An executor named in a last will and testament has a fiduciary duty to the estate, and is responsible for conducting the final legal and financial affairs of the estate on behalf of the deceased. The role of executor entails many duties and stringent requirements. However, under normal circumstances, the executor does not incur personal financial responsibility for the debts of the deceased.
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Role of the Executor
The executor is responsible for carrying out the final wishes of the deceased as described in the will. This involves distributing assets and personal property from the estate among eligible heirs. Before doing so, however, the executor must settle any outstanding debts from the estate. To do so, the executor usually establishes a bank account in the name of the estate and transfers assets into the account, according to the University of Maryland University College.
Settling the debts of the estate may require the executor to deplete some or all of the assets from the estate. In cases where assets from the estate will not cover all financial obligations, some debts have higher priority than others, according to MSN Money. The executor pays the debts to the extent that assets from the estate can cover them -- she is not expected to pay these debts out of pocket unless she was a co-signer, joint account holder or abused a power of attorney or similar fiduciary duty. Each state varies in the particular order, but in most instances, tax debts, funeral expenses and hospital bills rank higher than credit card debt or the inheritance of heirs. However, a family allowance to cover essential expenses of a spouse or minor children may rank higher than other debts.
Death and Taxes
The executor of the estate is also responsible for filing tax returns on behalf of the deceased. He must file final personal federal and state income tax returns along with returns from prior years for which the deceased may have received an extension, according to the American Bar Association, or ABA. Depending on the size of the estate, the executor may also need to draw upon the assets of the estate to pay estate taxes and generation-skipping transfer, or GST, taxes. Although these taxes were abolished for 2010, they are set to return for 2011 and subsequent years, according to the IRS.
If an executor demonstrates negligence in handling her duties, she may be personally liable for any financial liability that results. This includes failure to file tax returns in a timely fashion or allowing crucial insurance policies to lapse, according to the ABA. In many instances, executors hire accountants, attorneys or both to assist them in executing their duties and to help them avoid missteps, according to MSN Money. Keeping thorough records and keeping beneficiaries informed during the probate process also minimizes the possibility that an executor will incur personal liability in handling the final affairs of an estate, states the ABA.
References & Resources
- University of Maryland University College: Probate and the Executor of a Will
- MSN Money: Executors Can Inherit an Unholy Mess
- IRS.gov: FAQs about the New Tax Rules for Executors for 2010
- American Bar Association: Guidelines for Individual Executors and Trustees
- MSN Money: When Your Parents Die Broke
- The Free Legal Dictionary: Executor
- Bankrate.com: Estate Executor -- No Job for Amateurs
- Elder Law Answers: What is Required of an Executor?
- American Bar Association: ABA Guide to Wills and Estates