Who is in Charge of Your Estate? Choosing a Personal Representative or Trustee to Manage Your Estate
Choosing the personal representative of your estate or successor trustee in the event of a trust, is one of the most important estate planning decisions you will make. However, all too often people make this decision rather quickly without considering all of the options and potential long-term issues.
Take the case of Sharon. Sharon was a single woman with four grown children. She finally decided to get her estate plan in order. Due to the nature of her assets she determined that a revocable living trust was the best option for her. She put considerable time into creating her trust, and appointed all four of her children as co-trustees of the trust. Sharon’s four children were also her main beneficiaries and would receive most of the assets of her trust.
According to the terms of Sharon’s trust agreement all of the trustees were required to agree before they could distribute any assets of the trust. Upon Sharon’s death her four children were unable to agree on anything and make any decisions about the trust distribution. Consequently it took several years to settle her estate and had a traumatic impact on her four children and their relationship with each other.
This situation is actually quite common; parents nominate all of their children as their personal representative(s) or trustee(s) with the best of intentions, but the children cannot agree on any aspects of the distribution. As a result it can take years for an estate to be settled at the expense of family relationships.
How can you avoid this situation?
Choosing the personal representative of your estate, or successor trustee in the event of a trust, is a very important decision. It requires careful consideration of both your estate assets and family relationships.
What Does a Personal Representative or Trustee Do?
As an initial matter, whether you appoint a personal representative or a trustee depends on your specific estate plan and whether you create a will or trust.
Duties of a Personal Representative
A personal representative (also known as an "executor" or "administrator") is the individual responsible for the administration of your Last Will and Testament through probate. The personal representative is responsible for gathering up the assets of your estate; evaluating claims against the estate; paying the last debts and expenses of the estate; accounting for assets of the estate; paying taxes; and distributing the assets of your estate according to the terms of your will or trust.
Duties of a Trustee
A trustee is the individual you appoint to carry out the terms of your trust agreement and plan of distribution. You would nominate a trustee, or successor trustee, only if you have executed a trust agreement, most likely a revocable living trust. A trustee is required to collect the assets of the trust, pay bills of the trust, account for trust assets, and distribute those assets. Often a trustee is also required to invest and manage assets for the benefit of your beneficiaries over time. Unlike a personal representative, the duties of a trustee can carry on for many years, sometimes even multiple generations.
Who Should You Choose to Manage Your Estate?
Once you have created a will or trust, who should you appoint to manage your estate? Again, who to appoint requires careful consideration of the nature and value of your assets, as well as your plan of distribution and the relationships between your family members. Typically, a married individual will nominate his or her spouse as a personal representative of their will, or a trustee of a trust. However, it can be difficult to determine who to appoint as an alternate personal representative of a will or alternate trustee of a trust.
Appointing Your Children
After appointing a spouse, people often appoint either one or all of their children as alternate personal representative(s) or alternate trustee(s). If you have a fairly simple will or trust, and a relatively small family with a solid, ongoing relationship, then appointing one or all of your children may be a good option. Your children are familiar with your assets and intentions. Accordingly, appointing your children to manage a simple estate can provide a relatively quick and economical solution.
However, as illustrated above children are also often the primary beneficiaries of an estate which can provide for unintended consequences. Even siblings with the best of relationships do not always agree to the management or distribution of an estate.
Appointing a Relative or Friend
Instead, you may decide to appoint a relative or close friend that is not one of your children and not a beneficiary named in your will or trust. Appointing a family member, such as one of your siblings or a close friend, can be beneficial because they are familiar with your family dynamics, your assets and your intentions. Moreover, an individual that is not named in your will or trust does not have a potential conflict of interest between the duty to manage your estate and the desire to receive certain assets from your estate.
While appointing a non-beneficiary family member or friend may help to reduce disputes between your children, there are drawbacks to consider. One common issue is that family members often lack experience managing estate assets, financial investments and methods for ongoing accounting of these assets. In addition, a relative or friend may not be immune to family disputes. One of your children may simply dislike or not agree with the personal representative or trustee, which makes it difficult for that individual to carry out his or her duties.
Appointing a Professional Fiduciary or Institutional Trustee
As an alternative to your children, relatives or close friends you may choose to appoint an institutional trustee such as your bank's trust department, or professional fiduciary to act as a personal representative. One key advantage to a professional or institutional fiduciary is that they are not subject to the same family pressures and can provide neutral management. A professional fiduciary also has critical professional knowledge in working with wills and trusts, and managing and investing estate assets.
The use of a neutral professional may help to reduce family conflict, although there are other issues to consider when deciding to appoint a professional fiduciary or institutional trustee. The main consideration for most people is the cost of administration. A bank or trust company will charge a fee for its services, and usually have minimum fees that make it un-affordable for a simple estate. Another important consideration is that a professional fiduciary is not familiar with your family dynamics and can be a bit impersonal. However, the impersonal aspect may be an advantage when it comes to providing neutral administration, especially with arguing family members.
Qualities of a Personal Representative or Trustee
Ultimately the choice of who to appoint to manage your estate is personal and depends on your particular estate and family dynamics. It is important to consider the factors mentioned above and choose an individual or institution that is responsible, has the ability to follow with large amounts of estate paperwork, an ability to work with all of your beneficiaries, and is willing to seek the advice of professionals such as estate attorneys and CPAs. Discuss your thoughts and concerns with an estate planning attorney and your family members to ensure you have made the right choice for your family and estate.
If you have questions about estate planning or would like assistance with a Will or Trust, please call my office to schedule a consultation at 406-752-6373.