Estate planning often involves naming individuals to handle different responsibilities after your passing. Two key roles in this process are the Executor and the Trustee. While both have fiduciary duties to act in the best interests of the beneficiaries, their roles and responsibilities differ significantly. Understanding these differences can help you make informed decisions when creating your estate plan.
The Role of an Executor
An Executor is the individual or entity named in a Last Will and Testament to manage the estate after someone passes away. Their primary responsibility is to ensure that the deceased person’s wishes, as outlined in their will, are carried out properly.
Typical Responsibilities of an Executor:
Probate Process:
File the will with the probate court to begin the legal process of validating the will.
Obtain court authorization to act on behalf of the estate.
Inventory of Assets:
Identify and locate all assets belonging to the deceased, including real estate, bank accounts, investments, and personal belongings.
Paying Debts and Taxes:
Settle outstanding debts, utility bills, and final expenses.
File the deceased's final income tax return and pay any estate or inheritance taxes.
Distributing Assets:
Distribute the remaining assets to beneficiaries according to the terms of the will.
Provide a final accounting to the court, if required.
Key Points About Executors:
Temporary Role: The executor's responsibilities typically end once all debts are settled, and assets are distributed.
Court Supervision: Executors work under the supervision of the probate court, ensuring compliance with legal requirements.
The Role of a Trustee
A Trustee is the individual or entity responsible for managing a trust. Unlike an executor, a trustee’s duties begin as soon as the trust is established and may continue for years, depending on the terms of the trust.
Typical Responsibilities of a Trustee:
Managing Trust Assets:
manage trust assets prudently to preserve or grow their value for the beneficiaries.
Distribute assets to beneficiaries according to the terms of the trust.
Carrying Out Trust Terms:
Follow the instructions outlined in the trust document for distributing income or principal to beneficiaries.
Make discretionary decisions if allowed by the trust (e.g., when beneficiaries receive distributions).
Tax Filing:
File trust tax returns and manage taxes owed by the trust.
Ongoing Administration:
Manage the trust for the benefit of the beneficiaries until the trust terminates, as specified in the trust document.
Key Points About Trustees:
Long-Term Role: Trustees may serve for many years, especially in trusts designed to manage assets for minor children, disabled individuals, or charitable purposes.
Independent Authority: Trustees act independently and do not typically require court approval for their decisions unless the trust is under court supervision.
Comparing Executors and Trustees
Aspect | Executor | Trustee |
Source of Authority | Last Will and Testament | Trust Document |
Legal Process | Appointed by the probate court | Appointed directly by the trust |
Timeframe | Temporary, until the estate is settled | Ongoing, potentially for years |
Responsibilities | Settle estate, distribute assets | Manage and distribute trust assets |
Court Oversight | Usually yes, through the probate process | Usually no |
Choosing the Right Individuals
When selecting an executor and a trustee, it’s important to consider the skills and temperament required for each role:
Executor:
Choose someone organized and detail-oriented, who can navigate the probate process and handle legal, financial, and administrative tasks efficiently.
Trustee:
Select someone who understands financial management, is trustworthy, and can maintain a long-term commitment to serving the beneficiaries' best interests.
In some cases, people choose the same individual to serve as both executor and trustee for simplicity, while others appoint different individuals to divide responsibilities.