Timing is an issue when selling securities, bonds or pieces of property, and remainder-hungry heirs commonly balk at an executor’s decisions. Generally, because an executor is acting as a fiduciary for the estate, he or she cannot be faulted for turning the assets into cash to eliminate market risk. “A prudent rule is to raise sufficient cash within the first few months,” Maurer says. “Many executors liquidate everything immediately because they believe the duty is to preserve and protect the estate.” Such drastic action may not be necessary if the estate has enough available cash. The executor has a right to consult an investment advisor regarding the sale of portfolio assets, especially if family conflict is likely. If he or she does not liquidate the assets, the executor may want to take the precaution of explaining the risk of loss in writing to all beneficiaries, for the sake of both due diligence and the executor’s peace of mind.
Estate taxes are due nine months after the date of death. Estates valued at more than $1.5 million in 2005 require executors to file an estate tax return, and all estates must pay federal and state income taxes. If an unforeseen event, such as a stock market crash, lowers the estate’s value dramatically after the date of death, the executor can elect an alternative valuation date six months after the date of death.
Alternative valuations can be a particularly thorny source of friction for family members. An asset that declines in value will lower estate taxes for survivors. But it will also lower the tax basis, resulting in higher capital gains taxes for heirs when the assets are bequeathed to them and eventually sold. Determining which family member holds sway will vary according to the overall tax picture and the needs of the parties involved.
Another tax problem that usually requires Solomonic wisdom involves where to deduct the estate administration costs, which can eat up as much as 5 percent of the estate. Executors can claim these as a deduction on either an income tax or estate tax return; where it is applied can spark a tug of war between the surviving spouse and the heirs. In most families, the children want whatever is best for the surviving spouse, but that is not always the case when second marriages are involved. For this reason, financial advisors and attorneys discourage naming a second wife or estranged family member to the executor post.
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