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Financial Wellness
What's Involved When You're a Trustee or Executor to an Estate?
Many people say yes to a responsibility they just don't know enough about. And, once they've said yes — to being a trustee or executor to an estate, it's hard to turn back.
Of course, if you are agreeing to this role for another family member, it may be one of obligation. There is great pride in being asked — a strong vote of confidence in your judgement and ability. It is, nonetheless, also a major responsibility.
It can be rewarding to fulfill the wishes of a loved one. But, it's important to fully understand what is expected of you before agreeing to become an executor or trustee.
What does it mean to be a Trustee or Executor?
If it's a simple trust, your responsibility may be successfully concluded in about six months, once the trust assets have been distributed to the beneficiaries. If it's a more complex trust, you could have ongoing responsibilities lasting years.
An executor is a person designated in a will to see that the deceased's last wishes are carried out and to settle the deceased's probate estate. An executor's job typically lasts from a few months to two years.
If you're asked to be the trustee of an ongoing trust, by contrast, your job could potentially go on for decades. A trustee is in charge of selling assets held by the trust, investing the money in the trust, making distributions (at times very complex) and filing tax returns. Attorneys often say the trustee's job is very hard and has the potential for personal conflicts.
Are you prepared to take on the duties of an executor or trustee?
How prepared are you to take on the duties related to a trust? Here are several questions to ponder before you take on this responsibility.
Have you read the trust?
The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read the trust, understand it and ask the drafting attorney any questions you may have.
Do you have the temperament necessary to carry out the intent of the grantor?
The grantor is the person who asked you to be the executor or trustee. As you sort through legal and financial matters, you'll confront a range of personalities. The more complex the trust, the more responsibility you will have to bear.
What is your relationship to the trust?
Are you a trusted friend or are you the chosen child or sibling? There is no set formula but depending on family dynamics, if one child is chosen over others, it gives that person a lot of power and discretion that may cause disturbance in family relationships. Whether a family member or the trusted friend, do you have all of the information you need to protect and allocate assets?
Some trustees describe their responsibility like a private eye — you may have to know how to dig for assets. Finding dusty stock or bond certificates in a drawer, rather than at a brokerage firm, may be a clue there are more awaiting discovery.
Do you know the rules?
Each state has specific laws on executors' responsibilities, along with timetables for them to perform their duties. Paying the funeral expenses, publishing death notifications and filing estate tax returns are just a few examples of what might be required.
Many executors hire lawyers and accountants to manage the entire process, which is of course much more expensive. Either way, you need to strictly follow the law — you may be personally liable for the proper administration of the estate. If you misrepresent the value of any assets, you could be held accountable by the IRS or by the beneficiaries. If you're found to have shortchanged the heirs, you could be required to reimburse them out of your own pocket or pay fines.
Can you afford to be an executor or trustee?
If you live in another state, will you need to travel to fulfill your obligations? If so, how often? Will the estate cover travel expenses? Also, you need to consider the value of your time. Time commitments can be like a second job — especially if the trust details discretionary distributions to beneficiaries related to health, well-being, education, home ownership or business endeavors.
Delegation.
While you cannot delegate your responsibility as trustee, you can delegate all of the functions related to investing, taxes and distribution. One of your jobs is to keep track of all income to, distributions from, and expenditures by the trust. You will also need to consult with an attorney from time to time. However, remember, YOU are ultimately responsible to the beneficiaries for prudent management of the trust assets.
Do not mix assets.
And finally, be careful not to mix your assets with those of the trust.
It is a rewarding opportunity — to successfully fulfill the wishes of a loved one. But it is very wise for all concerned to think twice before saying yes.
