Top Five Mistakes Executors or Administrators Make
While administrating an estate is a lot of work, the process is usually straightforward. Nonetheless, executors/administrators sometimes made mistakes. The TOP FIVE common mistakes are listed below:
1. Not opening an estate right away
When opening an estate, it is usually best to open an estate shortly after someone passes away. As time passes, it is more likely that assets become forgotten, beneficiaries pass away, statutes of limitations expire, businesses have no clear decision maker, or personal property gets destroyed. Taxes are due within 9 months of passing (more on that below).
In the event that the estate has no will, family members may have issues opening an estate. For example, a family member may become difficult to find as time passes. Another possibility is that as time goes by, other family members may pass away, in which there are more steps in distributing funds or you will need to distribute funds to the estates of the deceased relatives.
2. Not paying inheritance taxes in a timely manner
Inheritance tax is due within 9 months from the date of passing. If not paid by that date, the estate is subject to penalties and interest. Furthermore, a 5% discount is available in the event that the inheritance tax is paid within 3 months from passing. Not paying the inheritance tax could be costly to the estate if not paid.
3. Not giving notice to creditors
Creditors are entitled to collect what is owed to them prior to beneficiaries. While a person is alive, a creditor who is not paid can file suit to collect in court for breach of contact up to four years after the breach. However, once an estate is open and an executor advertises in two newspapers (one in the local legal newspaper and one in a newspaper of general circulation), creditors only have 1 year to make a claim. By delaying the advertising (or not giving any notice), the executor is only delaying the distribution.
4. Distributing assets to beneficiaries prior to paying creditors
As stated above, creditors are entitled to collect what is owed to them prior to distribution to beneficiaries. In the event that executors distribute funds to beneficiaries without leaving enough to pay creditors, the executor may be personally liable to pay the creditors. In most cases, they will need to be reimbursed by the other beneficiaries, but that is not always possible or easy (for example, a family member refuses to return money, the family member already spent the funds and can no longer pay the estate back, or a family member cannot be located or passed away since distribution). While I suggest that all beneficiaries sign an acknowledgement and agreement to refund the money in the event of overpayment, enforcement is sometime a challenge. For this reason, it is best to make sure all creditors are paid prior to distribution.
5. Not following the terms of the will
An executor is required to distribute the funds pursuant to the will. In the event that the will is not followed and a beneficiary gets less than what he or she is entitled, the executor may be personally liable. Prior to closing out the estate, family members should sign a settlement agreement wherein they accept the amounts received and approve of the estate expenses. If any family members disagree, then the estate will need to be resolved through an audit and adjudication and have the matter approved by the Judge. Again, if the executor does not follow the terms of the will, then the matter will not be approved.