Unintented Consequences of Estate Planning

When choosing the Personal Representative in your Will or the Trustee of your Trust, who should get the job, what are the fees and what should you expect? There are a few things to consider when answering these questions.

There are a number of decisions to be reached when creating your estate plan; easily the most important is your choice of who will serve as the personal representative (or executor) of your Will or trustee of your Living Trust. Unfortunately, if a poor choice is made, it cannot easily or inexpensively be rectified. This poor choice could start as early as the creation of the documents if you fail to communication your intentions to your beneficiaries before you die. Indeed, Reuters offers one unfortunate beneficiary’s troubles in a recent article on the topic and offers some solid suggestions to consider.

The beneficiary was Stephanie Stephens, who, in the end, was surprised to find that the estate she received had shrunk by $129,000, a loss that, to this day, she blames on the executor. Apparently, the estate assets tumbled more than $104,000 when the executor failed to pull investments from the flames of the 2008 financial meltdown.  Adding insult to injury, that same executor was entitled to a fee of  $25,000. Needless to say, Stephanie was not a happy camper. Whether or not the executor was to blame may be debatable (since it was the beginning of the recession, after all) but there are other wrinkles to the story. For example, Stephanie hadn’t met the executor of the estate until after her relative passed away. She perceived him as an interloper in this matter. Further, she was shocked by what she considered exorbitent fees charged by this disinterested third party who had already lost the estate's money. Her case offers an example of a kind of disconnect that can all-too-easily arise between executor, estate, and beneficiary.

Reuter’s offers three general principles to bear in mind:

Know the estate. Choosing the right executor has a lot to do with the nature of your estate. Is it complex or simple? Are there a lot of moving parts and assets that may be at risk? A family member can likely carry out a simple estate but a professional might be necessary for those more difficult ones.  Nor is money the only complexity to be considered.  Do all beneficiaries generally get along with one another?  If not, it is often better to appoint an unrelated third party to serve as your executor, mindful of the need to inform your beneficiaries of your reasoning in advance of your death. 

Know the person. Just because someone is a “good person,” does not necessarily make the a good choice. You must know whether or not interested in carrying out the tasks at hand. If you have a Will-based estate plan you need to know that probate is not a job for the unwilling. You should also know that they possess the proper skills and business acumen to carry out your plan and will manage the assets of your estate in a prudent manner.

 Let your family know – communicate. It can be a difficult conversation to have but don't let that deter you, it’s important to relate your plans directly to family or loved ones so they are informed during the difficult days following your death that that the decisions being made are based on your expressed wishes. Further, you’ll want to be sure they are aware of the cost of the executor so it isn’t the surprise it was in Stephanie’s case (which means you need to be aware of the costs, as well).

You can learn more about Probate and Estate Administration on the Probate and Trust Administration Practice Area on our website. While you’re there, be sure to sign up for our free monthly e-newsletter to stay informed about issues affecting you, your family and your estate.

Reference: Reuters (June 16, 2011) “Help! Our executor cost us $129,000”

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