When someone first chooses you to execute his or her estate, it may feel like an honor. While the appointment does indicate that the testator trusts you a great deal, know that executing an estate comes with significant responsibility. With that responsibility comes some legal liability.
Though many people assume that an executor must do something overtly illegal to become subject to a lawsuit, the truth is that innocent mistakes may also lead to legal liability. MarketWatch explains the top three mistakes executors make that often lead to lawsuits.
Paying bills too prematurely
Upon a person’s death, the rules regarding debt change. While ideally an estate will have enough money and assets to repay all the deceased’s debts, this is rarely the case. Because of this, federal and state laws establish “classes” of debt and mandate that certain classes take priority over others. For instance, tax debt almost always takes precedence over every other types of debt. If you use the entirety of the estate’s funds to pay off all other forms of debt before you settle an IRS claim for outstanding income tax liability, the IRS may hold you personally accountable for the remaining tax liability.
Mishandling real estate
Real estate is one of the most commonly mishandled assets in the probate and estate administration processes. Aside from trying to manage the conflicting wishes of survivors, you must decide the listing price, deal with realtors and maintain the home insurance policy.
To determine the correct listing price, you may have to seek the probate court’s assistance. If the realtor suggests making improvements to the home prior to listing it, you must ask for authorization from the courts to use estate funds to make said improvements. Finally, while you must maintain the homeowner’s insurance policy, most insurers do not like to insure empty houses for too long. You will need to sell the house before the policy lapses and for fair market value.
Letting tangible assets slip through the cracks
It is not uncommon for children or grandchildren to lay claim to certain items before hearing the deceased’s wishes for asset distribution. That said, while verbally staking claim to an asset is one thing, it is another thing entirely for an heir to begin taking items from the estate before probate or estate administration. If this happens, the law will not hold the heir accountable but rather, the executor for failing to take proper inventory of the assets and securely storing them until ready for distribution.