Handling the Estate

If you die without a will (known as dying intestate), the probate court will appoint a person called an administrator who will collect your assets and pay your debts (including taxes.) Then, after the time period set by state law, the administrator will distribute your remaining assets to those people entitled to receive them.

If you have a will, you get to choose the person (a trusted friend or a professional fiduciary, such as an attorney or bank) who will administer your estate. Rather than being called an administrator, the fiduciary you nominate under a will is referred to as an "executor" or sometimes as a "personal representative." We'll use the more common term "executor" in these materials.

Although an executor basically has the same duties with respect to an estate as an administrator, the law treats these fiduciaries differently, based on the fact that you chose the executor. It is presumed that you have greater trust in your personally-nominated executor than you would have in a court-appointed administrator.

Accordingly, state law generally will permit you to waive the requirement that the executor post bonds, and will permit you to give your executor the power to enter into transactions, and make investments, that the court would consider to be too risky for a court-appointed administrator. Thus, if you want your executor to continue to have your business run as a going concern once it becomes an asset of the estate, you'll need to give the executor the authority to do so. However, the law looks at small businesses as among the most risky investments to keep in your estate, so you may find that your executor will not agree to run the business unless you include in the will a provision to hold the executor harmless for any losses to business profits or value that occur during the period when it stays in operation.

Even with such a "hold harmless" clause, an executor may not be willing to accept the office if taking control of an ongoing business is part of the job. As a fiduciary, the executor can't share in any of the profits if he does a bang-up job of running the company. However, he is subjected to the time involved and the difficulties of operating the business under difficult circumstances, as well as the possibly the hostility or threatened lawsuits from heirs. This makes it all the more important that you have a concrete and workable plan for the succession of your business's management and ownership.

You can choose an individual or a corporate fiduciary to serve as your executor. You can also have more than one executor. In this case, they will be called "co-executors." Regardless of the number of executors, and whether they are individuals or corporate fiduciaries, they will be entitled to reasonable fees, set by the probate court, for performing their duties.

Which should you choose, a corporate or an individual executor? Because a corporate fiduciary, which is often a bank or other financial institution, is in the business of performing fiduciary services, you can expect that a corporate fiduciary would have the advantage of having a staff of people who are experienced in handling estate work. Such a fiduciary can be expected to be more knowledgeable of probate rules and deadlines than would most individuals serving as executor.

However, these advantages are offset by three possible disadvantages of the corporate fiduciary:

• Corporate fiduciaries will definitely charge a fee, unlike some individuals who may serve as executors without fee.
• Corporate fiduciaries are much less likely to want to hold on to, or manage, any risky investments (like a small business), even if the fiduciary has the authority to do so under the will.
• Some of your relatives may think that it's an honor to be named as executor of your will - although they may change their mind once they see how much work is involved! And other family members may feel that a corporate fiduciary would give much more impersonal service when compared with another family member.

An individual, such as your spouse or another family member, serving as executor may be more likely to have the heirs' trust than would a corporate fiduciary, although if there are factions or issues within the family there may be even more distrust of a family member than a corporate fiduciary. A family member is usually in a better position to know the deceased person, his family, and financial set-up. Also, individuals serving as executors often elect not to accept fees for their services, to the benefit of the persons receiving property under the will.

The possible disadvantages to an individual serving as an executor include:

• Little or no knowledge of estate matters. Although the executor will normally engage the services of an attorney to help with the settlement of the estate, the executor's inexperience may result in difficulty both for the executor and for the estate beneficiaries. In addition, the attorney's fees can mount up quickly if they are required to "hold the hand" of the inexperienced executor.
• Bias or pressure from family members. While an individual executor's knowledge of family members may be a great advantage, it may also prove detrimental as well. The individual may come to the office with allegiance to some of the family members, at the expense of others. Further, even though the individual serving as executor - like all executors - has the duty of treating all estate beneficiaries fairly, the executor may feel pressure from some family members to take an action that would help them. This would be particularly likely if the executor were a close family relative.

You may be able to get the benefits associated with both a corporate fiduciary and an individual executor by naming one of each as co-executors. State law will normally give you the right to determine the categories of estate decisions that require the consent of both, those that only the corporate co-executor can decide (such as dealing with investments), and those that only the individual co-executor can decide (such as more personal matters, like determining which pieces of personal property go to which beneficiaries).

Your choice of an executor will be an important factor in how smoothly your estate is handled. You'll want an executor who will be able to deal with all estate beneficiaries in a way that will avoid friction, and foster any needed compromises and agreements among them. You'll want an executor who will work hard and work efficiently, so that everything is done on time; thus avoiding court delays and continuances. In probate matters, time is money, and time spent in court is even bigger money.

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