What happens when an executor is also a beneficiary?

Although you might think of an estate executor and a beneficiary as two separate entities, the truth is that an executor simultaneously being a beneficiary of that same estate is more common than you may think. Consider it this way: If a parent passes away, their adult children—who will also be beneficiaries—may be named as an executor to the estate, or that person’s spouse—who would also be entitled to part of the estate—may be the executor. As long as they meet the legal requirements of being an executor—being of age and capable of carrying out an executor’s duties—a beneficiary can be an estate’s executor. So while this is a common occurrence, there are some potential roadblocks that a beneficiary should be aware of before agreeing to become an estate executor.

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Potential problems may arise

If you’re a beneficiary to the estate, the chances are high that you were very close to the person who passed away. Grief can cloud judgement, take over our days, and easily overwhelm us. If you’re simultaneously dealing with the stress of settling your loved one’s estate and going through probate, you may find yourself easily stressed out and looking to cut corners by getting expensive estate lawyers involved.

Another big problem that can arise from being both an executor and a beneficiary? The possibilities for conflicts of interest to arise are plentiful. An estate executor is supposed to act in the interest of the deceased and settle the estate in the most efficient way.

An executor will sometimes have to make unpopular decisions that will affect how much is left over for beneficiaries. If the estate had a lot of debt, for example, then many assets will need to be liquidated and used to pay off debt and any other outstanding costs, leaving less of an inheritance for the beneficiaries. However, being a beneficiary means that you’re actively benefiting from the estate, and are expecting to receive a certain amount of money and other assets from it. See how that could be conflicting?

An estate executor who’s also a beneficiary may find it more difficult to make the right choices for the estate. For example, an executor may need to sell a piece of property in order to cover any outstanding debt the estate might have. But if the executor grew up in that house and was hoping to take it over, then that decision might be compromised and the executor might look for ways to cover the debt that are not in the estate’s best interest.

Then there’s the matter of the executor’s fee. Usually, an executor gets paid by the estate, with the standard amount being about 5% of the estate’s value. However, if the estate executor is also simultaneously a beneficiary, then it would be wise to waive the fee, since it comes out of the estate and would reduce the inheritance that other beneficiaries would receive. While there’s no law forcing an executor who’s also a beneficiary to decline an executor’s fee, it wouldn’t be advisable to insist on it: The resulting corrosion of trust between the executor and other beneficiaries would jeopardize the executor’s authority and potentially create legal conflicts that could become lengthy and expensive. Frankly, in our opinion it’s just not worth it.

Benefits of being both executor and beneficiary

While we’ve covered the potential downfalls of being both an executor and a beneficiary, there are of course some benefits to this situation. Otherwise, it wouldn’t be as common as it is!

One of the main benefits is ironically also tied to the first disadvantage we identified: If you’re both beneficiary and executor, you were probably quite close to the person who’s passed away. While that could make your job tougher, it also means that you’re probably intimately acquainted with the deceased’s wishes and their assets. You probably know which items are family heirlooms, which beneficiary would like to receive what, and where all important documents are stored. This will speed up the probate process and save everyone a lot of time and energy.

You’re also probably well acquainted with the other beneficiaries, since they’re most likely members of your family or close family friends. Therefore, getting in contact with them and keeping them informed of the probate process will be easier than if you weren’t as close.

Ultimately, being an estate executor is a huge responsibility, and when emotions get thrown into the mix, things can get messy. That’s why it’s important to think long and hard about whether you’re ready to be your loved one’s estate executor when the time comes, and make a plan for avoiding any potential conflicts of interest. Similarly, if you’re currently planning your estate, make sure you’ve discussed your wishes and expectations with your estate executor so that they aren’t caught off guard.

Whether you’re an estate executor, a beneficiary, or both, having a trusted partner by your side during these challenging times can make all the difference. ClearEstate is here to provide you with expert advice and support so that you can avoid conflicts with other beneficiaries and take the guesswork out of settling an estate. Get in touch today.