An Overview of Personal Representatives

In most instances, when a person dies owning property of any real value, it is necessary to appoint someone to administer the estate. That person (it could be one or several persons, a bank or trust company, or both) who acts for, or “stands in the shoes of,” the deceased is called the personal representative. The duties and responsibilities of the personal representative, and even the title of the personal representative, may change depending on the state laws and circumstances involved, but the need for such a person (or persons) is shared by all.There can be other issues for the personal representative to handle aside from those involving financial considerations. For example, a decedent might have had a child from a previous marriage for whom he was paying support. There could have been an outstanding agreement under which the decedent, or the decedent and his wife, was to purchase real estate, with the settlement or closing date after the date of the decedent’s death. Even if the decedent’s affairs were precisely in order and there were no outstanding personal or business debts, a personal representative might be necessary to distribute the decedent’s assets among his spouse and the children. There are, in fact, few situations in which property of a decedent can be transferred at death without the appointment of a personal representative.The Executor or Executrix

The title of the personal representative depends on the method by which he or she (or it, in the case of a bank or trust company) was selected or appointed. If a deceased specifically names a person or institution to act for him or her in his or her will, and if the will is accepted as valid, the named personal representative is known as the executor (male) or executrix (female). In cases when more than one individual or an individual and an institution are appointed to act, the joint designation is usually executors. Corporate entities (banks and trust companies) are also called executors.

The Administrator or Administratrix

If the deceased left no valid will, and therefore has failed to designate his or her personal representative, a personal representative (called an administrator) is appointed by the Probate Office or the Register of Wills office having jurisdiction over the decedent’s estate. This usually takes place in the state and county of the decedent’s domicile. In most instances, state statutes stipulate the person who is entitled to be the administrator.

Usually, the order of preference is similar to the order in which an estate passes to the family of someone who dies without a will. In other words, the spouse or adult children are usually named administrator. It is possible, however, that a more distant family member could be named, or even creditors or other strangers to the estate and to the decedent. If the decedent failed to take advantage of his right to name a personal representative, and if no persons with do relationships are available, the court, in its discretion, might appoint someone unknown to the decedent and unfamiliar with his affairs. This is often the case when the court is concerned about possible conflicts of interest or the rights of creditors or other beneficiaries.

Duties and Responsibilities

When a person dies, her property must be collected. After debts, taxes, and expenses are paid, the remaining assets are distributed to the decedent’s beneficiaries. Distribution is determined by the person’s will, or the intestacy laws (laws that govern the distribution of your estate if you die without a valid will) of the state in which the decedent was living at the time of death. It is the executor’s or the administrator’s responsibility to collect and distribute the assets and to pay me death taxes and expenses of the decedent.

While many executors and administrators perform these designated tasks in an expeditious and prudent manner, this is not always the case. Moreover, state law usually holds the personal representative to the standard of care of a “reasonable, prudent individual” under all circumstances. What is reasonable and prudent to the executor when performing his tasks, however, is not always so to the beneficiaries, especially retrospectively.

The various decisions to be made by the personal representative can often cause complaints by the beneficiaries. Sometimes complaints escalate into lawsuits against the executor(s). If the court feels that the personal representative has not acted reasonably and in the best interests of the estate and beneficiaries, the executor or administrator can be surcharged, which means that the executor is personally liable or undue mistakes made in the administration of the decedent’s estate.

Fees

A question often arises concerning the fees to which a personal representative is entitled for services rendered to the estate. The first place to check is the statutory law of the state where the estate is probated. Some states have standard fixed fees. There are also local county rules and customs that govern what the personal representative is entitled to charge.

Professional executors such as banking and trust institutions advertise fixed-fee schedules. However, with estates in excess of $1 million it may be possible to negotiate a lower fee. These negotiations occur between the prospective executor and the person making the initial designation (the individual desiring to name the institution as personal representative in her will). An attorney who specializes in estate administration may be helpful in negotiating a lower fee for a large estate.

In all cases, the executor or administrator is entitled to reasonable compensation for services. Fees should not be determined solely on the basis of the assets of the decedent; they should also take into account the nature of the work involved, the time spent, the complexity of the problems, the professional background and competence of the executor, and the ultimate results and benefits passed on to the heirs.

Remuneration for services should bear a reasonable relationship to the time spent as well as the quality of work and results achieved. The personal representative should keep a detailed record of time spent, services performed, and expenses paid on behalf of the estate. Furthermore, the executor should make periodic written progress reports to the beneficiaries and, if the situation permits, submit periodic bills for services rendered. In any event, before any work is begun, negotiate and settle (in writing) the issue of fees based on an estimate of complexity and other issues.

Psychologically, many beneficiaries have their shares “spent” before they receive them. The subsequent announcement that the personal representative expects to receive a significant portion of that amount for services performed doubtless will be met with some serious resistance. This is especially true if the beneficiaries were not periodically apprised of the work being performed and had no prior knowledge of the anticipated amount of the personal representative’s fee. It is much easier to have a frank discussion of fees early on when the beneficiaries are aware of the complexities of the personal representative’s duties and are anxious to have someone else take on this responsibility.

When the personal representative is an immediate member of the family, problems about fees are less likely to occur. For example, if the widow is the executrix and the sole beneficiary, it might be far more advantageous for her to receive the net proceeds of the estate as an inheritance rather than to charge an executor’s fee that will ultimately come out of her own pocket. The executor’s commissions or fees are taxable for income-tax purposes, and often at a higher rate than if the sole tax involved is the state inheritance tax-or even, in some instances, the federal estate tax

Finally, there is the question of the division of the fee when two or more individuals are serving as coexecutors or coadministrators. When they are individuals, the fee usually is divided equally (although in a few states each executor could receive a full commission). But when a corporate executor is serving with an individual coexecutor, courts often award the corporate executor (bank or trust company) a higher percentage. For example, in Pennsylvania the bank would receive its usual fee and the individual executor would be awarded one half of the bank’s fee. Of course, if the decedent has specifically provided for the payment of fees in the will, the courts in most instances are guided by the decedent’s wishes.

Copyright 2008 LexisNexis, a division of Reed Elsevier Inc.

Thursday, April 17th, 2008 at 2:03 pm and is filed under Estate Planning Newsletter. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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