Itemizing your assets and debts, choosing beneficiaries and getting your financial house in order can take untold hours of careful thought and calculation. Despite all the work and consideration couples put into creating an estate plan, however, there is one issue that frequently doesn't get the attention it deserves: choosing an trustee or executor.
Couples, who think that managing a will or trust is a straightforward task, often select their oldest child or a close, life-long friend to oversee the implementation of their last wishes. Few of them appreciate that, in fact, the timely and proper execution of the trust or will is potentially the most taxing aspect of estate planning. This is especially true of high-net-worth individuals, whose estates commonly contain a complex array of assets, property and investments that can overwhelm an untrained individual executor — someone who carries out the terms of your will — or trustee — the person who carries out the terms of your trust.
“People often don't realize the incredible amount of work that goes into ensuring the smooth execution of a trust or will," said Alma Banuelos, national head of Trust and Estate Services at City National Bank.
“An executor or trustee is responsible for an array of duties, such as enumerating and valuing all the assets, compiling, filing, and paying all tax related matters, maintaining accurate records, ensuring beneficiaries receive their inheritances, continuous review of discretionary requests and much, much more," she said. "It's essential before you appoint someone as trustee or executor to be sure they have the time, energy, desire, knowledge and, most importantly, that they are fully aware of exactly what they are getting into."
While selecting someone as your trustee or executor may indeed accord them a great honor and privilege, it's likewise potentially a weighty burden for someone unprepared or ill-suited to the task.
For this reason, choosing a professional fiduciary, like a corporate trustee, can be a smart decision.
“If you have a complex or very substantial estate may make sense to hire a professional trustee or executor rather than rely on a family member or friend," said Banuelos. “A professional fiduciary has the expertise to foresee possible issues, handle legal or tax problems and make sure your last wishes are implemented as seamlessly as possible."
Here are five factors to consider when deciding whether hiring a professional trustee or executor is the right choice for you and your loved ones.
Ensuring that an estate plan runs smoothly is an incredibly complex and multi-faceted process that relies on a wide spectrum of legal, financial and even social skills.
“When clients are contemplating choosing a trustee or executor, I ask them to consider: Does the person have the expertise needed to successfully carry out your plans? Do they have the time to dedicate a year to this matter?" said Banuelos.
“Do they know what they're getting into regarding family dynamics? Are they prepared to reach out to beneficiaries regularly, decision discretionary requests to the point of saying 'No" at times, quantify and distribute the assets, and make tax selections?" she asked. A trustee or executor might have to handle disputes between inheritors so dispute resolution becomes an important skill set?
"You should ask yourself, is naming someone as trustee or executor really a privilege or more of a burden given my specific circumstances?"
It's not just the legal and fiscal complexities of an estate that are worth considering.
Being a trustee or executor can propel someone into an emotionally fraught environment that they may not be equipped to deal with. This is certainly true, as happens frequently, when parents choose a child to preside over the inheritance of other siblings and family members.
“Creating and implementing a will can tap into a lot of sensitive family issues," said Joline Godfrey, a financial educator, author and CEO of The Unexpected Table. “Sometimes, even though they have the best of intentions, parents can use a will to act out a parental role that they couldn't master when they were alive. For example, they may exclude a child who was a black sheep of the family and make their will a kind of punitive document. You can just imagine what kind of potent bomb that could set off in a family, especially if it's another family member administering the estate plan. It can be incredibly damaging and have powerful consequences far into the future for the whole family."
Banuelos pointed out that a professional trustee or executor can play the often very useful role of “impartiality" to help diffuse emotional and heated family dynamics.
“Appointing a family member as a trustee or executor can put them in an incredibly difficult position, especially when they're called upon to make a decision that's contrary to what the beneficiaries or heirs expect," she said. "Suddenly the trustee or executor is at odds with the other beneficiaries."
If you have someone like a corporate trustee that you can turn to, then you're no longer solely responsible for decisions. Rather than be at odds, you can play “good cop, bad cop" and essentially use the professional fiduciary to mitigate sensitive issues when beneficiaries don't agree with or want to dispute.
Having a professional involved allows a family member or friend to get out of the line of fire.
Though many people may grasp the intellectual and emotional challenges estate administration entails, few appreciate the legal responsibilities a trustee and executor assumes.
“A critical benefit of using a professional fiduciary is not only that you'll have someone with immediate expertise at every level of administration, but serving with a professional co-trustee or co-executor will also mitigate an individual executor or trustee of liability because of the expertise the professional brings to bear," said Banuelos.
“Not everyone realizes that as an individual trustee or executor you are 100 percent liable for all acts and omissions, which means you could personally be sued if something goes wrong, the beneficiaries are unhappy with your decisions and/or you make a mistake that costs the estate money," she said. "Your personal assets are at stake, not just the assets of the trust."
It's vital for couples to understand the possible legal responsibilities they may be asking a friend or loved one to take on as a trustee or executor.
Being a trustee or executor is also hugely time consuming and is even more demanding if proximity is an issue.
“For high-net-worth individuals, managing an estate plan as an individual trustee or executor can place massive and possibly unfair demands on a person's time, especially if they have an active, demanding career of their own, not to mention the burden on their own or family life," noted Banuelos.
“Matters are even more complicated if the chosen trustee or executor lives in another state or, worse, another country. Distance and competing time zones can make communication a real challenge and prolong administering the trust or will."
For those who, for personal reasons want a family member or loved one to have a key role in the administration of a trust or will, Banuelos notes that hiring a professional co-trustee or co-executor is sometimes an excellent option.
A family member or friend can act as trustee or executor, but work alongside a corporate trustee who will guide on issues like tax, real estate and the assist with financial decisions.
"It's the best of both worlds, because you have an expert handling the complicated elements of a trust or will, while the loved one co-serves alongside the professional fiduciary. It helps ensures that a couple's family values and desires are reflected and upheld during the estate process," Banuelos said.
If you've never settled an estate, it can seem overwhelming. But using a professional corporate trustee as a co-trustee or co-executor can make the task doable, even if at first it seems insurmountable.
Experts can scale back the vastness of all the options executors encounter into a more manageable menu, for instance, and put that in front of the individual trustee or executor for a decision.
"For example, if your eldest child is the trustee, she may feel a sense of obligation to stay in the role because her parents nominated her — even if she's not sure she's up to the task," Banuelos said. It's important to consider and recognize that adult children have a career and family of their own to undertake, which could be affected by the added responsibility of acting a sole trustee or executor.
"With a professional corporate trustee to assist, they can say, 'I need help, please Simplify things for me so I can make informed decisions.' It's a very effective way of administering a trust or will."
Given the complexity and number of considerations you have when selecting a trustee or executor, it's important to consult with professionals to evaluate your situation. You want to ensure you're making things simple for your beneficiaries while also ensuring that your family legacy remains intact. City National Bank's wealth planners can help you identify an executor or trustee and form your estate plan.
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