Guidelines for Individual Executors and Trustees

Regardless of whether you have been named an executor or a trustee in someone's estate, that title comes with a tremendous amount of responsibility and quite a list of duties and tasks. If you have not been briefed on what this role may entail, then understanding estate planning basics can go a long way towards helping you prepare yourself.

Ultimately, there is no replacement for proper, individualized legal advice. While estates rarely need to be complicated, and most estate planning documents remain straightforward, even simple mistakes can potentially lead to litigation or unwanted financial liability. While these guidelines should help you make a little more sense of your situation, do not mistake them for comprehensive legal help.

Basic Estate Planning Terminology

Estate plans usually boil down to funerary instructions, a will or trust, and relevant documents about the decedent's assets and properties and their investments, accounts, and other wishes.

Some documents are critical before a decedent's death, such as their living will (a document detailing end-of-life care wishes) and various types of power of attorney documents (giving individuals the ability to make certain decisions' name, as per each document's limitations). Terms that executors or trustees need to be familiar with include (but is not limited to):

Last Will and Testament

A will is a document outlining how you wish to distribute your assets and belongings, with certain restrictions (i.e., certain documents supersede a choice). A will can be used to name a guardian for your minor children as well.

Trust

A trust is an entity established by a trust document, holding assets, properties, or accounts initially owned by the trustor/grantor to benefit one or more beneficiaries. Trustees manage trusts. A trustor can name themselves as beneficiaries and even manage their trust. Still, estate planning trusts are typically established to distribute assets or properties with greater precision after the trustor's death.

Trustees

Someone named in a trust document manages that trust, either immediately or after the trustor's death. A trust can name several trustees, including co-trustees and successor trustees.

Trustor/Grantor

The "creator" of a trust, or the person for whom the trust is created, and the original owner of the assets and properties funded into the trust. In cases of so-called grantor trusts, the grantor is considered the owner of the assets and property within the trust for income and estate tax purposes. Other trust types may generate a greater degree of separation between trust and grantor, such as irrevocable trusts.

Beneficiary

The individual or individuals to whom assets within an estate are bequeathed, usually through beneficiary designations (such as on life insurance policies and retirement accounts), trusts, or a will.

Executors

The individual named by the probate courts as the estate's representative and the person responsible for managing and distributing the estate. Probate courts will usually call the individual designated by the decedent in their will, unless they are deceased, unfit, or refuse. If no one is defined in the will, the courts choose someone willing and capable to do the job.

Probate

A legal process by which a will is legitimized. Probate is a matter of public record. Anything that does not automatically pass to a designated beneficiary (or has been funded into a trust entity) goes through the probate process. If no will or other estate planning documents exist, the probate court follows state intestate law for distributing the decedent's estate.

Fiduciary

A fiduciary is both an individual and a legal and ethical duty or relationship. In an estate planning sense, a fiduciary is required to act in the best interest of whomever they are representing. Fiduciaries do not have to be people – they can be a trust company or a bank - executors, trustees, and agents with the power of attorney count as fiduciaries.

Principal/Income

When creating a trust, the principal represents what was initially funded into the trust and constitutes the trust's assets and properties at the grantor's death, minus losses. The trust's income is any rent, interest, dividends, or other value generated through the trust's contents.

Managing Assets and Inventory

Executors and trustees may have different roles depending on the details of the trust, the estate's size and scope, and the nature of the estate's contents. Still, in most cases, a fiduciary's role in managing and distributing the estate begins with a total valuation of its assets, properties, and continued maintenance.

This means keeping properties well-maintained, taking care of vehicles, moving physical assets into storage, keeping a safe with critical documents (including online account passwords, bank statements, passports, and more), and so on.

Suppose the estate's total value is likely close to the current federal estate tax exemption limit. In that case, you will be required to get a more exact valuation from a professional for certain assets and properties to determine whether the estate owes taxes to the government.

It is usually acceptable for smaller estates to approximate value, depending on state estate tax laws. Smaller estates can opt for small estate probate in individual states if the estate's total value is below a certain amount ($166,250 in California, calculated after specific exclusions).

Debts, Costs, and Probate

Once the probate process begins and the estate's total value is exact, it's time to pay off any remaining debts, send out notices to creditors, and ensure that any last bills are paid and unnecessary subscriptions are canceled. Creditors have a time limit once a notice goes out to respond to it and have no right to go after an estate's beneficiaries after probate.

However, if the fiduciary fails to pay off all debts and a creditor makes a valid claim on a decedent's estate after distributing, they may be financially liable. It is essential to check and double-check everything in this stage of the process and discuss financial details with a professional.

Managing and Distributing a Trust

Trusts can demand a little more involvement than wills. Once probate is over, all debts and costs are covered, and the remainder of the estate is distributed as per the will; estate executors have completed their duty. But a trustee may be asked to care for a trust for years after the trustor's death, depending on the trust's purpose.

If this is the case, managing a trust can become a long-term, part-time occupation. Some people opt to choose a trust company or bank as their fiduciary, rather than a relative or close friend. As a trustee, you must act in the trust's beneficiaries' best interest as per the grantor's wishes.

This may include making financial decisions to grow a trust's value. Some trusts are built to make regular distributions to designated beneficiaries from the trust's income, while its principal is destined to go to charity after the beneficiaries die.

Other trusts exist to hold and grow a certain amount of money for a minor child or act as a fund for a beneficiary's future business plans. Depending on your role as a trustee has outlined, it would be in your best interest to contact an estate planning professional for more information.

When It Is All Said and Done

When executors or trustees' duties have been fulfilled, you may or may not have to go through a formal process to retire your powers. This process differs from state to state and usually involves signing a simple document witnessed and signed by the estate's beneficiaries.

You can also choose to resign similarly before the estate is fully executed, provided the beneficiaries to accept your resignation. Should you die before your duties are complete, any successor trustees or executors named in the estate will be next in line to manage it. In the absence of a successor, it will usually be up to the courts to decide who controls the estate or trust.

Managing and distributing an estate can be very complicated, especially for trustees or executors. If you do not have prior legal or estate planning experience, then your best move as a fiduciary would be to seek specific legal advice from a local professional in the field.

There may be surprising tax considerations, financial details, and legal matters at play that could severely impact the estate or determine in what order you should prioritize your responsibilities as a fiduciary to the deceased. Suppose you have been tasked with managing a trustee for at least some years to come (until the beneficiary's death, for example). In that case, you will want to seek advice on growing a trust's income through a bank or trust company or an estate planning professional.

Staying in touch with an attorney can also help you navigate the complexities of managing a decedent's estate while communicating effectively, staying on the right side of the estate's beneficiaries, and potentially getting the protection you need to avoid litigation unnecessary liabilities. Even simple clerical errors can come back to haunt you, so being meticulous and hiring an extra pair of eyes can do much good in the long-term.