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DUTIES OF AN EXECUTOR AND TRUSTEE

PROVIDED BY

KENNETH WHEELER

Financial Exchange Corp. 310 North Ewing Street Grimes (Des Moines), Iowa 50111-3002

www.financialexchangecorp.com www.1031fec.com

PHONE: 515.986.3581 Nat’l: 800.333.0801 FAX: 515.986.4148 E-MAIL: wheelerk@financialexchangecorp.com

The duties and obligations of an executor in relation to accounting for beneficiaries include the following:

Accurate accounting records must be maintained in relation to all estate assets. The executor will need to have these accounts approved by the beneficiaries periodically and at the conclusion of the administration of the estate.

Estate money cannot be mixed with any other money. A separate account must be maintained for all estate funds.

The source data (receipts, cancelled checks, bills, etc.) must be maintained in order to prove the accounts, if that should be necessary.

Beneficiaries who are entitled to share in the residue of the estate are entitled to require that accounts be provided to them from time to time. These beneficiaries are entitled to look at the source documents in order to verify the information that is contained within the accounting.

There are rules that govern the type of investments that can be made by the executor. These provisions may be set out in the will. If they are not, there are rules created by statute. A breach of the rules with respect to investing by an estate is a breach of trust.

Executors have to make beneficiaries aware of their rights with respect to information, and with respect to requiring that accounts be proved in court, if the beneficiary wishes.

Executors owe a duty of care to an estate and its beneficiaries. Claims in negligence can be made against estate trustee for a number of reasons, including the following:

(a) (a) If an executor makes investments that are not authorized by a will or by the law or if the investments do not generate an appropriate rate of return, a claim in negligence may be advanced against the executor for any loss incurred ;

(b) (b) An executor should make an appropriate blend of investments. Some of these investments will be income generating and some will be capital in nature (stocks). An executor should obtain the advice of a financial advisor prior to making any investments although, it is presently considered that a mix of 60% income-generating and 40% growth investments is an appropriate mix of investments for estates;

(c) (c) There is generally little point in an executor considering investments in a speculative investments. If a speculative investment is highly successful, the estate will benefit although, the executor will not necessarily, directly benefit. In the event of a loss, the executor may be found liable to the estate for the entire amount of the loss and have to pay it to the estate together with interest.

(d) (d) An estate trustee has an obligation to preserve and maintain all estate assets. If there are estate assets such as equipment or vehicles, they must be properly secured (i.e.-> Kept in a safe place) and maintained;

(e) (e) The executor must make all appropriate elections and filings under the Income Tax Act in a timely fashion, or they may be responsible for any loss occurred by the estate.

In the event of a court supervised review of the accounting, all financially interested beneficiaries must be notified.

Executors Compensation

Executors are entitled to compensation for the work that they do for the administration of an estate. The general rule is that an executor is entitled to 2.5% of the assets of the estate gathered in, 2.5% of the value of the estate assets distributed, and 2/5 of 1% of the average value of the estate, if the estate is invested for a period time. In a typical estate where the assets are gathered in and distributed relatively quickly, the executor’s compensation would be 5% of the value of the estate.

The amount of the executor’s compensation may be adjusted up or down based upon a number of factors. These factors include:

(a) (a) The total value of the estate;

(b) (b) The complexity of the estate;

(d) (d) The skill displayed by the executor in the administration of the estate;

(e) (e) The degree of care exercised by the executor;

(f) (f) The results of the administration and any investments made by the executor.

Generally at the conclusion of an estate (or periodically during the administration of the estate, if the estate is administered over a period number of years), the beneficiaries are asked to approve the level of executor’s compensation. If the beneficiaries do not agree (or cannot legally agree because of the nature of the beneficiaries – for example if one of the beneficiaries is a minor or mentally incompetent), then the executors have to have the compensation fixed by the court.

There used to be a rule, which prohibited an executor from “pre-taking” compensation before it had been approved by the beneficiaries or fixed, by the court. This rule has been modified by recent court decisions. As a result, an executor is entitled to “pre-take” compensation before it has been approved by the beneficiaries or by the court. It is still generally prudent do obtain beneficiary or court approval before taking the compensation. In the event that compensation is pre-taken, if it is ultimately determined by a court to have been excessive, the executor will be required to pay the excessive amount together with interest.

The preparation of accounts, income tax returns, management of investments, and other estate administration are the duty of the trustee. In appropriate cases, these functions can be delegated to qualified experts (accounts, lawyers, property managers, etc.) and the cost of such experts will be paid in addition to the executor’s compensation.

Rights of Beneficiaries

Beneficiaries in an estate have certain rights. These rights include the following:

The right to be notified when the estate trustee (executor) applies to court for a Certificate of Appointment of Estate Trustee (probate). A beneficiary may make representations to the court whether or not the beneficiary has any objection to the proposed executor being appointed.

An estate beneficiary is entitled to information concerning the original assets to the estate and in relation to the ongoing accounting of the estate. If the executor does not produce this information voluntarily, a beneficiary may require that the executor complete a court supervised review of the accounts.

A beneficiary is entitled to receive their entitlement under the estate in a timely way. The length of time will depend on the nature and complexity of the estate. Generally, if the executor completes the administration within one year, they will not be criticized.

Prior to the completion of the estate, a beneficiary is entitled to see a complete list of all of the accounting for the estate and any relevant other source documents (receipts, invoices, cancelled checks, etc.).

An executor is entitled to compensation. The beneficiaries are entitled to review and approve or disapprove of the level of compensation. If the beneficiaries do agree with the level of compensation, a court must set it.

If a beneficiary is unhappy with the job that is being done by the estate trustee, that beneficiary can apply to the court for an order to remove the trustee. A court will remove a trustee if their removal is justified.

Contact an attorney licensed and experienced in your state for your state law.