CLICK HERE TO SUBSCRIBE

Radon Stancil:
How important is it for you to choose the right person to be the executor of your estate? In this episode, we have all the details. We hope you’ve been enjoying all the episodes from Secure Your Retirement. If you’d like to keep learning and receiving these episodes, hit the subscribe button and the bell so you receive alerts when they come out. We’ve helped thousands of listeners get on the path to securing their retirement. Now it’s your turn. Let’s dive in.

Murs Tariq:
Welcome to Secure Your Retirement podcast. We are very, very happy today to have you with us and have you to be able to hear us on a topic that we think is very, very important. And it’s such an important topic that we brought on a guest. He is David Haughton, who is an attorney with Wealth.com, which Wealth.com is a partnership that we have put in place for our clients to make sure that you can get a good solid estate plan in place.

And so, here’s the question that we’re going to be interviewing Dave on—it’s really around an executor. What is an executor? How does it work? But before we get into that, I’d like to say, Dave, thank you so much for coming on and talking with us and our audience today.

David Haughton:
Yeah, thanks for having me. I’m super excited to be here.

Radon Stancil:
So, just to kind of go a little bit further here—Wealth.com, again, you guys really have been a big help to us and our clients and our firm and making sure that we have a way to help our clients get an estate plan in place. And we always tell people you need to have—you know, a will. These are like the non-negotiables. You need to have a will. You need to have a power of attorney. You need to have a durable and a health care power of attorney in place. That’s the bare minimum. And then some folks, they do get a trust and things like that. But when you’re going through that process, Dave, and you’re trying to get all these things in place, one of the things that a person needs to do is to select an executor of the estate. So, can we just start this off in the real basic scenario here. What is an executor of an estate?

David Haughton:
So, an executor of an estate is someone that you select to manage your assets after you’ve passed away. So, they are going to be in charge of determining what decisions are made regarding your estate once you’re no longer able to make those decisions after you’ve passed away. And it’s a really, really critical decision because it’s a critical decision that’s made within a will. So, once you make a last will and testament, you’re going to name someone who is going to administer your estate on your behalf and to make these distributions. And those are going to be in accordance with what the will says.

Now it could have a different name. It could be “personal representative.” It’s going to depend on the state you’re in. “Executor” is kind of the term of art. It’s used in some states. Some states say “personal representative.” But it’s a really critical role because that’s the person who is going to oversee paying administrative expenses, debts, funeral expenses—things that come up when you pass away. And they’re also going to be in charge of just generally making sure that the estate runs smoothly and making distributions to beneficiaries.

And what’s really critical is if you don’t name someone—so most likely if you didn’t have a will—then the judge is going to be in the position of appointing who that person is going to be. And it may not be always who you would select. It could be the first person to show up to the courthouse. So, it’s a really important position. It’s a position that has a lot of power. There are guardrails on it, certainly, because they’re supposed to follow your wishes and they have to do it in line with the law, but you really want to be in the driver’s seat to be able to tell the judge, “This is the person that I want to be making these decisions.”

Murs Tariq:
Yeah, that makes good sense, Dave. And so, you know, I think naturally we kind of default to the spouse being the executor in a lot of cases just because it seems, you know, fluid and easy. But when you say, you know, what the executor has the power for and everything like that, is that always the right decision? What should someone consider when, you know, when they’re thinking about who they want to carry out the terms of their will, what should they be considering?

David Haughton:
Sure. Yeah. I mean, I’d say usually it’s the right decision, but it’s all going to come down to family dynamics. And I think, you know, you really got to think carefully about it in conjunction with your family dynamics and, you know, your advisor or your attorney, your professional who’s helping you with it, to try and come up with a clear understanding of who the best person is to employ that role—or a professional, potentially.

Every family dynamic is different. I’ve certainly seen family dynamics where there’s been spouses where they named the kid as the first executor because they know that that child is financially sophisticated and perhaps the surviving spouse may be overwhelmed. They’ll be going through a lot of grief, and it’s not a good time for them to have to be making those decisions. So, it’s a really careful decision that needs to be made.

