Choosing the Right Fiduciary: Executors

Pick me! Pick me? Pick…ugh, her?

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This is the fourth installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best executors for your will and asset distribution, among other things.

Many people have the impression that being chosen as the executor is being chosen as the anointed one, rather than viewing it as the job that it actually is.  According to Webster’s, an executor is “a person or institution appointed by a testator [that is, the person making the will] to execute a will.”  This sounds pretty straightforward.  In reality, an executor’s duties can be complicated.  The actions of executors are governed by extensive state law and are overseen by various government authorities.  Below are just a few of their obligations:

  • qualifying before the circuit court probate division
  • gathering assets of the deceased person, including tangible personal property (things you can touch or move) and intangible property (accounts, etc.)
  • locating and notifying heirs and/or beneficiaries
  • filing an inventory with the Commissioner of Accounts detailing every asset of the deceased person’s estate
  • keeping detailed records of income and expenses of the estate (including paying final debts and taxes)
  • filing accountings with the Commissioner of Accounts showing income received, expenses paid, and distributions made to beneficiaries
  • filing the decedent’s final tax return (and any prior years the decedent failed to file)
  • filing the estate’s tax return

Executors can be exposed to personal liability if they make mistakes during the course of estate administration, and can even be sent to jail for failing to fulfill their responsibilities.  It is not a task to be assigned or undertaken lightly. Many people who have experience as executors are less than eager to go through it again, so it is extremely important to use care in choosing the best person for the job.  However, with proper planning, it is possible to create a smooth process for your executor and even minimize his or her obligations.

The best choice for an executor will be scrupulous, organized, and tactful in moderating potential conflict between heirs.  Many executors struggle with the reporting requirements to the Commissioner of Accounts, so it can also be helpful to name someone with financial experience and/or familiarity with your assets.  Your executor will have complete control over your “probate” estate (some assets pass outside probate by beneficiary designation, deed, or title – these assets are not subject to your executor’s control).  This creates an opportunity for theft and can also create tension between your named executor and any beneficiaries of your estate who are not serving as co-executors.  Another challenge is that out-of-state executors are often required to post a bond with the Circuit Court, an expense that must be paid out of pocket by the executor (although he or she can be reimbursed once the estate is open).  In order to qualify for a bond, the executor must have good credit and a clean financial record.  It is possible to name more than one person to serve together as co-executors, so naming a professional and/or Virginia resident to serve as a co-executor is one way to mitigate these concerns.

Making a strong choice of executor is a major step toward a smooth administration process, but you should also provide clear instructions for your executor about where to find your will and assets, particularly when you no longer have paper statements.  Remember that your named executor is under no obligation to accept, so the more orderly your affairs are, the more likely it is that your desired executor will take on the responsibility.  If chosen correctly, the executor will understand exactly what they are getting into, with no illusions of glory or prestige, leading to a greater likelihood of acceptance and a smoother administration process.  Contact us for more information about wills, executors, and creating an orderly estate plan.

Power Of Attorney Pitfalls

In one sense, being named to act as someone’s agent under a power of attorney should be considered an honor – clients are encouraged by their lawyers to choose agents who are highly trustworthy and competent.  Even well-meaning agents, however, can make mistakes, either from simple human error or from a misunderstanding of an agent’s obligations and responsibilities under Virginia law.  Here are just a few of the issues we see giving agents trouble.

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Record-Keeping

Agents are obligated by statute to keep records of every transaction they undertake in their principal’s name.  Depending on the individual situation, this could mean keeping many years of records of deposits, withdrawals, expenses paid, reimbursements made to the agent, purchases, and sales.  This can be a lot to undertake while also trying to run your own, busy life, and many agents therefore let their records slip.  The pitfall?  If these records are requested by certain individuals listed in the statute, the agent is obligated to hand them over within thirty days.  Recreating these records (up to five years’ worth) may be impossible at the point the request is received, so it is critically important to maintain the records from the start.

Unauthorized Actions

Although powers of attorney often grant agents broad powers to undertake any action the principal could take with regard to his or her finances, certain powers are considered special and require an express grant of authority to be stated in the document.  If those powers are not specifically listed, the agent is not authorized to exercise them.  These “special powers” include:

  • Creating, revoking, or amending the principal’s revocable trust;

  • Making gifts of the principal’s property;

  • Creating or changing rights of survivorship or beneficiary designations;

  • Delegating the agent’s authority to someone else;

  • Waiving the principal’s right as a beneficiary of a joint and survivor annuity (including a survivor benefit under a retirement plan); and

  • Exercising fiduciary powers that the principal has authority to delegate.

Agents should read the power of attorney granting them authority carefully to determine exactly which powers are granted to them and which are withheld.  In addition, certain powers, even if expressly granted, are further limited by statute depending on the agent’s familial relationship to the principal.

Conflicts of Interest and Good Faith

An agent is obligated to act on the principal’s behalf in accordance with the principal’s best interest, in good faith, and free from conflicts of interest.  Although these may seem like straightforward conditions, in practice they can be more complicated.  An agent can run afoul of these fiduciary responsibilities even when he or she has no intention to act against the principal’s best interest or otherwise cause harm to the principal. 

The bottom line? For violating these duties, agents can be held personally liable for any actual loss to the principal, as well as the attorneys’ fees and costs of a party who raises the issue.  Thus, the best practice is always to get legal advice before taking any action that raises the slightest question mark or causes you to hesitate for any reason.  If you are already acting as agent under a power of attorney and have questions about transactions you have already entered into, it may not be too late to “right the ship” and get back into compliance with your legal responsibilities.

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Estate Law  |  Jennifer Schooley