A lot goes into being an estate executor. It’s a responsibility that shouldn’t be taken lightly, and that’s why it’s so important to find the right person for the job when you’re putting together your estate plan.
There are three major characteristics you should look for when choosing the executor of your estate: someone who is willing, able to do the work and familiar with your unique situation. Typically, this ends up being an immediate family member or close friend.
But what if you have to look outside that circle to find someone who meets these three criteria? How can you choose someone to trust with your best interests in mind? In other words, where can you turn to find an executor if there are no immediate solutions within your family or your close friends?
Ensure Every Asset Has a Beneficiary
Before we dive into the executor question, we want to emphasize the importance of taking the time to ensure that every asset that can have a designated beneficiary has one. It’s likely that assets such as your retirement accounts and life insurance policies already have a listed beneficiary. But if you have cash in a savings account—and we recommend everyone has at least three to six months of living expenses in liquid savings—the bank likely won’t ask you if you want to have a beneficiary designation. It’s up to you to be proactive to request a payable on death (POD) form to designate to whom you’re leaving your assets. You also may be able to add a beneficiary to other assets you own, like your home.
Taking the time to name beneficiaries on eligible assets will ultimately make the task of managing your affairs much easier on your executor. Just be sure that you regularly review your beneficiary designations to make sure they’re up to date and represent your current wishes, as the name(s) listed will actually supersede what’s written in your will.
Choosing the Executor
Individuals Outside Your Immediate Family
It’s common for your estate executor to end up being someone from your immediate family like your spouse or one of your children. But if this group yields no obvious candidates, it’s time to think outside the box.
Do you have any grandchildren who could do it? What about a sibling’s child with whom you’re particularly close? If your circle of friends is your age or older, do any of them have kids that would be able to carry out the tasks of executor?
Generally, people are more than willing to help out if they get approached. Be open to reaching out to folks that have a good head on their shoulders and have familiarity with your wishes—even if they’re not a member of your immediate family.
Alternatives to Working with an Individual
If finding an individual that you trust and is willing to perform the required tasks simply isn’t possible, then you can look at hiring a third party to serve as the executor of your estate.
While your financial advisor likely won’t be able to fill this role (this is viewed as a conflict of interest), you may be able to find an experienced estate planning attorney. Other alternatives include your local bank or a trust company.
Paying the Executor
Managing an estate can be a lot of work, so it’s only fair that the executor is compensated for their effort. Whether you go with someone you know who’s not in your immediate family or an outside third party, it’s common to offer them a piece of your estate as compensation.
If you choose someone you know well like a family friend or a grandchild, you may leave them a percentage of your assets as part of your will. The same can be done if you hire out a third party, but it may also depend on the state in which you live. Some states have statutes in place that set limits to or even mandate how much an executor should be compensated. This almost always ends up being a percentage of your estate, ranging from 1% up to 5%.
Of course, if you decide you do want to step outside your immediate family for your executor, their compensation means you will end up leaving less for your heirs and beneficiaries, so that’s something you’ll need to take into account.
Ultimately, whether you’re able to find an individual or you opt to work with a third party to serve as your executor, it’s important to review the details of your financial plan and outline where your important financial documents and information are located. That’s why it’s still important to include your financial advisor, as they can help ease the workload that you entrust to your executor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Series 7, 53 & 63 Securities Registrations,1 Series 65 Advisory Registration,† Insurance License Peg brings 30+ years of experience in the financial services industry. A lifelong learner, she enjoys giving advice on comprehensive planning including financial planning, tax planning, retirement planning, risk management and estate planning. She is one of the founders/partner of the “Roundtable”. All specialists you need, all in one...Read More