And I do think that financial sophistication should come into that decision just because you are going to be dealing with a lot of court paperwork. You’re going to be dealing with accounts that need to be moved over. There are investment decisions. There are things that potentially need to be liquidated and distributed. So, important that you’re not just choosing the next person in line—whether it be your spouse or your oldest child or whatever the case—that you’re looking at, “Okay, what are the duties that this person has to perform? And is the person I’m selecting the best person to perform those duties? And do I trust them to do it?”

Radon Stancil:
You talked about guardrails on that aspect of things. I’m assuming that those guardrails, like—so for example, let’s just walk through an example. Let’s say that I am a beneficiary through a will. My mom, you know, passes away and my sibling or somebody else is the executor. I’m obviously going to have the will. I can read the will, right? So, I can see what’s in there. The executor has to administer it. So that’s one guardrail, I would assume—meaning I’m reading it. So if they try to do something different… but what if maybe I don’t know whether there’s a weird scenario where maybe I don’t have a copy of the will? What are the guardrails that are there to protect the beneficiaries?

David Haughton:
Yeah, so, I mean there’s a couple of things. Number one, an executor is only going to be appointed in conjunction with a will. So, the will has to be submitted for probate. The executor is named in the will, and the judge gives them priority, essentially. So, the judge does not have any requirement that they have to name that person as executor. They will—nine times out of 10, 99 times out—but, you know, there could be a circumstance where that person is just completely inappropriate for the role.

So there’s that first guardrail—that there will be some court oversight when you’re coming to the will. The second thing is that the will is going to lay out what their duties and responsibilities are. And so, that’s going to say what their powers are. And so, they can’t just take all the property and distribute it to themselves. The court’s not going to allow that. The law’s not going to allow that because the will is going to spell out what the will can, but the law is still in place. So there will be a judge there who is going to make sure that the executor is not stepping out of place.

That’s not to say that, you know, there isn’t some informality to this. You know, there’s a lot of wills being probated in every state all the time. There’s a lot of leeway given by the court to the executor. And so, it doesn’t mean that anyone could fulfill that role, because there certainly could be abuse going on. There’s no doubt about that. And when there’s abuse going on, that means someone needs to step in and litigate to dispute it. And nobody wants to be in that situation.

And so, you know, these guardrails—they are legally in place. They are based on maybe the will, based on the law. But you want to make sure that you have someone with the integrity to know, and the acumen to know, that they need to follow those rules and they can’t just go and do whatever they want.

Murs Tariq:
Yeah, so key point there—the executor selection is very, very important. And also, I think it’s worth noting that that can always be updated and changed. And sometimes people neglect getting the documents put together because they just don’t know who they want to appoint as executor. So, that’s good insight, Dave.

But let’s go into like the responsibilities of the executor, because I think that’s where really this podcast came out of—a client asking me the question of, “Hey, I’ve been appointed executor of an estate, and I really just don’t know all the things that I’m supposed to be doing.” So, what are some of the main responsibilities that an executor would have?

David Haughton:
Sure, yeah. I mean, essentially the executor is tasked with collecting all the assets of the estate. So, determining what comprises the estate, what accounts do you have, what real estate do you have, collecting it all and getting it all into the estate. And that could mean, if let’s say they have a brokerage account, that could mean moving the assets from an individual account from the decedent into an estate account so that they have everything under their control. Now, once they have that, they now have to go by the order of priority set by the law or set by the will as far as who are they to pay out to and in what priority. And a lot of times, first is administrative expenses. So, that’s going to be paying out for things like funeral expenses. Then it’s going to be paying out to things like creditors.

So, creditors are going to come forward over a certain time period. The executor is going to be in the position of having the responsibility of notifying creditors that there has been a death and they may have a claim. That’s going to depend on the state, on how they do that. Usually, it’s just as simple as putting the notice in the newspaper, but each state may have a different process for that. You may need to affirmatively notify any creditors that you know may have a claim, and then they’ll have a time period. Then those creditors can have the ability to insert themselves into the process and get paid.

And then you need to see if there are any disputes that need to be settled. If there are any disputes that need to be settled, could there be a beneficiary who is contesting the estate? Could there be someone who comes and says that the maker of the will didn’t have capacity—whatever the case may be. So, you need to go through that process.

