If you are planning your estate as part of a wealth management strategy, you may want to help protect your assets by appointing an executor for your estate. Executors are legally bound to carry out your final wishes, including the distribution of assets to your beneficiaries.
Sometimes beneficiaries and executors clash over the terms outlined in a decedent’s will. When estate planning, it is helpful to understand the role of an executor and when an executor can override a beneficiary to help you effectively manage your wealth and plan for the future.
What is an Executor?
An executor is a person who is entrusted with carrying out the last will and testament of a deceased person according to the decedent’s wishes. They are appointed by the person who creates the will or by the court when the will designates no executor.
An executor is legally obligated to act in the estate’s best interest, even if that goes against what a beneficiary wants. In addition to ensuring the terms of the will are carried out, the executor is responsible for paying any remaining debts or taxes that the decedent owed.
What is a Beneficiary?
A beneficiary is someone who is set to receive a portion of your assets upon your death. When you pass away, your wealth transfers to the person, people, or entity you name as your beneficiary. A beneficiary may receive an asset in full, such as a property, or they can receive distributions from ongoing sources of wealth, such as interest from trusts that hold replacement real estate properties from 1031 exchanges.
A primary beneficiary is a person listed as first in line to receive the asset. A secondary or contingent beneficiary only receives the asset if the primary beneficiary is unable or unwilling to take the asset.
Although beneficiaries receive portions of the assets named in your last will and testament, they do not fulfill the same role as the executor. Where an executor is legally obligated to fulfill the terms of the will, a beneficiary may argue against it if they believe the asset should be handled differently.
When Can an Executor Override a Beneficiary?
Executors can override a beneficiary when conflict occurs, but only if two conditions are met.
- The executor is following the explicit directions laid out in the will
- The executor is acting in the best interests of the estate
For instance, if your will stipulates that the executor sells a specific investment property, but one of your beneficiaries disagrees, the executor can override the beneficiary to sell that piece of real estate.
An important distinction is that an executor cannot override a beneficiary designation. This means that an executor has no power to remove or change a beneficiary of the estate.
How to Reduce Conflict Between Executors and Beneficiaries
The disagreements between executors and beneficiaries typically exist because a will is vaguely written or the stipulations seem unfair to beneficiaries. If your will says to divide your real estate investment trust (REIT) between your two children but designates one child as the primary beneficiary and your second child as the contingent beneficiary, your second child may challenge the executor on these terms.
In an attempt to avoid as much potential conflict as possible surrounding your beneficiaries and executor, create a will that preemptively addresses potential conflicts and directs your executor’s actions.