Administering an Estate? Here are some tips on how to avoid 5 big disasters[1]
If you are appointed to administer an estate after the death of a family member or a friend, do you regard that as an “honor?”
Of course every estate has legal and paperwork details. Family issues can be more worrisome. And then there is always the potential for being sued.
What are common mistakes?
- Distributing assets too soon. Family and heirs usually want all or a portion of their inheritance right away. Problems come up when there is not enough money to pay the bills. If that happens, the administrator may be personally liable to cover the unpaid bills. In hindsight the early distribution could be the wrong amount. How will you get the money back?
- Paying bills too soon. The regular monthly bills come in the mail. It is easy to pay them. If there is not enough money to pay all the bills, the administrator may again be personally liable to pay bills. The legal system identifies certain bills having a priority to be paid over other bills. For example funeral bills must be paid first over almost all other bills.
- Holding on to real estate. Some people believe if they hold on to a house and sell it in a few years, the sale price will be higher and everyone will end up with more. In the mean time it may be difficult or impossible to get insurance for an unoccupied house, there are utility and maintenance costs, and there is exposure of break-ins to an empty house. Even if the house is sold for a higher value, the heirs are entitled to their share of the estate within a reasonable time. Some state laws define “reasonable” as being within one year of the decedent’s death.
- Losing assets. An estate-planning attorney told me about the “24 hour free steal rule.” This means the neighbors and family back up to the house with a truck and take out whatever they want. It is the responsibility of the estate administrator to get the assets back, and if they fail to do so, file a criminal complaint before they can file an insurance claim. A solution is to secure the house immediately and change the locks. If steps are not taken, the administrator again may be personally liable for the loss of assets.
- Leaving assets in the stock market. If the stock market investments of the decedent decline, the administrator may be liable. The estate administrator has the responsibility to protect the assets, not grow the assets. In most cases the best step to take is liquidate the brokerage account and turn it into cash during the period of administration.
What to do if you are nominated as the administrator of an estate? Contact an estate-planning attorney to understand the responsibility, duties and personal liability of the job and then decide if you really want to do it.
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[1] “The Biggest Mistakes Executors Make,” Veronica Dagher, January 31, 2016, The Wall Street Journal
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