And only after everything has been settled, usually, are you cutting checks to the beneficiaries for them to get their interest in the estate. Hopefully, a lot of that is streamlined, there aren’t a lot of creditors, there aren’t disputes and it takes six to nine months. But you never know—you have to go through the whole process and it’s all going to be under the oversight of the court. So, the court is going to be setting these deadlines and kind of driving the process to tell you when you can and can’t do.

Radon Stancil:
So, one of the things that I think sometimes comes up in conversation is, so it sounds like depending upon the estate—let’s say that’s a, you know, sizable estate—and I would say that, you know, I’m not saying hundreds of millions, I’m saying somebody who has maybe a five, ten million dollar estate and they’ve got different things. You just mentioned six to nine months. Sounds like there’s a lot of work. Is there compensation to the executor or is that kind of like a case-by-case?

David Haughton:
It’s case-by-case, but yes. I mean, I think usually what’s set forth in the law, what’s set forth in the will, is that the executor is entitled to reasonable compensation. What is reasonable compensation is certainly, you know, up for debate. Usually it’s something where the will could set a specific dollar amount. It could, that says they get $10,000—whatever the case is. But usually, it’s more just like a lawyer tracking your time, setting a reasonable rate to that time, and then when you do the final inventory with the court, you submit it and the court will approve that. “This is the amount of time you spent, this is a reasonable rate for these services, and therefore, you are entitled to this as compensation,” aside from anything that you may get as far as beneficial interest in the estate.

Murs Tariq:
Gotcha. So, what are some, I guess, misconceptions as far as “I’ve been appointed an executor,” and you know, what are some of the things that maybe you’ve seen or heard that they think they have power to do this or that, or they maybe have power sooner than they think they do. That’s the one I’ve heard—is that, “Well, I’m the executor,” while the person is living, they think they can do things. Right? So, what have you seen in your world as far as misconceptions?

David Haughton:
Yeah, I’ve certainly seen that. I think that’s a big thing—“I am the executor.” An executor is an executor of a will. That’s of a last will and testament. So, that’s only when someone dies with assets remaining in their name that wasn’t in trust, that didn’t have a beneficiary designated. And so, that can sometimes only be a limited amount of assets that you are empowered to be in control of.

And so, when someone dies, anything that goes from their IRA to their beneficiaries—technically that’s outside the purview of the executor. There are some scenarios where the executor may need information regarding that, regarding estate taxes or certain tax filings, or whether the person had capacity. There could be all kinds of things. But usually, if something’s in trust or something is left by TOD, left by beneficiary designation, that has nothing to do with the executor.

Also, if the person becomes incapacitated during lifetime, that’s the role of the power of attorney—not of the executor. The executor is only when someone passes away, and their role is in the probate process. And so, I do find that that can be a big misconception. The other thing is, it doesn’t start day one—it only starts when the judge approves you to be able to act as executor. And that can take a month or so. So sometimes people think right after someone dies, they can start making decisions right away—not necessarily the case. They have to wait until they have been appointed to have that legal authority. Because in the court’s mind, they need to make sure that this will is valid, first, and second of all, that the person that was appointed is eligible for the role that they’re in.

Radon Stancil:
So, a follow-up question to that. So, the death happens, the executor knows it, the executor goes to the courts, the judge appoints them as the executor. What documentation do they receive? And I know it could be state specific here, but what documentation do they receive to now, you know, walk into the bank and say, “Hey, I’m the executor. Talk to me about the deceased’s accounts.”

David Haughton:
It’s a court order. It’s usually—in most states—it’s called Letters of Testamentary. And basically, it is an order of the court, an order of the judge that says that now this person has the legal authority over all of the assets that were named in the deceased person’s accounts. And once they submit that to the custodian, to the bank, potentially, you know, when it comes to real estate, if it’s the county office, now they’re able to make decisions on behalf of the decedent, just like as if they were alive—to be able to transfer property, to be able to liquidate accounts, do any sorts of things as far as that’s in line with what the judge has ordered and permitted.

