Duties of an Executor, Part One

In a previous post, I discussed the importance of naming the right person or entity in your Last Will to handle your estate administration. The role of the executor is a demanding one, requiring some common sense and the assumption of some legal responsibilities. The role also requires great sensitivity and objectivity to deal the with the concerns of the beneficiaries of your estate.

This post highlights some of the major activities involved in serving as executor. The purpose is to outline the vast number of tasks that may need to be performed, the range of expertise that could possibly be required, and the size of problems the could arise in the settlement and ongoing administration of an estate. With regard to the duties listed below, (provided by the State Bar of Texas) the executor in all instances should be guided by competent legal counsel to assist in handling complicated and delicate issues. My next post will deal with tax issues that face an executor.

How do I administer an estate?
Each estate is, of course, unique. The information provided in this manual is intended as a mere overview to provide general guidance to an independent executor. It is by no means comprehensive. Both the estate's attorney and accountant should be involved throughout the administration of the estate, so problems can be identified and advantages taken of choices or opportunities that may be available to the decedent's estate.

What is an independent executor?
The independent executor is considered the personal representative of the testator who appointed him or her. In addition to serving as the representative, however, the independent executor also assumes a position of trust for all those who have an interest under the will.

What are the duties of an independent executor?
The primary duties of the executor are to collect and preserve the assets of the estate, to pay all debts and taxes, and finally, to distribute the remainder of the estate as provided by the will. Court supervision of these duties will be minimal in the case of an "independent" executor. Normally, after the initial admission of the will to probate, the only further court action necessary will be obtaining court approval of an inventory of the estate. This inventory is prepared and filed with the court by the independent executor with his or her attorney's assistance. Certain other required documents, such as notices to creditors and closing letters from taxing authorities, will simply be filed with the court.

A bank account (and possibly a money market fund or savings account) should be opened by the independent executor. It should be opened in the independent executor's individual name "as independent executor" of the decedent's estate. The bank will request a taxpayer identification number. The attorney or accountant will file an application for this number (while you can now obtain tax identification numbers online with the Internal Revenue Service website, there are some questions on the application form that may be difficult to answer without the proper legal or accounting expertise). Death certificates will be needed for a number of matters (insurance policies, social security benefits, federal and state estate tax returns). These can be obtained from the funeral home or the Department of Vital Statistics.

When does an independent executor have the right to act?
The independent executor does not become empowered to act until the court has admitted the will to probate and has appointed the independent executor. Therefore, it is normally advisable to begin the probate proceedings as soon as possible after the death. An application to probate the will is filed by the attorney, and a hearing will then be held 10 or more days after the application is filed. Normally, the hearing will be held on a Monday. At that hearing, a personal friend of the decedent or a family member will give certain information to the court. If the independent executor is the person giving the information or is present at the hearing, he or she may take the Executor's Oath at the hearing, after which the court will issue "Letters Testamentary." The Letters Testamentary are evidence of the independent executor's authority and will frequently be requested by parties dealing with the independent executor during the administration of the estate. Additional letters can be obtained from the court at any time during the administration. If the decedent owned real property in another state, it will normally be necessary to take certain actions in the courts of that state as well.

How does an independent executor evaluate the needs of the surviving spouse, children, or other beneficiaries?
The independent executor may need to discuss with the surviving spouse, children, or other beneficiaries, the financial condition and anticipated needs of the beneficiaries during the administration of the estate. After consulting with the estate's attorney and accountant, a schedule of the interim distributions can then be planned by the executor.

