At E.A. Goodman Law, LLC, we regularly advise clients throughout New Jersey on how to avoid the pitfalls of administering trusts and estates. If you have been appointed as an executor or trustee, we will provide you with informed representation that enables you to faithfully carry out your duties and avoid these common pitfalls when administering your loved one’s trusts and estates.
What are the duties of an executor in New Jersey?
An executor is tasked with probating a will and carrying out the testator’s instructions. Because executors are considered fiduciaries, they are legally required to act in the best interests of the beneficiaries. Generally, the duties of an executor include:
- Notifying beneficiaries and heirs named in the will
- Inventorying and appraising estate assets
- Paying the decedent’s debts to creditors
- Filing the decedent’s final income taxes
- Paying any applicable estate taxes
- Distributing the remaining assets to the heirs
While this seems straightforward, the probate process can be complicated. In addition, an executor may be held liable for mistakes and/or misconduct.
Common Executor Pitfalls to Avoid
Although being named an executor is an honor, mistakes can expose the estate to litigation, increased tax liability and other potential consequences. Some common mistakes that executors make are:
- Making distributions too early — Executors are personally liable for the estate and its distributions. Making distributions from the estate before liabilities are paid (e.g. giving money to the beneficiaries) are considered “at risk distributions.” This is because a miscalculation or an unforeseen creditor claim puts the executor at risk of being liable.
- Failing to properly inventory estate assets — Preparing an inventory of assets involves identifying, collecting and controlling assets such as real property, bank accounts, business interests, investments, personal property, and the like. It is also necessary to have the estate assets appraised and understand how they will be transferred to the beneficiaries under the terms of the will.
- Not communicating with the beneficiaries — When it comes to beneficiaries, executors must not only act in their best interest but also keep them informed of the progress. Lack of communication can lead to undue tension or suspicions that prompt the beneficiaries to remove the executor.
- Failing to conclude the estate — The final duty of an executor is to formally close the estate. This requires either going to court to have the judge approve the distribution or arranging a family settlement to obtain a release of liability. By failing to conclude the estate, the executor is exposed to potential liabilities, such as creditor claims that may subsequently arise.
Executors can also face liabilities for mishandling real estate, not filing estate tax returns, and numerous other mistakes. At the end of the day, the biggest mistake an executor can make is not hiring an attorney. At E.A. Goodman Law, LLC, we have extensive experience representing executors and estate administrators in New Jersey probate proceedings.
What is the role of a Trustee in the New Jersey Trust Administration Process?
As an executor, a trustee is considered to be a fiduciary who is required to act in the best interests of the beneficiaries and preserve the value of the trust assets. A trustee’s duties include:
- Notifying beneficiaries and other interested parties of the grantor’s passing
- Inventorying and appraising trust property
- Transferring property into the trust
- Obtaining tax ID numbers
- Filing estate tax returns
- Trust accounting
- Distributing the assets to the beneficiaries
Administering a trust can be challenging, particularly one that contains significant assets, in which case principal and income may need to be distinguished. The best way to avoid mistakes as well as to protect your interests if you have been named as a trustee is to contact an experienced trust administration attorney.
Common Pitfalls in Administering Trusts
When carrying out their duties, trustees must keep accurate records of financial transactions, keep in touch with the beneficiaries and ensure the terms of the trust document are followed. Even the most capable and well-intentioned trustees can make errors such as:
- Failing to keep accurate records — Administering a trust entails a number of financial responsibilities, such as making payments using trust funds and preparing tax returns. As such, the trustee must keep accurate records of income distributions and regularly report this activity to beneficiaries and heirs. Failing to fulfill these responsibilities can result in trust litigation.
- Misunderstanding the fiduciary role — Trustees often believe their role is to act in the best interests of the person setting up the trust, however, they are primarily obligated to the beneficiaries. In this regard, a trustee may be held liable for failing to protect the beneficiaries against bad investment decisions concerning the trust assets.
- Failing to work with financial professionals — An individual who creates a trust typically works with estate planning attorneys, financial advisors, CPAs and other professionals. It is crucial for a trustee to communicate with this network of financial professionals to avoid inaccuracies and misunderstandings and prevent financial losses.
- Failing to remain objective — It is common for a trust maker to appoint a family member to act as trustee; however, this could place the trustee under pressure by family members, particularly if a dispute arises. Nonetheless, the trustee must remain neutral and adhere to the terms of the trust, even under duress. One way to avoid this is for the person creating the trust to name a corporate trustee with no emotional connection to the beneficiaries or the estate.
- Failing to consider compensation — Because administering a trust can be very time- consuming, trustees are entitled to be compensated; disputes with beneficiaries are not uncommon, however. This problem can be avoided if the trust instructions include a fee provision or fee arrangements are agreed to at the time the trustee is appointed.
Ultimately, administering a trust is a serious responsibility that requires the advice and guidance of an experienced trust and estate attorney.
Contact Our Experienced Attorneys to Help You Avoid these Pitfalls when Administering Trusts and Estates
E.A. Goodman Law, LLC is a premier elder law and estate planning practice serving clients in New Jersey. We are well-versed in the state’s probate code and have extensive experience helping our clients navigate trust and estate administration proceedings. When you become our client, you can rest assured that your interests will be protected. Please contact our office today for a free consultation.