due to the sale or vacating of the real property, for example) it is important that the executor move the property to a location that is safe and appropriate for the type of property.
3. Be Really Careful when Managing Real Estate.
Insurance should be maintained on any real property assets during the administration of the estate. If no one is occupying the real property, it should be visited on a regular basis to ensure that damage does not occur due to delayed maintenance (ex. pest management, plumbing problems, and roof leaks). Proper upkeep on the property may also include the installation of a security system to prevent the vacant property from being vandalized or occupied from uninvited trespassers.
Also, if the real property is to be sold, the PR may have to assist the heirs and beneficiaries with determining a proper sale price. If any improvements are needed prior to sale, the PR may also have to help the parties involved decide which improvements should be completed prior to sale. In all such discussions and agreements, the PR should be mindful of creating a written record of all agreements. Unfortunately, many times parties seemingly reach an oral agreement, only to have the parties later remember the agreement differently and (at least) one party wants redress from the PR.
4. Be Prepared to Be Unpopular.
As a PR, you are to carry out the wishes of the testator, not the heirs and beneficiaries. In the best interest of the estate, it is often necessary to make choices that one or most of the beneficiaries do not agree with. This may put the PR in an uncomfortable situation. However, this is part of the role of the PR. Beneficiaries may pressure PRs to disburse the assets of the estate too soon and leave the estate unable to pay its debts.
5. Remember Your Objective.
Your role as PR requires you to maintain and protect the assets of the estate, but not necessarily to increase the value of the assets. Some PRs are tempted (with the best of intentions) to increase the value of the estate for the benefit of the beneficiaries. Unfortunately, many investment strategies carry with them a risk of losing some of the value of the estate. If that risk of loss is realized, there is the potential for the beneficiary to blame the PR for the loss and to request to be compensated for that loss.
6. Keep Assets Separate.
Assets of an estate should be kept separate and apart from the PR’s personal assets. Doing so will help protect the PR from any claim that estate assets were misappropriated.
With proper planning, documentation, and prioritization, the risks inherent with the position of PR can be minimized. If you would like assistance choosing the right personal representative for your estate or if you have any other estate planning questions, please contact us today.