Serving as Personal Representative (sometimes called “executor”) of someone’s probate estate is an honor, of course, but the job can be fraught with complications and pitfalls. Even though the probate process in the District of Columbia, Maryland and Virginia is relatively simple, below are listed some of the most common mistakes made by people who try to go it alone.
Many people don’t realize that there is an “order of priority” for paying creditors of a decedent. That means that in a probate matter where there is little money but lots of debt, the Personal Representative should hold back on paying any creditor until the “creditor claims period” (usually 6 months) has expired. If there could be income tax liability, it’s extremely important to put all payments on hold until that liability can be determined. I have found that many times the deceased person forgot about tax returns if the person was ill for a long period of time. The Personal Representative is responsible for settling all tax matters and can be held personally responsible if he or she pays other creditors who are lower in priority.
The stock market is very volatile and a Personal Representative is a “fiduciary,” meaning that he or she has an obligation to preserve the value of the estate. This means that the probate assets should be reduced to cash and held in a safe investment (certificates of deposit, for example) unless all probate beneficiaries agree otherwise. So, a Personal Representative should never “play the market” during the administration period.
Tangible personal property that is part of the estate is “owned” by the estate after death and the Personal Representative frequently gives in to beneficiaries who want to grab what they can as soon as possible. This is a big mistake. First, the tangible personal property should be appraised by a professional. Second, the tangible personal property should be distributed to the individuals or institutions specified in the Will. Frequently the relatives are in town for the funeral and take that opportunity to remove items from the home, without even consulting the Personal Representative (who is then left to explain where the items mentioned in the Will have gone). Therefore, a Personal Representative should never give in to the relatives or beneficiaries who want to take their loot sooner rather than later.
Real property in a probate estate can create complications. First, what if someone is still living in the house but the house itself must be sold because it’s a significant asset of the probate estate and the Will dictates that the assets of the estate are to be distributed to many beneficiaries? We always try to convince the occupant to move out willingly, but sometimes it’s necessary to involve a court to have the occupant removed. Secondly, even if the house is unoccupied and ready for sale, real estate agents frequently pressure the Personal Representative to make certain improvements in order to facilitate the sale. This is a tricky area because it can be questionable whether the Personal Representative has the authority to expend probate assets to improve the real property, particularly when those improvements don’t necessarily increase the sales price to a level that makes the improvements (and delay) appropriate. Thirdly, if the real property is to be sold, it’s important to liquidate the real property quickly to avoid diminishing its value. A home owner’s policy must be kept up to date, too, in case of fire or other events covered by insurance. Finally, once a buyer is found, it’s important that the standard real estate contract be modified to reflect the fact that the buyer is purchasing from an estate and not necessarily from a person who is able to make all the routine representations made in a standard real estate contract.
The person you select should be trustworthy and organized and willing to serve. It helps if the person has at least minimal financial and organizational skills. Objectivity and the ability to get along well with others, especially your beneficiaries, are both important skills. Finally, make sure the person understands the extent of the work involved and has time to do the job right. It’s permissible to have the person paid by the estate so you should discuss this possibility with the person you would like to serve so that he or she understands that compensation is appropriate and, indeed, legally authorized.
If you have questions about choosing a personal representative — if you are a personal representative for a Maryland, Virginia or District of Columbia estate — I welcome you to contact me.