Executor Duties: When The Estate Has No Money
You may think I am callous. After all, a person asked you to execute their last wishes. But what if the estate has no money? In such an estate, you may bite off more than you can chew.
You must know it is easier to decline the job than to quit later. So don’t start handling estate assets without legal advice. If you try to quit later, you may get into trouble. You can end up with angry estate creditors and beneficiaries.
What If The Estate Is Broke?
Dying broke is not a sin. It can be a part of properly prepared estate planning technique. If there are more estate liabilities than assets, think twice about getting involved as an executor. There may not be money to pay you or lawyers to protect you.
If the estate includes a business, you need to be extra careful. Are the tax filings up to date? Are there personal liabilities to the bank, partners, landlord or suppliers? You may get yourself into trouble.
Remember The STOP System
This is the Standard Trustee Operating Practice (or STOP system). I recommend executors follow this system, and here is how it works.
Stop! Before you take any action as executor, you must follow standard Trustee operating procedures for fiduciaries.
Executors are fiduciaries who put the interest of the estate before their own. You must follow the rules for persons in a position of trust. So, you need to protect the assets for those with a financial interest in the estate. These people include creditors and beneficiaries.
• you cannot pick and choose who you pay with estate money.
• You cannot prefer one creditor over another.
• You cannot pay beneficiaries before creditors.
You can’t give Uncle Jack’s BMW to Thomas just because
a) Jack told you to do so,
b) You feel Thomas deserves it, or
c) Jack would have wanted you to do make this gift.
Creditors Must Be Paid First
Someone may need to sell Jack’s BMW and pay his bills. If you get involved in dealing with any of the estate assets, you can become liable as an executor. Creditors can make you account for all of your dealings. They can sue you for improperly distributing assets or letting what’s left go to waste.
Income Tax Bills
As an executor, you can also be personally responsible for not paying the income tax bills. You must use estate assets to pay the deceased’s income tax bills. Pay these bills before you distribute any estate assets.
Hire a lawyer to advise you about how to avoid risk. You could protect yourself by declining or renouncing as executor. You may need to notify any alternate executor who takes over your job. You’ll sleep better by walking away from the troubles.
Executor Tip: If the estate is broke, then it’s a mistake to get involved.
Edward Olkovich (BA, LLB, TEP, and C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of seven books. Visit his law firm’s website, mrwills.com, for more free valuable information.
Posted In: Executors On: July 25th, 2013