Five steps for choosing an executor
By Skip Rapp
In my last article, I talked about how to address the topic of executorship with your boomer clients so they aren't surprised when they have to settle their aging parents' estate. Now it's time for the big conversation -- who will be your client's executor?
Guiding your clients through major points of consideration now can bring big advantages to your practice, such as the opportunity to cultivate multi-generational relationships. It's easier than you might think, as long as you know the options and parameters to present. In this article, I'll run through the options, and then give you five steps that you can use right now with your clients.
Your client has three general types of people to choose as executors: the non-professional, the professional or a hybrid of the two.
The non-professional (someone close to them)
Your client's spouse, domestic partner, sibling, adult child or close friend can all serve as executor or personal representative. Most people choose a spouse or the oldest living child, but it doesn't mean that person is the best for the job. No special training is needed, but there is some preferred knowledge and character traits to consider.
For instance, they'll want someone who is responsible, trustworthy and is comfortable working with professionals such as lawyers and accountants. The person shouldn't be a procrastinator and should not be scared off by financial matters. Most importantly, they should have some ability to set aside emotion and complete the needed tasks. Remind your client that because this is a job, the executor is entitled to reasonable compensation.
When it can work: It can work if your client is well-organized in advance and will communicate with the executor. This can also work if your client's estate is simple and well-planned.
Some cons: This may not be the best solution if there is hesitation either from your client or executor, an inability to communicate about tough topics, or you sense that there is an existing family conflict. Keep in mind that executors are fiduciaries -- they can be sued and are personally liable.
A word to your client: Treat this like an interview. This isn't the time to be thinking about who is the closest emotionally. It's time to pick the right person for the job. Talk about any potential conflicts of interest, and make sure the executor knows he can resign at any time.
Avoid co-executors: Naming multiple nonprofessionals as co-executors, such as two adult children, brings even more complexity. It's potentially an unnecessary cost to an already difficult situation. If your client is leaning in this direction, ask the following questions:
- Given the potential complexity and duration of the settlement process, will the individuals agree to collaborate together amicably, divide duties and still meet the necessary court-driven timelines?
- Do the co-executors live in the same geographic location? If not, express mail or overnight delivery will be needed during the entire process. For instance, they'll both have to be involved as signatories on court filings and documents.
- Are they on speaking terms today? What if they aren't in the future?
There are quite a few options when it comes to professional executors -- a bank officer, a trust company, an attorney, an accountant and, in some instances, even a financial planner or advisor. Your client can name a person who is employed by the firm, or just the organization itself, if desired.
A professional can assist in one of two ways:
1) Assist an individual executor with carrying out his duties -- typically charged at an hourly rate.
2) Serve as the professional executor and carry out all duties as required -- and earn a fee that is sometimes based on a percentage of the gross estate. This fee covers the time that is spent in carrying out the duties, as well as a premium for the risk that accompanies the role.
Unlike your client's friends or family members, the professional executor will most likely not be grieving over their passing. It makes for more rational decisions and a more effective execution of duty.
When it can work: It works if an estate is large or especially complex in nature. And if there is a lot of family conflict -- the professional would not get personally or emotionally involved, or upset because of the way certain family members are acting.
Some cons: Some people feel that appointing a professional executor would be a rather cold experience because a professional is too disconnected from the family's day-to-day life. Additionally, delegating completely to a professional may create costs that interfere with the client's estate goals.
The combination of close personal knowledge, the family situation and professional expertise is achieved when a family member and a professional serve together.
When it can work: It can work if a family member executor doesn't have the knowledge, time, or simply wants an expert resource available to him at all times. It can also work in situations where family conflict or complexity exists.
Some cons: As before, if your client is extremely cost-sensitive, given desired estate goals, you'll want to ensure that a lot of expectation-setting, advanced organization and planning is completely squared away. The efficiency of this approach is often driven by the aptitude of the nonprofessional executor.
Five steps your clients should follow when choosing an executor:
1) Become familiar with the role of the executor.
2) Consider their family situation and preferences.
3) Pick a path:
- The individual (or hybrid) approach. Identify trustworthy family members who meet the criteria listed earlier. Make a list of pros and cons about each potential candidate. Speak with those individuals to get their reactions and feedback.
- The professional or hybrid path. Develop a list of reputable professional executors within your community. Set up appointments to meet and interview those individuals.
4) Select an executor and a contingent. It's always good to have a backup plan. Record the choice in the will, letter of instruction and other estate-related documents where appropriate.
5) Communicate. Notify your executor. Then meet regularly to review, make updates and otherwise familiarize him with the locations of the things he'll need to carry out his duties. Notify the family of who was selected and why, as this can reduce future conflict. Leading your clients through these steps can deliver peace of mind and make you shine in a stronger light -- especially with your key clients. Offer to get involved with making referrals to professional executors. Consider facilitating or participating in the conversations. Last, but not least, help your client to get organized in advance so there is no chance for drag on their estate goals. Online is best, given the geographic dispersion of families and the Web's portability and ease of access.
Ultimately, there is no right or wrong answer to who is the best choice for an executor. It really depends on the facts and circumstances of each case and, in particular, what gives your client the most comfort. What is the right answer, however, is for you to help them address the situation now and be proactive about it.