Have you appointed a family member as your executor or trustee? That’s what many people do. But if you have a will or trust that appoints one of these “fiduciaries” to administer your estate, you may not have considered the myriad of tasks and responsibilities that the fiduciary must be responsible for in fulfilling his/her duties properly. There may be situations that call for multiple executors/trustees or institutional trustees, either serving alone or with a family member or friend. It can be ok to have a family member as your executor or trustee—but a thorough understanding of the role that these fiduciaries play will help you know whether that’s the proper decision.
Let’s consider first the job of an estate’s executor. The executor (some state laws call this the personal representative) is appointed by the probate court pursuant to the decedent’s last will. The executor is responsible for managing and settling the estate. Once appointed by the court, that person is authorized to locate and secure all the assets of the decedent subject to probate, have the estate pay the decedent’s debts and last illness expenses, file an estate tax return (if the filing thresholds are met) and distribute any remaining assets in accordance with the will. Among the assets that most estates have to be distributed are the tangible personal property of the decedent. If the decedent provided that the tangible property be distributed, say, in equal shares to each child, the executor will have the unenviable task of deciding how to divide such assets that have more sentimental value than monetary value. The executor may also need to obtain access to digital assets (i.e. email accounts, social media pages, etc.) to secure them from unauthorized use.
Now, consider the trustee for an estate with a trust. This person (or institution) holds legal title to the assets that have been transferred to the trust either during life or pursuant to the will of the decedent at death…makes the investment decisions relating thereto…files trust income tax returns…and distributes trust income and principal as directed in the trust instrument. Both the executor and trustee may hire lawyers, accountants and investment advisors to assist them with these tasks.
Both the executor and trustee are fiduciaries—they owe a duty of loyalty and are responsible to administering the estate or trust solely in the best interest of all the beneficiaries. The beneficiaries are generally entitled to receive periodic accountings of the estate or trust’s transactions to ensure that the assets have been managed in accordance with applicable fiduciary powers and obligations. The fiduciary is entitled to receive reasonable compensation (for which some states provide a statutory fee schedule) and can be subject to loss of such compensation as well as a surcharge if they breach their fiduciary duties and thereby cause losses by the estate or trust.
So, what qualities should one look for in filling these roles? First, consider the potential for conflicts of interest that may exist. For example, if the estate or trust will own a family business interest, should a child who will control the business affairs also be appointed the fiduciary? (Likely not.) If the surviving spouse or a child is a beneficiary of a trust, should she/he be the sole trustee? (The decision here can also have some serious tax and creditor protection implications beyond the scope of this article.) Even if there is no conflict of interest, does the individual have the time and skills necessary to commit to the responsibilities? If an individual (as opposed to an institution) is selected, who will succeed him/her if that individual resigns or dies? After all, a trust can last for decades (or centuries in some cases). Should a beneficiary or a third party have the power to remove or replace a trustee that you’ve selected and appoint a successor? (If such removal power is not provided, then a trustee can be removed only by court order after proof of a breach of duties.)
If you ponder each of the questions outlined above before you appoint an executor or trustee for your estate, you will probably already be light years ahead of where many folks are when they make these appointments. And then, where should your decision end up? Every situation is different, but my experience of 30-plus years as an estate attorney has shown me that in most cases, a spouse or an adult child can be the appropriate choice for the executor of an estate (particularly where there are no complicated assets or potential for conflicts)…but that a corporate institution such as a trust company or bank (again in most cases) is a better choice for a trustee. There’s a middle ground that can work very well, too: A family member can be co-trustee with an institutional trustee that can provide needed expertise and checks and balances.
For more information, check out Gideon Rothschild’s website.