The Role of a Personal Estate Representative
You'll be asked to name a number of fiduciaries when you set up your estate plan—people who will be given legal responsibility to act in your estate's best interests. One of these is your personal representative, the individual who will be responsible for settling your estate and guiding it through probate.
A personal representative is sometimes referred to as an "executor." The term "administrator" is also used in some states.
An administrator commonly settles intestate estates—those where the decedent died without leaving a valid last will and testament. They might also have left a will but neglected to have named a personal representative, or the personal representative is unable or unwilling to serve. The probate court will appoint an administrator in these situations.
Choosing a Personal Representative
Ideally, you'll name a personal representative in your will and that individual will be able and willing to serve. Otherwise, you can avoid having the court appoint an administrator by also naming one or more backups in case your first choice isn't available, referred to as "successor" executors or personal representatives.
Check with your first choice and your backups to make sure they're all willing to take on the responsibility of settling your estate. It can involve a considerable amount of work.
State probate laws can vary, but the duties of your personal representative or executor will generally include a wide range of tasks.
Locating Your Assets
Your personal representative must locate and safeguard your probate assets—those that have no way of transferring to a living individual other than through the probate process.
Life insurance and certain retirement accounts with beneficiary designations pass directly to beneficiaries by operation of law, so they wouldn't be included among your probate assets.
Getting Date-of-Death Values
Establishing date-of-death values for your probate assets an include ordering appraisals of real estate, business interests, or collectibles—anything that might be of disputable value.
Your personal representative must obtain values for non-probate assets as well if it appears that your estate will owe estate taxes, because both are included in your taxable estate.
Why Values Matter: The Estate Tax
Your gross taxable estate is the total value of all you own: both probate assets and property that passes directly to a living beneficiary. The estate tax exemption is subtracted from this total value and the tax is due on the balance.
Only estates with values of more than $11.58 million are subject to the federal estate tax on the balance over this amount as of 2020. Some states also impose an estate tax, however, and some have much lower exemption thresholds. The federal exemption is indexed for inflation, so it can increase annually.
The exemption amount will be adjusted for inflation each year through 2025. It could potentially revert back to the prior level of an inflation-adjusted $5 million at that time unless legislation is enacted to replace or extend the tax code changes made under the 2018 Tax Cuts and Jobs Act.
The estate tax exemption might not apply solely to the estate. It can also include any gifts made prior to the estate owner's death if these gifts exceeded the annual exclusion for gift taxes: $15,000 as of 2020. The exclusion is also indexed to increase periodically to keep pace with inflation. The value of gifts over this amount can be applied to the estate tax exemption to avoid taxation.
Notifying Your Creditors
Your personal representative must identify your creditors and pay off your outstanding debts. This typically includes running newspaper notices to alert all companies and individuals to whom you might owe money that you have died. They can then make claims to the estate for what they're owed.
Your personal representative should also send written notice directly to all creditors they can readily identify and locate.
Preparing and Filing Tax Returns
This will include your final personal income tax returns for the last year of your life, both federal and state if applicable. Your personal representative will also prepare the estate tax returns if your estate is significantly large or if your state imposes estate taxes.
Paying Ongoing Expenses
Your executor or personal representative must also pay the ongoing expenses of administering your estate. This can include court fees, appraisal fees, and compensation to the executor, attorneys, or accountants.
These operating expenses must be paid before probate closes and property can be legally transferred to beneficiaries. This might require that your personal representative sell or liquidate assets to raise the necessary cash.
Distributing the Balance of Your Estate
Finally, your executor will distribute the balance of your estate to your beneficiaries. This typically requires filing one or more documents with the probate court first, including a list of the estate's probate assets and their values, as well as an accounting of all debts, taxes, and expenses paid.
Court approval is necessary for distribution of assets.
It Takes the Right Person
Serving as a personal representative can be a huge responsibility, and it's often a time-consuming burden. You should be able to choose the right person or institution for the job with the help of your estate planning attorney.