There are several steps to creating and carrying out an estate plan — not all of which will fall on you.
For example, other people must act as your plan's executor and trust's trustee (although they can be the same person). Your responsibility is to name an executor and trustee (if you have a trust) that you know will faithfully follow your instructions and meet fiduciary duties.
Here are brief job descriptions and advice for choosing people to fill these critical roles.
Executor Carries Out Wishes
An executor (called a "personal representative" in some states) is the person named in a will to carry out the wishes of the deceased. Typically, the executor:
- Shepherds the will through the probate process,
- Takes steps to protect the estate's assets,
- Distributes property to beneficiaries according to the will, and
- Pays the estate's debts and taxes.
Many assets must pass through probate before they can be distributed to beneficiaries. (Note, however, that assets transferred to a living trust are exempted from probate.) When the will is offered for probate, executors also obtain "letters testamentary" from the court, authorizing them to act on behalf of the estate.
Executors are entrusted to locate, manage and disburse an estate's assets. In addition, they must determine the value of property. Depending on the finances, assets may have to be liquidated to pay debts of the estate.
Executors can also use estate funds to pay for funeral and burial expenses if no other arrangements have been made. An executor will obtain copies of the death certificate, which will be needed for several purposes. These include closing financial accounts, canceling certain benefit payments and filing the final tax return.
Whom to Choose
So, whom should you choose as the executor of your estate? Your first inclination may be to name a family member or a trusted friend. But this can cause conflict and complications.
For starters, the person may be too grief-stricken to function effectively. And, if the executor stands to gain from the will, there may be conflicts of interest that can trigger contests of your will or other disputes by disgruntled family members.
Furthermore, the executor may lack the financial acumen needed for this position. In many cases, a professional advisor you know and trust is a good alternative.
Trustee Administers a Trust
The trustee is the person who has legal responsibility for administering a trust on behalf of the trust's beneficiaries. Depending on the trust terms, this authority may be broad or limited. Generally, a trustee must meet fiduciary duties to the beneficiaries of the trust.
The trustee must manage the trust prudently and treat all beneficiaries fairly and impartially. This can be more difficult than it sounds because beneficiaries may have competing interests. A trustee must balance out the beneficiaries' needs when making investment decisions.
Naming a trustee is similar to choosing an executor. The responsibilities require great attention to detail, financial acumen and dedication. Because of a heavy reliance on investment expertise, choosing a professional over a family member or friend is generally recommended. At the very least, trustees should be instructed to rely on professionals when they deem it appropriate.
Why Alternates are Critical
An executor can renounce the right to this position by filing a written declaration with the probate court. Along the same lines, a designated trustee may decline to accept the position or subsequently resign if permission is allowed by the trust or permitted by a court. For these and other reasons (for example, the executor or trustee you've appointed could predecease you), name backups for these important positions.
Without a named successor in the executor role, the probate court will appoint one for the estate if the original isn't available. For a trustee, the trust will often outline procedures to follow.
Think Long and Hard
You'll want to think long and hard before naming an executor and trustee — but not too long. Make sure the people you've chosen are willing and able to accept the responsibility and that you check with them periodically to ensure they haven't changed their minds. If you're having trouble making these decisions, talk with your estate planning advisor.