Serving as a executor, personal representative, or a trustee (all of whom I call "administrator") is not an easy job. Here are ten tips that might help you make your job easier, as well as reduce the total cost of administering the estate. These are very simple, but often forgotten.
1. Do you really want the job of administrator? Not everyone is cut out to be an administrator. Administrating a trust or estate will consume some of your time. While not a full time job, it is equal to a part-time position. You need to co-ordinate and communicate with attorneys, real estate agents, bank employees, brokerage representatives, accountants, and others. You will oversee appraisals and sales of real property, communicate with beneficiaries, file tax returns, keep records, prepare accountings, any many other tasks. If you are the administrator of a probate estate, or if litigation is required, you may need to attend one or more court hearings. While being asked to manage an estate is an honor, you should put serious thought into whether you have the time and skills to do the job.
2. Keep Your Personal Finances Separate from the Estate. Very rarely do administrators attempt to run the estate's fiances through their personal accounts (and this is a very big no-no.) But, I have seen administrators use estate accounts as a temporary depository for their personal funds or give themselves small short term loans. Besides being a violation of an administrator's fiduciary duty, it creates a headache when accounting for estate funds. At the very least, you will pay your attorney or accountant to figure out the any resulting accounting error.
3. Don't Link the Estate Accounts with Any Other Account. Banks love to link your accounts for "ease of access", but linking the estate accounts to any other account is a recipe for trouble. In ten years I have never met an administrator who linked accounts and did not have at least one mistaken transfer between the estate account and their personal or business account. Such innocent mistakes, or bank errors, encourages beneficiaries' skepticism of your abilities.
4. Keep Accurate Records. If anyone questions your activities as administrator, your records are your best defense. Keep them detailed and accurate. You should keep a paper transaction register for the estate's checking and savings accounts. Enter every transaction into the register and keep your deposit receipts. Put a description in the memo line of every check you write, like "for lawn mowing" or "electric bill for 123 First St." Using checks that make a carbon copy helps and the small added cost of the checks often saves hours at accounting time. The quicker an accurate accounting can be created, the lower your final attorney bill.
5. Don't Pay Cash. I see this far too often. An administrator pays cash for something, like yard work. Then the annual or final accounting comes up short $48.00. It is often difficult or impossible to recall months, or years, later how you spent that $48.00. And while we are discussing cash. . .
6. Don't Get and ATM Card for the Estate Accounts. Sure, ATM cards make banking faster, but ATM cards have drawbacks when managing an estate. Easy access to cash encourages administrators to pay cash or use the debit feature to avoid using checks. This results in a lack of records and increased time preparing the accounting, which equals a larger bill for the estate. When ATM use is coupled with a cash payment, the problem is worse. I've never seen anyone live up to their promise to themselves that they will deposit that extra $4.78 back into the account.
7. Get Receipts and Keep Them. Always get a receipt for any payments you make from estate funds. Payments shown on an accounting for which no receipt can be shown leads to questions by beneficiaries. Checks help as the check acts as proof of payment, provided the check is made out to the payee (as opposed to "cash"). When paying things like utility bills or credit cards, keep the statement portion and, at the very least, note "Paid on x date, check number xxx." (You could also make a copy of the check and keep it with the paid statement.) Also, keep the monthly statements of all the decedent's and the estate's bank and brokerage accounts .
8. Avoid Hiring Your Uncle, Sister, Brother-in-Law, etc. Your brother-in-law may be a qualified contractor, willing to accept a check, and provide you with a bid, contract, and invoice for the work. But, hiring "in the family" can breed suspicion that you are really trying to divert estate funds improperly. And, if there is any problem with the work do you really want to sue your sister?
9. Have Your Attorney Review Any Contracts. An administrator primarily deals with real estate sales contracts, but in any event ask your attorney to look over any contracts before you sign It. Most commonly I find typographical errors, the wrong contract form (there are special forms for Trust and Probate Sales), and unnecessary obligations and costs to the estate.
10.If You Are Unsure on How to Proceed, Ask Your Attorney. Some of my worst days start with a client telling me "Well, this thing came up and I did . . .with the estate" The blank ranges from dealing with MediCal to loaning a beneficiary money from the estate to giving away estate property to paying a debt based on a verbal demand. Most of the time the damage is minimal and easy to control. But, it is always easier to avoid a possible problem before it occurs then to correct a real problem on the back end.
These ten tips are not an exclusive list of all the things I discuss with my administrator clients at the start of an administration. But, they are ten things that will assist any administrator to keep out of trouble. Moreover, they speed the creation of required accountings, the most time consuming part of any estate not involving litigation. The easier you make it for your attorney, the less time they spend and the lower your final bill.
As the administrator, you are under a "fiduciary duty", which is the highest standard the law imposes between two people and the easiest to break. You alone are responsible for the estate and your actions.
If nothing else, take away this mantra "If something does not feel right, stop and ask your attorney." Sure, you may not want to spend the money for 10 minutes of attorney time, but it is a lot cheaper than spending months in litigation over a questionable act.