Choosing Your Executor or Trustee
Presented by Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®:
Your estate plan isn’t complete until you appoint someone to carry out your wishes. Choosing your executor or trustee is important. Before selecting an obvious choice, such as a spouse or child, consider the time involved in assuming either role, the scope of duties, and the burden that both roles may impose.
Choosing Your Executor
Under the supervision of the probate court, an executor manages and distributes the estate according to the decedent’s will or, in the absence of a will, according to state laws of intestacy. If there is no will, the court appoints an executor.
Who should I pick to be my executor?
A will gives you the ability to control who serves as your executor, as well as how your assets will be managed and distributed. An executor is responsible for paying the expenses of your estate and the debts you leave behind. He or she may have to oversee the running of your business, arrange for the care of your dependents, and prudently invest your assets. An executor must also file tax returns and probate court reports. If you own property in several states, your executor will have to deal with additional probate court systems. Settling an estate typically takes less than one year, but it can take longer and become time consuming.
Ideally, the individual you choose as executor will be responsible, competent, organized, and trustworthy. An executor doesn’t have to be an attorney but should be someone known for getting things done.
When deciding on an executor, keep in mind the potential conflicts of interest that could disrupt family harmony. For example, a spouse is a common choice, but children from a previous marriage could view a current spouse as biased. Also, when choosing one sibling over another, consider their relationship and history. Your heirs should regard your choice as someone who has common sense and is fair. These attributes go a long way when managing family dynamics and handling squabbles that can erupt during the settlement of your estate. If you can’t find someone in the immediate family who has the necessary qualities, appoint a third party.
Be sure that the individual you choose is willing to serve. Settling an estate is time consuming. In addition, in some cases, the executor may incur out-of-pocket costs such as the cost of a surety bond. Further, an executor will be liable for his or her actions, and there can be repercussions for failing to act properly. Even if your choice is willing and able to take on the job today, he or she may not be able to continue in the future. Always name a successor executor in your will.
Choosing Your Trustee
You might also consider a revocable trust if your goals include factors such as controlling distributions of assets to heirs, professional management, or creditor protection. When you establish a trust, you will also appoint a trustee.
A trustee manages the assets left to your trust for the benefit of your beneficiaries according to the instructions you provide in the trust document. A trustee has duties similar to those of an executor; however, a trustee’s decisions can have long-lasting consequences because, unlike an estate, a trust can last for decades, sometimes even over several generations. For this reason, many people rely on the professional services of a trust company.
What are the qualities of a trustee?
If you have created a revocable trust, you probably serve as your own trustee and have named a successor trustee to take over if you incur a disability or when you die. When choosing a successor, look for someone with the following qualities:
- A good trustee understands the trust document and his or her duties. The trustee will also know his or her limitations and seek expert advice on legal, tax, or investment issues when needed.
- Is willing and able. Lack of time is the principal reason why personal friends and family members resign trustee positions. It is always wise to name several alternatives if your first choice cannot fulfill the role.
- A good trustee understands what you, the grantor, had in mind and is close enough to beneficiaries to understand their needs. For this reason, you may name a friend or family member to serve as a co-trustee with a trust company. The trust company can perform all administrative duties so that your personal trustee can be relieved of day-to-day management. Meanwhile, the trust company can benefit from the insight provided by the personal trustee.
- Your trustee understands that he or she has an obligation to consider the needs of all beneficiaries and not favor one over another.
- The ideal trustee would have the family’s respect. An individual who has trouble communicating or who is indecisive is not the best choice for this role. A trustee may have to deal with difficult beneficiaries or make unpopular decisions.
- Your choice should have a history of making good financial and personal decisions.
Although your business partner, attorney, CPA, investment advisor, or insurance agent might seem like a natural choice, these individuals could face conflicts of interest by serving as successor trustee because they may likely be simultaneously providing professional services to the trust or its beneficiaries.
An alternative is a professional trustee such as the trust department of a bank. A professional trustee (also called a corporate trustee) will have extensive experience in trust management and will be accountable to banking authorities, as well as to internal and outside auditors. Using a professional trustee may also be the best way to preserve family harmony.
This material on choosing your executor or trustee has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or at email@example.com.
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