If you are confused about the differences between a Trustee and an Executor, you are not alone.
A couple of weeks ago, I outlined the basic differences between using a Trust as the primary estate planning vehicle and a plan using a Will. Trustees and Executors are both terms for an individual who oversees and implements your estate plan. A Trustee oversees a Trust. I know, the legal profession is so imaginative. On the other hand, an Executor oversees your estate plan according to the terms of your Will under the direction of a probate court.
(Note, if you do not have a Will, the probate court will appoint an Administrator to fulfill this duty. An Executor and Administrator are largely synonymous except how they were appointed.)
Appointment of the Trustee or Executor.
As outlined above, the first difference is how the individuals are appointed. A Trustee is appointed in the Trust document, such as a Living Trust. The Trustee manages the assets contained in the Trust. In a properly implemented estate plan, your principal assets should already be in the trust when you die or left to the trust via a pour-over will.
Your Executor (sometimes also called a Personal Representative) is named in your Last Will and Testament, often simply referred to as your Will.
Estate Settlement
For estate planning purposes, the key difference between an Executor and a Trustee is the process they use to oversee the settlement of your estate.
Your Will gives instructions to the probate court on the distribution of your assets upon your death. You name the Executor you desire and may waive the court’s imposition of a bond on the Executor. The Executor is the person you want to settle your estate and execute your wishes. You will usually also name an alternate if the first individual is unable or unwilling to serve as your Executor.
The Executor’s responsibilities include handling problems with creditors, fighting objections from omitted heirs, managing the transfer of your property, and making sure that each of your devisees or beneficiaries receive the proper share of your inheritance.
The major drawback of using a Will based plan is that your entire estate must go through probate. This process may take a significant amount of time, sometimes years in very complex estates, before your assets are distributed to your heirs, and the estate is ultimately settled. The result is that the Executor will have to regularly interact with the probate court to obtain authority to act to distribute assets to your dependents before settlement.
On the other hand, A Trust avoids probate for those assets held by the Trust at your death. The Trustee identified in the Trust manages the trust assets according to the terms of the trust. The Trustee has power independent of whether you are alive or dead. Usually, in a Living Trust, you name yourself as the Trustee and one or more Successor Trustees to take power in case of your death or incapacity.
You legally transfer your property into the Living Trust, which you manage during your life. As both the Grantor (person who established the trust) and Trustee, the change in ownership of your property is largely transparent to you. Should you become incapacitated, a Successor Trustee steps into your shoes and manages the assets according to the terms of the trust. In the case of incapacity, the Successor Trustee manages the assets to take care of you, or upon your death, to manage and distribute them according to the terms you directed.
The person you name as Trustee or Executor has a lot of responsibility for and authority over your estate. You should name someone you trust implicitly with that authority and whom you believe can manage and settle your estate according to your wishes.
Often people choose a close relative or friend because such individuals meet the most important prerequisites of honesty and trust. But it is also important that you consider family dynamics, financial complexity, and possible legal issues associated with your estate.
If you are unsure who to name because the individual you trust is not the same individual you believe has the technical competence, name the person you trust. The Executor or Trustee can hire legal and financial competence, can be hired. But, discuss with this individual and let them know hiring help is a good investment. Too often, in a good faith effort to save money, the Trustee or Administrator takes on duties for which they are not competent. While hiring outside experts results in a direct cost to the estate, taking this step may eliminate other long-term costs or avoid generating family disharmony in settling the estate.
If you need help determining if a Will or a Trust is the best Estate Planning tool for your situation, or if you have recently found out that you have been named Trustee or Executor and are unsure of what to do next, I encourage you to consult with an Estate Planning Attorney. I am prepared to help you in these matters.