What about recordkeeping for the estate?
One of the most important and time-consuming responsibilities of the independent executor is to keep adequate records during the administration of the estate. This should begin almost immediately following death and be continued until the final distribution of the estate is made. It is absolutely necessary to begin the recordkeeping process promptly, since it is very difficult at a later date to reconstruct the financial affairs of the estate. The estate's accountant will be able to assist the independent executor in setting up the books and financial records for the estate. You can assist the accountant or attorney in keeping an up-to-date spreadsheet of all income received and expenses incurred by the estate. All items of income and expense, whether you deem them important or not, should be recorded on the spreadsheet. If a beneficiary ever raises an issue with the manner in which you handled the estate administration, you should be able to pull out the spreadsheet and give them an accounting of all transactions that occurred in the estate.

What must be done to finalize the decedent's personal and financial affairs?
The independent executor should consider what needs to be done to finalize the decedent's personal and financial affairs. The following are examples of the types of activities the independent executor will need to undertake:

1. Arrange to terminate or alter services and deliveries supplied to the decedent, if necessary. The post office should be supplied with a forwarding address for the decedent's mail if appropriate.
2. If there are credit cards in the decedent's name, attention should be given to terminating the credit, after considering any need for the surviving spouse to have access to credit cards.
3. If services are necessary for the maintenance of real property, arrangements should be made for the services to be continued.
4. The decedent's employer or business associates should be contacted. The independent executor may need to take steps to ensure that an active business keeps operating, or that a business be sold. The independent executor should also ascertain whether any death benefits or insurance benefits are available.
5. The independent executor should notify the appropriate family members that they may be eligible for certain social security benefits or veteran administration benefits. A small lump-sum death payment may also be available to persons covered by social security. The social security offices prefer to deal directly with the persons eligible for benefits, and are usually quite helpful in this regard.
6. Insurance policies should be located and delivered to the named beneficiary so the beneficiary can apply for the benefits. The policy and a certified copy of the death certificate should be presented with the claim. If the claim is mailed to the company, it should be sent by certified or registered mail. Before submitting any insurance policies for benefits, the independent executor should make a copy of the entire policy and all attachments, as they are frequently requested during the estate tax audit.
7. The independent executor should determine whether it is advisable to continue various types of liability and loss of insurance coverage and, if so, take any steps necessary to continue such coverage.

If I am the independent executor, how do I prepare a preliminary inventory?
As soon as possible, you should make a general inventory of the assets and liabilities of the estate and present it to the attorney. This will give the attorney the ability to determine the approximate size of the estate and to identify any assets that may need special attention or that may be eligible for certain tax elections. In order to prepare the preliminary inventory, you will probably want to question the decedent's family, business associates, accountants, and attorney. You should also examine checkbooks, tax returns, financial statements, and the decedent's other business records. You should make a detailed inventory of all items in the decedent's safe deposit boxes before anything is removed.

The independent executor is required to file an inventory with the Probate Court. While this is due 90 days after the independent executor's appointment, it is normal for an extension to be requested so any property interest required to be included on both the estate tax return and the inventory is consistently described and valued.

How do I manage the assets?
As independent executor, you should collect the assets of the estate. Bank accounts and savings certificates can be transferred to the independent executor upon presentation of a certified copy of Letters Testamentary. The independent executor may request the assistance of a stock broker to aid in the transfer of the decedent's securities. Transfer agents usually require an Affidavit of Domicile and certified copies of the death certificate, will, and Letters Testamentary. If the decedent was the owner of the stock or assets of a closely held business or professional practice, immediate attention should be given to the decision as to whether the business or practice should or can be maintained by the estate. If the decision is made to sell, potential purchasers should be contacted and negotiations commenced before values decline.

When and how do I give notice to creditors?
Within one month after receiving Letters Testamentary, a notice to all creditors of the estate must be published. The publication can be in any newspaper of general circulation within the county where the decedent was a resident. While the attorney will normally prepare the notice, it must be signed by the independent executor. In addition, within two months after receiving Letters Testamentary, the independent executor must give personal notice to secured creditors of the estate.

This is just a beginning indication of what duties the executor faces. The role of an executor should never be taken lightly or without assistance by competent counsel. In my next post, I will discuss the tax issues that an executor faces.

