Personal Representative vs Trustee
When creating a plan for your estate, it is important to ask who will physically carry out that plan. Personal representatives and trustees, while sometimes confused for one another, are two very different roles of crucial importance in the estate planning process. While both have a fiduciary duty to you and your beneficiaries, they oversee two very different things.
A personal representative will represent your wishes and interests in your county’s probate court. A trustee, on the other hand, is the manager of one of your living trusts.
Personal representatives will oversee the distribution of your estate upon death, with or without the guidance of a last will and testament, while a trustee manages a trust until the time has come to distribute its contents, and dissolve it – whether shortly after your death, or several years later.
What is a Personal Representative?
It is one thing to draft and codify your idealized distribution and bequeathment plan, and it is another to execute that plan and the logistics behind it, from hiring the proper valuators, to managing and keeping track of every element of the estate, communicating with creditors and beneficiaries alike, filing the appropriate paperwork with the state, and much, much more.
You must choose someone you trust to represent you and your best interests in death. That person will become your personal representative, or the executor of your estate.
A personal representative’s first task is to begin the probate process. They can file a petition for probate as soon as your death certificate is official, bringing your case to the probate court. A judge will review your will if you have left one behind and name an executor for your estate (your chosen personal representative).
No one is forced to become a personal representative. Anyone you choose can opt out. It’s important not to spring this task on a loved one, but to prepare them for it, and make sure that they agree to handling it. You wouldn’t want your final gift to someone you care for and trust deeply to be a series of difficult and frustrating administrative tasks that they aren’t prepared to deal with after your death.
What is a Trustee?
A trustee is one of three parties involved in the creation and management of a trust, alongside the trust grantor (creator) and the trust beneficiaries. Depending on how a trust is set up, the trustee either manages the trust after the grantor’s passing, or upon the trust’s creation.
To recap, a trust is a legal entity defined by an associated trust document and funded by assets the grantor transfers over into it.
Trusts are technically separate from their grantor, with the degree of separation differing between trustee trusts (which can be amended and have a minor degree of separation) and irrevocable trusts (which cannot be changed and provide a much greater degree of separation).
Unlike a personal representative, a trustee’s job begins the moment a trust is created. The purpose of a trust is often to minimize the size of the estate by allocating certain assets away from the grantor, or to set aside money for a beneficiary. Trusts can also be used to minimize tax liability, eliminate capital gains taxes, and minimize the tax impact of a life insurance pay out.
Unlike a will, which decides how assets are bequeathed after death, a trust can begin making payments to its beneficiaries immediately. As such, a trustee’s job differs depending on the purpose of the trust.
Some trustees may be asked to manage the assets within the trust and bequeath them when the time is right, while other trusts are built to generate income through investments or rental properties and make monthly or annual pay outs to its beneficiaries. Some trusts are distributed and dissolved after death, while others are only distributed once certain conditions are met after the grantor’s passing.
Choosing the Right Person for the Job
While personal representatives and trustees have two very different jobs, you will want the same kind of person for both – someone dependable and trusted, preferably with experience or ability in accounting and asset management.
You can also decide to hire a third party to work as your trustee or personal representative, rather than asking someone in the family to play the part. Attorneys, certified public accountants, can be hired to be trustees or personal representatives. You can even appoint a bank as your trustee if you want someone impartial.
If you pick someone you might not know personally, know that it will still be their fiduciary duty to represent you and your wishes to the best of their abilities. What that means is that if they defraud your estate, mismanage your money, or run away with your money, they will generally be liable, and could be charged. Consider going over the details with your attorney to ensure that your estate is protected against potential embezzlement.
Preparing for Probate
As part of your estate plan, you should make a point of discussing the probate process with your chosen personal representative, especially if they are not an attorney or someone well versed in estate planning law.
Walk them through the basic steps of the probate process, including:
- Petitioning and beginning probate.
- Informing beneficiaries and creditors.
- Managing and valuating assets.
- Wrapping up your final affairs.
- The final tax return.
- The content of the will and the distribution of assets.
Why You Should Work with a Professional
It is important to recognize that a lot can go wrong when setting up your estate plan. You should always hire a professional to go over it, or work with an estate planning professional to begin with.
Even simple clerical errors can end up costing your estate thousands of dollars, and countless valuable hours stuck with paperwork. Getting it right the first time can help you ensure that your estate is distributed the way you wanted.