Protect Your Financial Legacy by Understanding Executor Responsibilities

If you have assets like savings, property or a business that you plan to leave to loved ones, it's important to make sure everything is carried out according to your wishes.

Designating an executor is one way to ensure things go to plan. An executor will have legal and financial obligations when it comes to managing your assets, so it's crucial that you understand executor responsibilities as part of your estate planning. Here's what you need to know.

Why you might need an executor

An executor is a person or entity you choose to oversee your estate after your death, to manage assets in a trust if you become incapacitated or distribute assets according to your will.

Executors take some of the burden off your loved ones when it comes to making financial decisions after you die. If you organize your financial affairs and choose someone to execute your wishes, your loved ones won't have to figure it out all on their own.

Wills versus trusts

Executor responsibilities differ depending on whether the person is designated to oversee a will or a trust.

For a will, an executor must find, read and interpret the latest version of your will and file it with the local probate court. The court will legally supervise how your assets and debts are handled after your death, ensure all creditors are paid and that your beneficiaries receive what you've specified. It's important to note that every will may not have to go through the probate process. The rules vary by state, but generally, if the assets are jointly owned and have what's known as rights of survivorship that pass on to the joint owners—like a spouse or children—then probate likely won't be necessary.

An executor also must notify the Social Security Administration and your credit card company or other financial and government institutions that you've passed away. They must open a separate bank account for any incoming payments or ongoing bills that must be paid while your will is still in probate. Executor responsibilities also include:

• Obtaining and distributing several copies of your death certificate
• Maintaining any property until its sold or distributed to your heirs
• Keeping an inventory of and removing any valuable items or important documents from your home
• Changing the locks if the home is unoccupied
• Collecting any incoming mail and setting your mail up to forward to a PO box or a loved one's address
• Paying any debts or taxes your estate owes
• Distributing your assets to your heirs according to what you've specified in your will

The executor of a trust has similar responsibilities. However, this person may take over overseeing the trust while you're still alive but can no longer manage your own financial affairs. You can transfer your assets into a trust, which will include guidelines for how your assets should be managed and distributed. The executor of the trust, also known as the trustee, acts as a fiduciary.

Executors must maintain dedicated accounts for the assets in the trust, file tax returns and take care of any other required legal or tax filings. They're also responsible for keeping up-to-date records and properly reporting everything to the trust's beneficiaries. If you're incapacitated, a trustee also may be responsible for overseeing your care and the care of your dependents.

How to choose an executor

Executors carry out important financial and legal responsibilities, so it's important to pick the right person.

Choosing an executor comes with several considerations. First and foremost, you must trust any potential executor and believe they can handle the responsibility. Look for someone who's great at managing their own finances and organized in other parts of their life. In many cases, people choose their spouse. Others may pick a sibling, another trusted family member or a close friend.

You can also designate your accountant, attorney, bank or a trust company as executor. However, this will come with additional costs. You should only go this route if no other options are available and if the third party you choose is capable, competent and trustworthy. Also, make sure the entity or professional you select has liability insurance or is covered by bond insurance. Check to see whether state law will provide additional protections in the event your estate is mishandled.

Choosing someone to execute your will or trust is probably one of the most important financial decisions you'll ever make. This person will be responsible for ensuring everything you've worked for gets distributed in the right way and that your loved ones have some measure of financial security after you're gone. Take the time to think about who can really handle this responsibility. Make a decision that will be in the best interest of you and your family.