Because sometimes it can be limited, right? Sometimes the order—as far as what authority they have over certain things—is not going to be completely expansive and unlimited. It could be, “You are only allowed to do these certain types of transactions.”

Radon Stancil:
Yeah. So, you mentioned a couple things that I just want to go back to so our listeners can pick up on this. You talked about beneficiary designations. One of the things that we try to talk to our clients a lot about is on their brokerage accounts, on their bank accounts—as much as they are willing and can—to list beneficiaries because it does then, in all essence, take that work off the executor in that scenario.

You also talked a little bit about trusts. And we do talk to our clients—and that’s one of the things we love about our relationship with Wealth.com—is that the person does decide, “Hey, you know what, to eliminate this work of an executor, we could put things in a trust, or we could put these beneficiary designations.” But could you just speak a little bit—what’s the difference between an executor and then somebody who has a trust, and then they’ve got a trustee that now becomes the trustee of that? Are there similarities there in that role?

David Haughton:
Absolutely. Yeah, there are a ton of similarities. It’s a very similar role to be an executor versus a trustee of the trust. The big difference is that the executor is named in the will, and they’re someone who is going to have to shepherd the estate through the probate process, which is a legal process through court that is public. Anyone can view what’s going on with that.

Versus, if assets are in a trust and they’re going through a trust, that trustee has a similar role in that they’re making all the decisions relating to the estate: Do I liquidate certain items? Do I transfer items in-kind to beneficiaries? Do I pay these administrative expenses? The difference is that the trustee is doing that outside of the court process—outside of probate. And it’s also not public—it’s private. So, they’re able to do that without all the publicity.

So, in a lot of circumstances, it makes a lot of sense—if you’re choosing between: Do I go through probate and name an executor? Do I go through a trust and name a trustee?—to name a trust, if you want likely a more streamlined process where you’re avoiding this whole court process. You still need a will—everyone still needs a will—because, you know, as we talked about, you name beneficiary designations on accounts, you put certain assets into a trust. If you miss one and something’s in someone’s name when they pass away, that asset still needs to go through probate. You need to have a will and name an executor as a failsafe no matter what. But having a trust can really help to try to avoid that whole situation.

Murs Tariq:
You mentioned probate, and I know it’s going to vary based on the size of the estate and how backed up the courts are and how quickly the executor moves and everything. But it seems like the trust avoids probate and happens outside the courts, whereas the will directs things to the courts and into probate. How long does probate typically take?

David Haughton:
I mean, based on state and statutory guidelines, usually I’d say nine to twelve months. And a lot of that is related to, number one, the process of the court and just how long it takes for them to react and for things to be responded to once you file them. Number two is creditors having statutory limits—time limits—on their ability to interact with the process, because you have to give creditors an appropriate amount of time to know that a death occurred and then to submit a claim to the probate.

And then after that—settle any disputes or any other administrative items. And so, a really clean probate could take nine to twelve months. But, you know, if it’s a contested probate or things don’t go exactly smoothly, it can take a lot longer. It could even take years.

Radon Stancil:
Well, I know that, you know, we didn’t want to go so deep on this because I know that every situation is different, but this is very nice just to get a nice overview so everybody can have something that says, “Okay, at least I’ve got the picture now.” So, when they do go—if they go through us and go to Wealth.com and they’re thinking that through—now they kind of understand, “Oh, I got it now. I know now the weight of this executor that I need to put in place, or even the trustee on the trust.”

So, we appreciate very much, Dave, you coming on and talking to us and explaining these things. It’s very helpful for us, and we know it’s very helpful for our listeners. So, thank you very much—we appreciate it.

David Haughton:
Thanks for having me. It’s awesome to be on.

Murs Tariq:
We hope you have enjoyed this episode of Secure Your Retirement. If you would like to learn more, we have created an online course called Three Keys to Secure Your Retirement. This video course helps you to think through all the different steps as you get ready to plan for and live throughout retirement. You can access this by going to our website, POMwealth.net. In addition, you can also subscribe below to our podcast called Secure Your Retirement.

Radon Stancil:
For more retirement tips, check out these videos. Also, if you find them valuable, please subscribe to our YouTube channel and give us a like.