The New Medicaid Recovery Act for Texas Residents

The federal government now requires each state to implement an estate recovery program, the purpose of which is to attempt to recover part or all of the costs associated with providing long-term care services through Medicaid. To comply with this federal requirement, the Texas Legislature recently directed the Texas Health and Human Services Commission ("HHSC") to establish a Medicaid estate recovery program.

HHSC developed rules after gaining input through a multi-step process that included a state agency workgroup, statewide public hearings, and public comment. The revised rules proposed in December 2004 also reflect input from the Centers for Medicare and Medicaid Services, which is the federal agency that has final approval authority on all Medicaid estate recovery programs.

The Texas Medicaid estate recovery program began operations on March 1, 2005. The Department of Aging and Disability Services ("DADS"), an agency under the oversight of HHSC, administers the program.

Under this program, the state may file a claim against the estate of a deceased Medicaid recipient, age 55 and older, who applied for certain long-term care services on or after March 1, 2005. Claims include the cost of services, hospital care, and prescription drugs supported by Medicaid under the following programs:

• Nursing facility
• Intermediate Care Facility for Persons with Mental Retardation (ICF/MR), which includes state schools
• Medicaid Waiver Programs including
  • Community Living Assistance and Support Services
  • Deaf-Blind with Multiple Disabilities Waiver
  • Home and Community-based Services
  • Texas Home Living Program
  • Consolidated Waiver Programs
  • Community Based Alternatives, which includes Star Plus services
• Community Attendant Services

Exceptions to Filing Claims

Medicaid Estate Recovery Program claims will only be filed when it is cost-effective. Claims that are considered not cost-effective are those where:

• The value of the estate is $10,000 or less.
• The recoverable amount of Medicaid costs is $3,000 or less.
• The cost of the sale of the property would be equal to or greater than the value of the property.

In addition, a claim may not be filed should one or more of the following conditions exist:

• There is a surviving spouse.
• There is a surviving child or children under 21 years of age.
• There is a surviving child or children of any age who are blind or permanently and totally disabled under Social Security requirements.
• There is an unmarried adult child residing continuously in the Medicaid recipient’s homestead for at least one year before the time of the Medicaid recipient’s death.

An undue hardship waiver may be filed when:

• The estate property is: a family business, farm, or ranch; is the primary income producing asset of the heirs; produces at least 50 percent of the livelihood for heirs for at least 12 months prior to the death of the Medicaid recipient; and recovery by the state would affect the property and result in heirs losing their primary source of income.
• Beneficiaries of the estate will be eligible for public or medical assistance if recovery claim is collected.
• Allowing one or more heirs to receive the estate enables them to discontinue eligibility for public or medical assistance.
• The Medicaid recipient received medical assistance as the result of being a crime victim.
• The value assessed by the tax appraisal district is less than $100,000 and the heirs have gross family incomes below 300 percent of the Federal poverty level.
• Other compelling reasons exist.

Additional Information

• Information about the filing process, allowable deductions, and asset transfers can be found in the Texas Medicaid Estate Recovery Program Receipt Acknowledgement Form, which is in PDF format.

• You also may call DADS at 1-800-458-9858. This line is answered by in-office staff from 8 a.m. to 5 p.m. Monday through Friday. Voice mail is available 24 hours a day, seven days a week, with a message that states the call will be returned the next day. Voice mail is monitored by in-office staff from 8 a.m. to 5 p.m. on Saturday, Sunday, and holidays. You can also send e-mail to charline.stowers@dads.state.tx.us.

Rules and Statutes Concerning Medicaid Recovery in Texas

• Texas Probate Code, Section 298, Claims Against Estates of Decedents
• Texas Probate Code, Section 301 Claims for Money Must Be Authenticated
• Texas Probate Code, Section 322, Classification of Claims Against Estates of Decedent
• Texas Administrative Code, Title1, Part 15, Chapter 373