The mother I met felt what many mothers, fathers, children and others
feel when faced with the sometimes extremely burdensome task of
managing and settling an estate as executor: overwhelmed – by grief, by
family dynamics and competing demands and by responsibility. And an
executor’s responsibilities are not minimal; they include (but are
certainly not limited to) locating all of the deceased’s assets, opening
an estate account, petitioning the probate court, notifying creditors
and paying debts, valuing business, investment, art and other
hard-to-value assets, filing a final income tax return, filing an estate
tax return, hiring a team of lawyers, accountants and other advisors
and properly distributing the estate to named beneficiaries. Executing
on these duties can prove difficult for anyone, let alone someone
without any estate administration experience who is going through what
is often the most trying and emotionally difficult time of their lives
while they grieve the loss of a loved one.
Unfortunately, stories
like this are not uncommon. Often, family members who are named as
executors become overwhelmed with their associated responsibilities.
Many throw money at the problem by hiring a team of expensive (and
sometimes unnecessary) advisors; others create liability for themselves
by neglecting their responsibilities altogether, which can cause
businesses to slump and executors to miss important deadlines that
create penalties, hire unequipped advisors, fail to pay debts that
accrue additional fees or fail to make timely distributions to now
disgruntled and potentially litigious beneficiaries. This is why the
answer to the question “Who will be your executor?” should be more
carefully considered before choosing a default spouse or family member.
For
many estates, particularly small ones or those with straightforward,
liquid assets, naming a spouse or child as executor may indeed be the
most prudent and efficient answer. For example, when the assets consist
mainly of cash and marketable securities, and the will provides that
everything is left to the surviving spouse or to the children in equal
shares, naming a spouse or child as executor may make sense. However, if
there are closely held business interests, real property in multiple
jurisdictions (having a vacation home in Aspen, for example, may mean
having to do a second, ancillary court proceeding in Colorado), highly
valued artwork, high concentrations in hedge fund or private equity
interests, debt interests or other complex assets, or if the estate plan
uses formulas to create multiple tax advantages and creditor-protected
trusts, then hiring an experienced corporate executor can almost
certainly yield better, more cost-efficient results – and may
potentially save a family member acting as executor from being the
scapegoat for souring family dynamics.
Corporate executors are
professionals at acting as the scapegoat. They act fairly and
impartially when confronted by family members who demand access to
estate funds or disagree over sales of artwork, business interests or
other complex assets. Naming a corporate executor relieves the family or
particular family members from making difficult decisions that could
potentially create family disunity. The corporate executor has a
fiduciary, legal obligation to manage the estate in the best
interests of the beneficiaries, which means avoiding fire sales and
maximizing investment returns on estate assets while it is being settled
and administered, a process that can sometimes take two or more years.
Moreover, corporate executors do not become sick or incapacitated, nor
do they become overwhelmed by the demands of grief. They can also work
with your family in advance of a death to assess any preferred service
providers, such as valuation experts, art auction houses, real estate
agents and so forth. Finally, corporate executors come with a wealth of
experience and knowledge in settling complex estates, which can provide
additional cost and efficiency advantages to the estate.
At
BBH, we go further than providing the standard benefits of a corporate
executor by working to understand the family’s dynamics, its goals and
the values members wish to pass on. We have taken to heart the studies
that show that the extreme majority of generational wealth transitions
fail, not because of poor tax or investment decisions, but because of
poor intrafamily communication about the wealth. In fact, according to
the Williams Group, 70% of wealthy families lose control of their wealth
by the second generation because of breakdowns in communication and
trust, inadequately prepared heirs and a lack of family mission and
values. As executors, we take seriously our role as steward of the
family’s wealth from the deceased to the next generation. What
differentiates us is not our ability to know all the probate, tax and
administrative laws, but rather our understanding that the only way to
combat the old adage “shirtsleeves to shirtsleeves in three generations”
is by maintaining a relentless focus on family dynamics and values,
communication and preparing heirs for wealth. Our executor services
include a suite of services to minimize intrafamily acrimony by
leveraging our best-in-class values-based planning tools to help
families more effectively communicate about their wealth, as well as
pass on their values with that wealth through generations, both proven
tools that minimize conflict and maximize value.
Consider
again briefly the woman mentioned earlier that I met, whose family fell
apart after her husband died. I like to think that if BBH had been named
as executor of her husband’s estate, we could have saved her family by
doing what we do with all of our clients. When a client names us as
executor, we do not wait until death to begin the work; we begin
immediately. If we do not already, we get to know the family members’
advisors, or introduce them to any necessary advisors they may need, so
that we can work seamlessly with them at a death. We could have
introduced the family to our Center for Family Business to implement a
clear succession plan for the real estate business, so that the family
could avoid a fire sale at death. We could also have taken an inventory
of the artwork and reached out to auction houses about a plan of action
that would avoid devaluing the artwork by placing it on the market all
at once. In addition, to avoid potential intrafamily conflicts, we could
have leveraged the power of storytelling during a family meeting, where
the parents speak to the children not only about the estate plan, but
also about the art, the heirlooms, the memorabilia and the meaning and
intent behind the gifts.
If you have read this far, you have
probably asked yourself the following question at least once: What about
fees? After all, why pay a corporate executor when you can have your
spouse or child do it for free (assuming they actually waive
commissions)? Since family members who are named as executor almost
always come into the role without any prior experience managing and
settling estates, most individuals hire a team of lawyers, accountants,
investment advisors, property managers for real property, consultants
for business interests, auction houses for art and potentially many
other advisors to help guide them through estate administration. While a
family’s estate planning attorney will often fulfill a few of these
roles, he or she may also need to hire several outside advisors to
settle the estate. A corporate fiduciary, however, will have many of the
necessary resources to manage, invest, account for, settle and
distribute the estate all under one roof. And whenever we do use outside
advisors, we are often able to obtain substantial discounts as a
corporate client. In addition, most people do not realize that a portion
of executor fees are deductible against the estate taxes, so the
out-of-pocket cost for the estate is generally much smaller than the
commission included in a published fee schedule. Finally, there may not
be a price tag on allowing the family to just grieve and to effectively
avoid family disharmony, unnecessary penalties, fees, litigation and the
like from the errors or delays caused by an inexperienced, well-meaning
family member.
If you have questions about the benefits of naming BBH as your executor, please reach out to your local wealth planner.