Two Big Estate Planning Decisions:  The Executor And The Trustee

Estate planning involves quite a few crucial decisions. Let's talk about two of those decisions—whom to name as your executor and whom to name as its trustee.

While they're both essential for the roles they play in executing your estate plan, the executor is chosen to perform critical duties in the short term to settle the estate, while the trustee is in it for the long term to carry out the instructions outlined in the trust.

Family members such as children or siblings are often chosen as executors because their responsibilities are relatively straightforward and dictated by law. While family members can also fill the role of trustee, who is responsible for managing and distributing estate assets, it can sometimes lead to family conflicts, which is why many individuals use a corporate trustee instead.

What Exactly Does an Executor Do?

Depending on the size and makeup of the estate and the state that has jurisdiction, the executor's role could be minimal or extensive. The responsibilities of an executor overseeing the settlement of an estate could include:

Determine if probate is necessary: Probate is a legal proceeding that occurs at the county or state level to approve the will and authorize the executor to distribute assets as stipulated in the will, as well as pay any outstanding debts and taxes. Probate laws vary by state, and not all assets must be probated. 

File the will and notify beneficiaries: The will must be filed at a local probate court that confirms the executor as the personal representative. The executor then must send notices of the probate proceeding to beneficiaries named in the will. 

Locate and manage probated assets: If there are probated assets, such as real estate or securities not held in trust or as joint tenants, the executor needs to locate them and take over their management during the probate process, which can last from several months to more than a year. 

Take care of administrative needs: The executor will need to take over the day-to-day administrative needs of the estate, such as notifying banks and government agencies. Any leases or contracts will need to be terminated. 

Set up a bank account for the estate: If the deceased is still owed money, such as employment earnings or stock dividends, the executor will need to set up a bank account to hold the funds until they can be distributed.

Pay expenses and taxes: 

Any ongoing expenses such as debt payments, utilities, and taxes will need to be paid. The executor will also need to file a final income tax return and pay any taxes owed. 

Notify creditors and pay outstanding debts:

The executor needs to notify creditors of the probate proceeding, who will have four to six months to file a claim for unpaid debts. The executor is responsible for determining if a claim is valid.  

Distribute assets: If there is no trust, the executor oversees the distribution of assets to beneficiaries named in the will. This will likely consist of cash, securities, real estate, and personal belongings. 

Contact probate court to close the estate: When everyone has been paid as required by law, and all the assets have been distributed to beneficiaries, the executor can ask the probate court to close the estate officially.

As you can see, being an executor is no small job, but it typically runs its course within a few months. On the other hand, in situations involving a trust, the trustee's job can be extended with an indefinite timeframe.

What Exactly Does a Trustee Do?

If you have or plan to set up a trust for your estate, a big decision is whom to choose as your trustee. A well-chosen trustee can help an estate plan succeed by doing the work necessary to ensure ongoing management of your estate. The wrong trustee can slow the process, cause legal and family heartache, and ultimately put the goals of your estate plan at risk.

Generally, trustees are usually broken down into two categories when discussing personal or family estate planning needs.

- Individual trustees: many people will turn to a trusted family member or friend to administer their trust or estate. Of course, this has some benefits, not least of which is familiarity with your goals and desires and personal relationships between this person and the family members involved.

- Corporate trustees:  families look to a larger organization to bring expertise and experience to the administration of trusts and estates in exchange for a fee. These professional trustees have the advantage of being knowledgeable in issues of taxation, administration, financial planning, and investment management.

Not All Trustees are Created Equal

When considering individual or corporate trustees, it's essential to make a decision based on assessing your needs and the capabilities of those considered for the role. Appointing an individual to act as a trustee can be less expensive and less impersonal, but it's important to recognize how this can put the trustee in a difficult position. Certain family members may make complex requests of someone they know and are comfortable with. Even a relatively straightforward estate can place a heavy responsibility in terms of time and effort on the family member or friend chosen to administer it.

In addition, keep in mind some trustees will be managing the trust for decades. When selecting an individual, this can be difficult to predict their ability/desire to handle the long-term responsibility.

Selecting a corporate trustee can be more expensive, but the extra costs may be worth it in certain family situations. Corporate trustees can also provide an impartial third party to act as a buffer for family relationships, helping avoid bruised feelings during what can already be a difficult process.

Making The Right Decisions For Your Family

Estate planning decisions are not always simple and easy, and trustee selection is no different. A great starting point is to consult with your financial planner: do they offer trustee services for clients like you, or can they refer you to a quality corporate trustee? Or does your financial advisor think an individual trustee may be better for your circumstance? Either way, this is an integral part of an overall financial and estate plan, so it would be essential to pick up the phone and start the conversation.