On Point Market Commentary

With the start of a new year, coupled with a new administration in Washington, D.C., many people are taking a fresh look at their financial affairs. Dusting off your estate plan to ensure your current documents still accomplish your goals for the distribution of your estate is recommended during times of potential tax law changes, changes in your personal/family life, or changes in your financial situation. 

While determining suitable tax strategies and distribution provisions are the primary focus of drafting an estate plan, one very important question sometimes gets less attention: who will serve as your executor and/or trustee? Selecting the best person to step into your shoes and manage your affairs once you are gone is critical to the success of even the most well-crafted estate plan. Most people watch football, so thinking of estate planning like a game, a good analogy would be a coach and his quarterback. NFL Coach Bruce Arians can design the perfect offensive strategy for game day, but it takes a competent and skilled quarterback to execute his game plan. While not every executor needs to be a Tom Brady, you can set your family up for success by honestly evaluating the skillset necessary to carry out your wishes and putting the right “player” in that position. 

Factors to Consider

A proper understanding of the roles and responsibilities for both the executor (also called the personal representative) and trustee is a great foundation for deciding who is best qualified to ensure a transition of your wealth to the next generation while maintaining family harmony. When initially faced with this question, many people default to the surviving spouse or maybe their oldest child serving in this capacity. For some families, those choices may be the right solution; however, depending on the family dynamics or the complexity of the assets in the estate, it is certainly worth the time to do a more in-depth analysis. 

What are the duties of an Estate’s Executor?

An executor is an individual you place in charge of settling your estate after your death. The executor has sole legal responsibility over the estate assets, in most cases, which requires a person with a high degree of integrity. The duties of the executor during the estate administration process include:

• Probate the decedent’s last will and testament with the probate court.
• Locate the decedent’s heirs and make them aware of the terms of the will.
• Marshalling, collecting and safekeeping the estate assets.
• Maintain and secure real estate owned by the estate – including changing of locks, verifying proper insurance coverage, and safeguarding personal property.
• Manage assets – such as collecting dividends and interest, rents, matured assets, and any other funds due to the decedent and properly reinvest those funds.
• Prepare the Inventory and Valuation of assets of the decedent. If the estate is composed of assets other than marketable securities, work with the proper professional(s) to have a valuation completed for those other assets.
• Pay the decedent’s final bills after verification of their legitimacy.
• Maintain complete records and regularly provide accountings to the beneficiaries and to the probate court.
• Manage the Estate and Fiduciary Tax Reporting –oversee the preparation of the appropriate federal and state fiduciary returns. The required filings may include a decedent’s final income tax return, an estate tax return, and fiduciary income tax returns.
• At the appropriate time, proper distribution of assets to the heirs of the estate including, but not limited to, having deeds prepared, securities re-registered, titles to automobiles changed and funding of resulting trusts.
• Act as the representative of the estate in any legal challenges to the provisions of the estate documents.

What are the duties of a Trustee? 

Choosing a trustee is one of the most important financial decisions to be made. Depending on the terms of the estate planning documents, this role could last for years or even generations. A trustee becomes the legal owner of the assets of a trust and serves in a fiduciary capacity. This means that the trustee is legally bound to act, within the confines of the law, in the best interest of all trust beneficiaries and can be held personally liable for breaching those duties. The responsibilities of the trustee include:

• Faithfully follow the terms of the trust agreement.
• Manage the trust assets, which can include maintaining a prudent investment strategy for marketable securities, real estate, or other assets.
• Safeguard and value the trust assets.
• Evaluate and make distributions based on the wishes of the grantor and the terms of the trust document.
• Maintain impartiality in decision-making.
• Handle all record-keeping (document all transactions, maintain principal and income accounting where applicable, file required communications with the beneficiaries, etc.).
• Prepare and file all tax information.

What are the traits of a good Executor and Trustee?

The duties of an executor or trustee are time consuming and require focus and attention to detail. There are also legal ramifications to the decisions that are made in that capacity. As we look at various skillsets and personality traits of the people you trust in these roles, willingness to serve is a key component that should not be overlooked. Other attributes of a good executor or trustee include the ability to understand complex topics related to estate law and taxation, investment management, and probate court proceedings; integrity, ability to remain neutral, decisive, good communication skills and capacity for empathy, could relate well to your beneficiaries, willingness to maintain confidentiality, and the ability to complete tasks and stay organized. 

Questions to ask as you review the people named in your existing documents:

• Do they want to serve after communicating with them the tasks involved? Will they have the required time to adequately fulfill their responsibilities?
• Do they understand finance, legal/accounting, or business concepts? If they do not have the technical expertise, are they capable of hiring competent professionals to assist with these tasks?
• Are they capable of understanding the Will or Trust document? While they can hire professionals to assist with certain tasks, following the documents and making decisions on distributions ultimately lies with the named executor and trustee.
• Have they demonstrated responsibility in their own financial affairs? 
• Will they be able to make tough decisions and remain unbiased, impartial, and look out for the best interest of all beneficiaries?
• Do you own business assets or other assets in your estate that might require more technical expertise to manage and properly distribute?
• Would they be able to handle a potential legal challenge to the documents?
• Are there family dynamics that would necessitate a neutral person serve in this role?
• Do you have proper successor choices designated?

Benefits of a Corporate Fiduciary

For some families, the technical expertise and impartiality of a professional executor and trustee can be a welcome solution to filling these roles. A corporate fiduciary is a bank trust department or trust company with a team of professionals that settle estates and manage trusts on a daily basis. A fiduciary is held to a legal standard that requires the administration of trusts and estates according to the applicable terms of the related documents. Adherence to this legal standard leads to an unbiased and neutral approach to the management of assets, discretionary distributions, and other administrative tasks that can sometimes be difficult for a family member to navigate.

A corporate fiduciary also has the time, resources, and technical expertise to ensure the proper management and safeguarding of estate and trust assets. This responsibility becomes even more important when managing a trust that may last for generations. The continuity of the management of this type of trust can be critical to the long-term success of the trust and meeting its stated objectives.

A corporate fiduciary can serve as a sole executor or trustee but can also provide meaningful help to a family as a co-trustee or agent.

Your Elite Trust Group Wealth team is here to help you review these items and talk through making the best choice for your family.