Your estate plan isn’t complete until you appoint someone to carry out your wishes. Your choice of executor (sometimes called a personal representative) 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.
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. In executing your will, you nominate your choice or choices for executor. Although only the court can officially appoint the individuals named to that role, it will generally respect the wishes expressed in the will unless there is a compelling reason not to. If there is no will, the court would consider any petitions for appointment as executor of the estate and will appoint an executor from those petitions.
A will gives you the ability to nominate your executor, along with 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. The executor 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 approximately one year, but it can take longer and become time consuming.
Ideally, the individual you nominate 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. A spouse is a common choice, for example, 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. You generally have the ability to nominate multiple executors to serve at the same time, though this should also be considered carefully.
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. Generally, the executor would be entitled to reimbursement from the estate for these expenses. Further, an executor will be liable for their 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, they may not be able to continue in the future. That's why it's important to always name a successor executor in your will.
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.
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:
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 might 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.
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James Artale is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.
This material 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.