8 Most Common Executor Mistakes to Avoid – Nassau and Suffolk

The biggest and most common mistakes made by executors on Long Island

If you’ve recently been named an Executor for a Will, you need to be very careful to both execute the last wishes of a loved one as well as make sure you follow the proper laws and procedures during the probate process.  Probate, at times, can be a lengthy process.  Often, it takes up to 1-2 years.  Sometimes, with very complicated estates (e.g. multiples homes, multiples states, high values, multiple types of tangible assets), it can take longer.

 

8 biggest and most common executor mistakes during probate

 

Most Executors don’t do this task very often, and it can seem a bit overwhelming at first.  This article outlines the 8 biggest and most common mistakes made by Executors so that you can avoid them.

 

This is part 2 of a companion article for newly appointed Executors.  You can find Part 1 here:  18 Important executor duties if you’ve inherited a house on Long Island.

 

Related articles:

 

8 Common mistakes made by executors:

These are the 8 most common mistakes and oversights made by executors. We hope that being forewarned will help you avoid these pitfalls.  Please note that some of these mistakes can be quite costly and as an Executor (or Executrix), you may be personally liable.

 

1. Misunderstanding fiduciary responsibilities

8 Common Executor Mistakes - Nassau and Suffolk Long IslandMany people misunderstand this term. What is a fiduciary? A fiduciary is a person who is legally obligated to act in their client’s best financial interests. The duties are BOTH ethical and legal. When you accept a fiduciary responsibility, you are required to act in the best interest of that person. And, at times, that may conflict with your own personal interest or other family members’ best interests. In a sense, the person who died is your client.

 

As an executor, you must keep meticulous records so that you can prove that all of your actions are objective and transparent. You must keep paper copies of all transactions. Keep all funds in a separate bank account for the estate, and NEVER co-mingle funds or borrow money from the estate.

 

Treat all beneficiaries fairly and consistently. You want to keep everyone equally informed and at the same time.  Put everything in writing and send to everyone at the same time. Keeping everyone informed will help allay matters that may arise later in the process.

 

2. Hiring incompetent or inexperienced professionals (or not hiring professionals)

You want people that are competent, experienced and an expert in their field. You also want professionals that are honest, and you feel that you can trust. Note: not hiring the right professionals will probably cost you a lot of money as well as create extra stress and lengthen the time frame. So, don’t be penny-wise pound-foolish here.

 

Your most important role is your estate attorney. Do not take on this responsibility yourself. (Remember the phrase “the attorney who hires himself has a fool for a client.”) Don’t make this common mistake. You will regret it. Choose a specialist i.e. an estate attorney, not a generalist. An estate attorney will get the job done better and faster.  Whatever you think you are saving by not hiring an estate attorney will probably be more than offset by costly mistakes and added time.

 

Give careful consideration to hiring the following professionals:

  • Estate attorney
  • CPA
  • Realtor – Make sure this person is experienced, has great results and is local to the house that is being sold. They need to be an expert in this geography and the type of home being sold. Do not just pick anybody, especially if they are a family member (as this could create a conflict of interest and family battles).
  • Real estate attorney, if you are selling a home (again, choose a specialist, not a generalist). They will do a better and faster job than a generalist. Usually, this would not be the estate attorney, unless that person also specializes in real estate law).
  • Experts for selling artwork (if needed)
  • Experts for appraising and/or selling expensive jewelry (if needed)
  • Contractors (as needed)
  • Appraisers, as needed (may be needed for house, car, jewelry, artwork)

 

Make sure these people are licensed in your state (i.e. the state of where the deceased lived before they died). And, seek the advice of your attorney for who they would recommend for these roles. Do not rush into things. Making a mistake here can cost you time and money, so make smart and well informed decisions. Making them quickly will help, but do not sacrifice quality for speed).

 

3. Paying bills too fast and/or in the wrong order

Big mistakes executors make during probate - paying bills too fastFirst, do not pay any bills until after you are officially sworn in as an executor and after you have the estate bank account set up. All expenses should be paid through the estate bank account (not your own bank account, nor another family member’s bank account).

 

Second, consult with your estate attorney about which bills should be paid first and when they should be paid. It is critical that bills are paid in the right order, especially if there is a possibility that the estate may be insolvent (i.e. that there may not be enough money to pay all the bills). Do NOT pay any bills until you’ve had this discussion with your attorney.

 

If you do not adhere to this, you may be personally liable for some of these bills if there isn’t enough money to pay for all of them.

 

It’s important that you quickly understand the overall amount of money owed and funds available before you start paying any bills. You may find a surprise (e.g. that the person owes back taxes or has a major lien on their home). Certain expenses such as funeral bills, hospital bills and federal taxes need to be paid before items such as credit card debt or utility bills. Rely on your estate attorney for guidance on this, especially as things vary a bit state by state.

 

Instead, notify creditors for any bills or debts that the person has died and the estate is in process of probate. This will put things on hold, so that interest no longer accrues.

