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It's a Tough Job But Someone Has To Do It

By Monica Goel

Think twice if you're asked to handle a friend or relative's estate. It can difficult with lots of paperwork, feuds and lawsuits.

You may think you're just being asked to handle the details of an estate or trust after this someone dies. But you could be setting yourself up for aggravation, bureaucratic red tape, years of work, angry battles with family members and even lawsuits.

You may be the one who has to call the sheriff when the ne'er-do-well relative cleans out Grandma's house while the rest of the family is at the funeral. Or the person who has to fend off late night calls from a spendthrift sister who's convinced you're unnecessarily tying up "her" money. Or the one who has to search through a packrat's home just to find the will and any valuables among decades of old magazines and saved string.

You also may be called to referee family battles when the will or trust isn't clear enough about who gets what.  An executor's job typically lasts from a few months to two years. If you're asked to be a successor trustee for a living trust, your function will be much like that of an executor but it does not involve court involvement unless there is litigation and can usually be wrapped up within 6-9 months.

Executors' duties include:

1.  Locating and valuing the dead person's assets

2.  Finding and paying any creditors

3.  Filing estate tax returns if the estate is large enough; and

4.  Making sure the remaining property and money are transferred to the person's heirs according to the terms of the will or living trust.

If you're asked to be the trustee of an ongoing trust (for a minor, special needs trust) that does not terminate and distribute on the settlor?s death, your job could go on for decades. You'll be in charge of investing the money in the trust, making distributions and filing tax returns.   Many states have raised the bar on fiduciaries by allowing them to take more risk when investing trust money -- which leaves trustees vulnerable in two ways. If they don't take enough risk, beneficiaries can sue them. If they take too much and lose money, beneficiaries can sue them.  If you're held to have mismanaged the trust, then you're held personally responsible.  Executors can also be sued. Plus, an executor who screws up an estate tax return can be held personally liable for any additional estate tax that's owed.

That doesn't mean you should necessarily say no. Many people with very small estates have little choice other than to ask family or friends because there isn't enough money to pay professional fees. Even many people with larger estates would prefer to have someone they know serve as overseer rather than turn the duties over to an impersonal bank or other professional fiduciary.

You have to weigh the potential problems against your sense of responsibility to the person making the request.There are other complications.   There may be some irregularity with the documents themselves or which ones are the originals or whether amendments have been made.  There may be familyh tension.   Managing an ongoing trust for such a family can be particularly difficult.

One of the most common tax-saving trusts, the A-B or bypass trust, can pit the children against a surviving spouse, creating an ugly situation for all concerned.   These trusts give income to the surviving spouse; when he or she dies, the money goes to the final beneficiaries, usually the children. Since the spouse often wants the biggest payout possible while the kids have an interest in making sure the trust remains as large as possible, the trustee is left with a difficult balance and can easily alienate both sides.

If after reviewing all the pitfalls you decide to take on the job of executor or trustee, you can take some steps to limit the problems and to protect yourself. Among them:

Ask for language in the document that limits your liability. Most well-drafted estate planning documents will restrict liability unless the executor or trustee shows "gross negligence." How well this works depends on what state you're in, attorneys say, and how well the clause is worded. It won't prohibit someone from suing you -- it just may prevent them from winning the case. You may still be out legal fees and time.   

Make sure that you hire an attorney and/or an accountant to help you.  Make things easier for your own executor and trustee. Your experience will teach you a lot about what works, and what doesn't, when it comes to estate planning. Leverage what you learn by making sure your own estate planning documents are clear, and that your executor and trustee have all the information and support they need.

Full post as published by Estate Planning Practice Blog on June 09, 2008 (boomark / email).