The following is an excerpt from The 101 Biggest Estate Planning Mistakes
, copyright Herbert E. Nass, with permission from John Wiley & Sons, Inc.
Perhaps the single most important decision you can make when it comes to estate planning is your choice as to who will handle things after you are gone. The person who will execute the terms of the Will is called an executor in most states and a personal representative in some others. His or her role is to collect the decedent’s assets, pay the decedent’s bills and taxes, if any, and then to fulfill the terms of the Will. It is often a very big and thankless job, and the many celebrities whose stories are told in the following chapter did not always make the best decisions when it came to their choice of executors and trustees.
Whether it is too many or too few executors and/or trustees, the wrong choices can lead to disaster, as illustrated by the estate planning mistakes and stories involving some of the rich and famous.
Mistake #31: Selecting an Even Number of Executors
Suppose the executors of your Will disagree on some aspect of the administration of your estate or the execution of your Will. Since each executor normally has one vote, you may have an intractable problem if you have an even number of executors. As many states provide that the majority rules when it comes to fiduciaries (i.e., executors or trustees), it may be advisable to have an odd number of executors. Having an odd number can potentially avoid a stalemate, deadlock, or logjam that could result in the disputing executors going to court to resolve their differences. Going to court can be time consuming and expensive.
As mentioned throughout this book, the choice of the executor or executors of your Will is a critical one. Care should be taken to be sure that two, four, six, or eight Executors don’t run into an administrative nightmare. This potential problem can easily be avoided by remembering the benefit of a tie breaking voter—an odd number.
Mistake #32: Selecting Executors with a Conflict of Interest
Besides being one of the greatest painters of the 20th century, the abstract expressionist artist Mark Rothko also left an estate that became synonymous with the term “conflict of interest.” Although he avoided Mistake #31 by appointing three executors of his Will—Bernard J. Reis, the accountant for Rothko’s art dealer, Marlborough Gallery; Theodoros Stamos, an artist who showed at the Marlborough Gallery; and Morton Levine, an anthropology professor who had little to do with Rothko’s art world—he failed to consider their inherent conflict of interests. Unfortunately for Professor Levine, the two executors with connections in the art world constituted a majority of the named executors and consequently called the shots. Their decision to sell Rothko’s paintings at a deeply discounted price to the Marlborough Gallery was highly criticized; and as a result, all three executors were subsequently removed and surcharged by the New York County Surrogate’s Court.
The New York County Surrogate’s court proceedings, known as “Matter of Rothko,” were concluded seven years later, when Surrogate Millard Midonick voided all of the estate’s contracts with the Marlborough Gallery, ordered that many valuable paintings be returned to the estate, and ordered that the three conflicted and self-dealing executors be removed and surcharged nine million dollars. Rothko’s daughter, Kate, was named as the sole administrator of his estate. She and her younger brother Christopher received about one-half of the estate’s holdings, and the other half was distributed to museums around the world by the Mark Rothko Foundation.
Remember, it is a big mistake to select executors who may have a conflict of interest with your last wishes or with their co-executors. Therefore, please take this advice into account when selecting your executor or executors.
Mistake # 33: Not Compensating (or Under-Compensating) Your Executors
Although she established a $12-million trust fund for her pet dog Trouble, Leona Helmsley expressly stated in her Will that the five named executors—her brother Alvin Rosethal, her grandsons David Panzirer and Walter Panzirer, her lawyer Sandor Frankel, and her friend John Codey—were not entitled “to statutory commissions” for serving as an executor of, or trustee under, Leona’s Will. It is noteworthy and perhaps revealing that Leona refers to only one of the five named executors as her “friend.” However, with friends who do not compensate friends for doing a big job, who needs enemies?
Being an executor of a Will entails a large amount of work. Being an executor of Leona Helmsley’s Will, and administering her humongous estate, entails a humongous amount of work and a great amount of “exposure” as well. What do I mean by “exposure?” Whenever a person has a fiduciary duty in connection with a trust or any estate, that person is legally responsible for the preservation, and growth, of the assets under his or her control. If the value of the assets decreases or even stays flat, the beneficiaries of an estate will often complain that the executor or trustee was not minding the store properly. When you have billions of dollars of assets—including real estate, operating businesses, art, furniture, jewelry, and dog toys—the potential problems for an executor or a trustee are magnified a billion times. Who needs the aggravation, especially if you are not being paid for it?
Leona’s Will was prepared by a lawyer who was apparently in Leona’s favor on the day, hour, and minute that she signed her Last Will and Testament, and he does not leave himself totally out in the cold, as the Will provides:
"Any one or more executors or trustees may render services to the Estate or any Trust hereunder as an officer, manager, or employee of the Estate or any Trust hereunder, or in any other capacity, notwithstanding the fact that they may appoint themselves to serve in such capacities, and they shall be entitled to receive reasonable compensation for such services."
As evidenced by the clause above, Leona’s lawyer is covered for his services to be rendered, but what about Leona’s one named “friend” and her two grandsons? What type of services would they render to the estate that was separate and apart from their fiduciary duties as the executors? (It is noteworthy that Leona’s Will initially capitalizes the words “Estate” and “Trusts,” but keeps the titles of executor and trustee in the lower case, with the other “little people” to whom Leona had so infamously once referred in connection with her tax evasion conviction.)
So if a person is not being paid for all of the aggravation related to the administration of an estate, what is the incentive for spending much of his or her time working on it? Leona made a mistake by not compensating her executors in accordance with the New York statute, which establishes a formula for determining the executors’ commissions. This statute states that two full commissions are to be divided among two or more executors. Even if Leona could not stomach the statutory commission amount, which on a large estate is a very significant amount of compensation, New York would have allowed her to provide some lesser formula or fixed amount.
The five named executors all undoubtedly had better, more lucrative things to do than working for free for the late Leona. It could be expected that the administration of her estate would be delayed and suffer as a result. Alternatively, executors who know that they will be remunerated at the conclusion of the estate administration have a strong incentive to handle the estate administration as expeditiously as possible.
As a consequence of her tightfisted approach to things, Leona may have shot herself in the foot by believing that her grandsons, friend, and lawyer would move as quickly as they did when she was still around cracking her whip. It is often true that you get what you pay for, so it is a mistake not to pay for the services of the executors of your Will. Perhaps Leona believed that paying executors’ commissions was only for the “little people.”
, author Jean Chatzky lists some interesting information from a 2006 study published in the Journal of Sociology as follows:
which deals with the issue of the tithe.
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