 

4. Mismanaging real estate

Most Common Executor Mistakes - Mismanaging real estate | Long Island NYReal estate is one of the trickiest assets to manage as part of the probate process. Sometimes, one of the beneficiaries may want to live in the house (or may be living there already) and one may want to sell. Or maybe two or more want to live in the house.

 

If you want to sell the house, then you’ll need to manage through the process of selecting a listing price and determine which if any improvements or repairs should be made to maximize the return. When beneficiaries don’t agree, the executor will need to try to come to agreement and may even be forced to seek probate court assistance.

 

Bear in mind that many real estate agents will recommend some improvements to the home. The executor needs to consider whether or not they are authorized to spend estate assets and whether this will return a positive net profit (note: many home improvements only have a 60-70% return on investment, so proceed with caution). Remember, you have a fiduciary duty to the estate.

 

Cost to have your house sit on the marketAt the same time, executors need to be careful not to let a house sit too long. There is a significant cost for waiting as you still need to pay taxes and maintenance costs. Here on Long Island, that can be expensive. In fact, we found that the average carrying cost for a house on Long Island is around $20,000 for every 6 months. You can read about that in this article: How much does it REALLY cost to have your house sit on the market for 6 months? These ongoing costs translates to a lower inheritance to the beneficiaries.

 

Note: If you need to sell your Long Island house quickly, we can help.  Sometimes inherited houses need to be sold on an expedited time frame in order to pay off debts and settle an estate.  We help Long Island sellers by buying houses for cash, and we can usually close in 2-4 weeks, if needed.

 

5. Not securing tangible assets

8 Most Common Executor Mistakes - change the locks and secure the property | Long IslandMany times, executors don’t realize that ALL assets (both tangible and intangible) belong to a new entity…the estate. This happens on the date of death. It is the executor’s responsibility to keep assets safe until arrangements are made to distribute them in accordance with the Will.

 

Before ANYONE takes anything (even if it is bequeathed in the Will), be sure to have the locks changed and take an inventory of all items. Vacant homes can be a target for thieves. And, there are plenty of stories of family members or neighbors helping themselves to items for many reasons (some legal, some not). Family members and friends can do strange things after a death (or when they think no one is watching). And, remember that tangible assets have a value, and that must be factored in to the distributions. Don’t let this happen.

 

executor mistakes - secure property and get security camera | Nassau and Suffolk CountyIf the house has a lot of valuables, you may want to get extra security for the home (e.g. alarms, video cameras, etc.)

 

And, don’t succumb to family pressure to make distributions too early. If there are insufficient funds, some of these valuable items may need to be sold to cover the basic estate expenses.

 

6. Playing the market with the estate’s assets

executor mistakes to avoid - playing the stock market | Long Island NYDo NOT be tempted to do this. This is highly risky, especially for the executor. Some executors are tempted to invest the estate’s assets – in the hope of increasing the estate’s value. Remember, the executor has no obligation to increase the value of an estate, but they are responsible for maintaining and conserving it. If the executor invests the money and there is a decline, they could be subject to a lawsuit for breach of fiduciary duty.

 

7. Not appraising or paying taxes on tangible assets

jewelry - avoiding common executor mistakes on Long IslandSome people don’t realize that they need to include the value of tangible assets such as jewelry, artwork or personal property as part of the estate. But, this is important for 2 reasons: 1) if there are multiple beneficiaries, you need to include the value of these items to make sure the distributions are fair and equitable (i.e. they follow the Will), and 2) The estate may need to pay taxes on these items.

 

While the tax laws may be a bit in flux right now, as of November 2017, there are federal inheritance taxes on estates worth more than $5 million. While this may not impact the majority of Americans, it’s important to note that some states have a state inheritance tax on much lower amounts. So be sure to appraise and account for all items.

 

Note:  Here in New York state, the starting point for state inheritance tax is also over $5 million, so this doesn’t impact the majority of estates here on Long Island.

 

As a side benefit, you may be pleasantly surprised to find that the decedent had some artwork or jewelry that is worth much more than you think.

 

 

8. Making early distributions that may expose you to personal liabilities

mistakes to avoid when you're an executor on Long IslandAlways consult your estate attorney before distributing any funds or tangible items. If it turns out that the estate is insolvent (i.e. there aren’t enough funds/assets to pay off the debt), the executor may be liable if they distribute money too soon. (See more in point #3.)

 

 

Conclusion:

Being an executor is an honor, but it’s also a big responsibility and it’s very easy to make mistakes if you aren’t properly informed.  I hope that this article is helpful to prevent these common executor mistakes.  By following these principles and working with an experienced estate attorney, you can be successful in your executor role.   Also, if you haven’t already, be sure to read Part 1 of this companion piece:  18 executor duties if you’ve inherited an estate on Long Island).

 

 

Other useful articles if you’ve become an executor for an estate:

 

 

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8 Most Common Executor Mistakes to Avoid | Nassau and Suffolk Counties | Long Island NY

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