When crafting an estate plan, clients may choose their attorney to serve as an executor of their estates. While being selected reflects the high degree of trust attorneys have established with their clients, wise attorneys should take certain precautions and fulfill this role with due diligence and integrity.
First and foremost, attorneys should craft a letter to those clients selecting their services as executor. The contents of this letter should detail the attorney’s role in administering the affairs of the client’s estate and the potential conflicts of interest that might arise (e.g., in administering the affairs of the estate, the attorney may select his or her own law firm to render legal advice). In particular, the letter should explain the anticipated commissions and the reasons why the client may want to select another disinterested party to serve. The client should sign this letter, and the attorney should retain a copy of it for his or her records.
Second, when the client perishes, the attorney must faithfully fulfill the fiduciary role. This is a multi-step process. In most states, serving as executor requires that the attorney take the decedent’s will along with a death certificate to the surrogate court in which the decedent was domiciled. Paperwork must often be completed and an application fee paid. Assuming everything is in order, in short order so-called “letters testamentary” are commonly issued to the attorney to serve as executor.
Once the attorney is authorized to serve, he or she has three missions: marshal the estate’s assets, pay the estate debts, and make distributions in accordance with the terms of the decedent’s will. Marshalling the estate assets means that the attorney should inventory everything the decedent owned. Insofar as financial assets are concerned, one excellent way to help complete such an inventory is to secure the decedent’s last filed income tax return (i.e., Form 1040) and examine Schedules A and B; these schedules can prove invaluable roadmaps into a decedent’s financial assets. Next, the attorney must pay all of the decedent’s debts, including funeral expenses and any and all tax obligations (including those associated with the submission of federal and state estate tax returns). Finally, once all the estate debts have been paid, the attorney is in a position to make distributions in accordance with the decedent’s will.
Immediately prior to making final estate distributions and closing the decedent’s estate, the attorney should secure release and refunding bonds from all estate beneficiaries. Such releases and refunding bonds essentially declare that the attorney serving as executor has faithfully fulfilled the fiduciary role and that if any subsequent liability comes to light, the estate beneficiary agrees to make the estate financially whole. Practitioners generally recommend that no distributions be made until all release and refunding bonds are returned signed by the estate beneficiaries. If obtaining all such release and refunding bonds is not possible, the attorney should seriously consider submitting a formal accounting to the surrogate court for its approval. Taking this step will insulate the attorney from future potential fiduciary liability.
In the end, being named as an estate executor is a badge of honor our clients bestow upon us. Yet being named to serve in this fiduciary capacity is not without potential hazards, particularly if certain prophylactic measures are not taken.