No one ever looks forward to conversations about what will happen after they pass away, as it means addressing heavy concepts such as death and money — two topics most families love to avoid.
However, comprehensive estate planning is a deeply personal and crucial step in protecting your loved ones after you’re gone. A key component of this process is choosing the right individual to manage your assets and wishes: your executor or trustee.
But how do you make the right choice for who will perform this critical duty? It’s not just about picking a trusted friend or family member; it’s about selecting an individual or entity who possesses the right skills, availability, and impartiality to ensure your wishes are carried out.
They’ll be responsible for managing your estate, distributing assets, and ensuring that all legal and financial obligations are met. Let’s explore the key factors, costs, and considerations to keep in mind during your estate planning process.
Knowledge is Power
Before we delve into qualities to look for in a trustee or an executor (sometimes referred to as a “personal representative”, it’s important to understand the differences between these two roles.
- Executor – Named in your will, this individual or entity is responsible for administering your estate after you pass away. Their duties include paying debts, handling taxes, and distributing assets according to your will, and they are released by the court when these tasks are complete.
- Trustee – If you have a trust as part of your estate plan, a trustee is appointed to manage and distribute assets according to the terms of the trust. A trustee may serve during your lifetime (if you become incapacitated) and continue managing the trust after your death, potentially for many years, depending on the terms of your trust and the ages of your beneficiaries.
Both executors and trustees are considered fiduciaries, which means they have a legal obligation to act honestly and with the utmost care.
Executor Responsibilities
An executor is appointed to manage your estate after your death. Typical duties of an executor or personal representative include:
- Filing the will and notifying relevant parties
- Inventorying and protecting your assets
- Paying off your estate’s debts and taxes
- Distributing assets to heirs and beneficiaries according to your will
- Closing your estate
Trustee Duties
A trustee oversees the administration of trusts created during your lifetime or upon your death. Their responsibilities may include:
- Managing trust assets on behalf of a minor, a family, or an incapacitated person
- Making distributions and sound investment decisions
- Ensuring compliance with the terms of the trust and all state and federal laws
- Providing regular full accountings to the trust’s beneficiaries according to state law
- Respond to beneficiary requests for information in a timely manner
While these roles require similar qualities — trustworthiness, integrity, prudence, financial acumen, and attention to detail — a trustee’s responsibilities typically extend much longer and may involve more complex asset management than being the executor of a will.
Weighty Considerations When Choosing a Trustee or Executor
One of the biggest decisions you’ll make is whether to appoint a family member, a trusted friend, or a professional entity such as a bank or trust company to oversee the significant details of managing your estate. Before enshrining your selection in your will or trust documentation, you should discuss your options with an experienced estate planning attorney.
When selecting a trustee, especially consider their financial knowledge, honesty, and experience. They should be capable of managing assets, understanding evolving investment strategies, and making savvy financial decisions in the best interests of your beneficiaries.
The Pros and Cons of Keeping It in the Family
Wanting a loved one to act as your trustee or as the executor of your estate may feel like the most natural decision, as they probably already understand your wishes and family dynamics.
However, there are potential downsides to consider, such as personal conflicts between heirs, the time commitment required, and whether they have the financial or legal expertise to handle the role effectively. Even well-intentioned family members can struggle with maintaining impartiality, especially if they are also beneficiaries of the estate.
According to the Special Needs Alliance, grantors often fail to appreciate the amount of work necessary to be a good trustee, and the financial temptations of managing a substantial estate for children under the age of 18 or a vulnerable adult.
It’s vital to ensure that your executor or trustee fully understands the legal and fiduciary responsibilities involved.
Non-professional trustees (and in some cases, executors), such as a friend or family member, are typically compensated for their time and effort from the trust’s assets, and there are different ways to structure trustee fees. When creating the trust, the grantor sets the terms of payment, which can be quite generous, especially if substantial assets are involved.
Be sure to consider the age and health of your potential trustee or executor. These responsibilities typically begin many years after you create your estate plan. If you select someone significantly older than you, there’s a risk they may be unable to fulfill their duties when the time comes. Choosing a younger, responsible individual or naming a successor trustee or executor is a wise backup plan.
Exploring Your Professional Options
Banking organizations, trust companies, and specialized attorneys can also serve as professional executors or trustees, offering skilled asset management, institutional longevity, neutrality, and experience navigating complex financial situations.
However, their services come at a cost, which should be weighed against their benefits. Professional trustees typically charge annual fees ranging from 1-2% of assets under management (AUM), with minimum annual fees that can start at $2,500-$10,000, depending on the institution. Some charge additional fees for tax preparation and extraordinary services.
Corporate trustees may adhere strictly to their policies, potentially lacking the flexibility a friend or relative might offer, and the use of a professional entity can mean a loss of control in family matters.
You may opt for a combination approach by providing your executor or trustee the authorization and funding to hire accountants, attorneys, or financial advisors. This approach can provide a balance of intimate knowledge and industry expertise.
Remember, the ideal choice will depend on your unique circumstances, family dynamics, and estate complexity. Whether you opt for a family member, friend, or professional trustee or executor, the most important factor is that you trust them to act in the best interests of your beneficiaries and honor your final wishes.
Questions? We’re here to help — reach out to our team of experienced advocates today!
