Many people who are selected to act as personal representatives or who volunteer for this role have no experience with estate administration. They simply tackle every issue as it arises and hope for the best. That approach may be accessible, but it isn’t necessarily the best arrangement. People who are unfamiliar with probate proceedings and the financial nuances of estate administration can easily make mistakes during that process. Some of those mistakes could theoretically lead to financial liability for the personal representative.
Identifying and avoiding common mistakes that can lead to issues for executors or personal representatives can help people reduce conflict during estate administration and protect themselves from litigation. What financial mistakes are common during estate administration?
1. Failing to identify all liabilities
Personal representatives typically need to use estate resources to cover the outstanding financial obligations of the deceased party. They use liquid capital in bank accounts or the proceeds from selling estate resources to pay credit card balances, taxes and utility bills. It can be a challenge to identify all legitimate debts and tax obligations without the support of a professional. If personal representatives fail to pay debts and taxes, they sometimes have personal liability for the remaining balances due.
2. Distributing assets too soon
Another common error, made when an estate has some valuable property but also significant financial obligations, involves making major distributions of key assets to heirs or beneficiaries while the probate process is not yet complete. Personal representatives may transfer resources that they may have required to fully cover the financial obligations of the decedent. In those situations, they may either need to reclaim property from recipients or face personal liability for the unpaid amount due.
3. Undervaluing key assets
Personal representatives have a fiduciary duty to the estate, which means they should put the beneficiaries first when making major decisions. Part of that duty involves maximizing what they receive from the estate. Especially in scenarios where the liquidation of assets is necessary, personal representatives should make a good-faith effort to determine what key resources are worth. The failure to do so can lead to a reduction in estate value and potentially even claims from frustrated beneficiaries or heirs.
Working with an attorney can make it easier for personal representatives to fulfill all of their financial obligations. People who have guidance throughout estate administration are less likely to make mistakes that lead to financial liability or legal controversy.