“Help! Our executor cost us $129,000″
“Can you do a story on a relative’s choice of executor and how it may impact beneficiaries when the relative dies? My relative chose an outsider, a surprise to me and another relative, and he cost us $104,000. The additional hitch: He was a retired financial adviser and THEN he took $25,000 for executing a relatively simple estate. I lose sleep over this, want to warn other boomers and very much want to tell my story. I’m still beyond angry. Best, Stephanie Stephen, fellow journalist.”
I received this email in my inbox not too long ago and felt compelled to dig a little deeper. I wanted to help Stephanie, and others like her, to better understand and hopefully avoid some of the estate planning minefields like the one she experienced.
In Stephanie Stephen’s case, she met the executor of the will after her relative passed away. It was around the beginning of the recession and she recalled asking the executor why he hadn’t taken the assets out of the market. “I made it very clear [to him] to cash the rest of the estate out,” says Stephens. “It seemed to be the duty of the executor to take the assets out and it turned out there was a loss of $104,000 [in the portfolio] from the recession,” she says.
To make matters worse, “there was no discussion, no apology and under state law the executor was entitled to five percent of the estate,” says Stephens.
No doubt, we all have some sort of financial horror stories. It could be, in part, because we are not required to learn about financial issues in school. Instead, we learn about personal finance on the fly, by the seat of our pants, or like Stephanie, in a crisis situation.
So in the case of choosing an executor, who should get the job, what are the fees and what should you expect? There are a few things to consider when answering these questions.
Consider the estate. A spouse or children can easily serve as an executor of a simple estate with an easy-to-understand portfolio. In this case, “discuss with your spouse and children what the assets are and what your thoughts are [about your estate] when you pass,” says Michael Friedman, head of trusts & estates at Kurzman Eisenberg Corbin & Lever. In Stephen’s situation, it seems as though a family member may well have been able to handle the estate.
Of course, there many estates can be quite complicated either by family dynamics (second marriages, family friction) or because of the complex nature of the assets themselves. In these cases, it makes sense to “seek a lawyer, a family friend, a financial institution — someone who an act impartially but make the tough choices and act as a conduit,” says Friedman.
Know the person—well. “The most important thing is that you know the person not only personally, but you have a sense of their experience and business acumen,” says Stephens. “When you are gone, you are leaving everything you worked for,” she says.
Indeed, whether you choose an executor outside the family or not, there are a few characteristics that any good appointee will possess. “It is important to have someone who is knowledgeable, able and interested in doing [the job],” says Michael Zapson, an attorney at Davidoff, Malito & Hutcher. In addition, your executor needs to have an attention to detail, be comfortable hiring and supervising professionals or be a professional themselves.
Make sure that the person you chose knows all the players or is at least introduced to them — your accountant, attorney, and whoever else is involved in your estate planning process, says Zapson. They also need to know where all your important documents are kept.
Note that the lawyer who drafts your will is supposedly the person who has met you and taken down your wishes. “While this lawyer may also have enough experience in the business of probating wills most lawyers choose not to be the executor because of fiduciary duties,” says Harvey Rowan, wealth manager at Starmont Asset Management.
Communicate, communicate, communicate. It is never easy to talk about what happens when we shuffle off this mortal coil. Still, it is essential to have these tough conversations if our surviving relatives are to avoid nasty financial messes when we are no longer here. That means you need to make sure your family members know whomever it is you have chosen to be the executor of your estate.
As far as the fee is concerned, it is set by statute. In New York, for example, an executor’s compensation is based upon a schedule. It is a sliding scale, five percent of the first $100,000, four percent of the next $200,000, three percent of the next $700,000, the next $4 million is 2.5 percent, etc. Of course, these fees vary by state.
To be sure, the old adage that knowledge is power would have been helpful in Stephen’s case. At least now she has used her experience to help others.