EXECUTORS & TRUSTEES: WHAT YOU OUGHT TO KNOW
THE DIFFERENCE BETWEEN AN EXECUTOR AND A TRUSTEE
An Executor is the person named in a Will and appointed by the court to be in charge of probating the Will and settling the estate under the court’s supervision. In order to be appointed by the court, a petition for probate must be filed with the court, and if the nominated Executor agrees to serve and no one objects, the court will issue “letters testamentary” which authorize the Executor to gather up the estate assets, open an estate bank account, sell assets, pay creditors, and ultimately, upon court authorization, distribute the estate assets (after debts, taxes and administration expenses are paid) to the heirs in accordance with the terms of the Will.
A Trustee is the person in charge of the assets held in a trust, and is normally named as trustee in the trust. If the trust is a living trust, probate will be avoided for the assets held in the trust, and court supervision is usually not necessary. In such a case, the Trustee may perform many of the same tasks that the Executor would otherwise handle, except without the burden of probate. If the trust is created in the deceased person’s Will, it is a testamentary trust and it will be subject to the supervision of the Probate Court. In either case, the Trustee is responsible for managing and distributing the trust assets to or for the benefit of the beneficiaries of the trust in accordance with the terms of the trust.
SELECTING A TRUSTEE OR AN EXECUTOR
The choice of a trustee or executor is a decision that should not be made lightly. Serving as a trustee or executor is not just an "honorary" role -- it requires someone who is:
Most often, people name a spouse or adult child as executor/trustee, but this is not always the best choice. Consider the above qualities – if your family member doesn’t measure up, pick someone else.
You don’t have to name a family member. It may be better to name a friend, your accountant, a professional fiduciary, or a bank or trust company.
WHAT DOES AN EXECUTOR OR TRUSTEE HAVE TO DO?
The responsibilities of Executors and Trustees are very similar (see The Primary Responsibilities of the Executor and Duties of a Successor Trustee . . .*), but there are some important differences.
* Note: The checklist of Duties of a Successor Trustee is very generalized, and should not be construed to address everything the successor trustee may have to do. The “Duties” checklists are somewhat different for surviving spouses who are the trustee for simple spousal trusts or A-B trusts.
Both Executors and Trustees can have a lot of work to do in administering the estate, and it is not a task to be taken lightly. If someone does the job badly, it can create major problems for the heirs.
HOW MUCH TIME WILL IT TAKE?
That all depends. A simple probate in California may take 9 to 12 months (sometimes more) to complete. The settling of an estate where assets pass by revocable living trust, joint titling, and/or beneficiary designations can be completed in much less time if there are no tax issues involved. If the estate is a taxable estate, it may take up to 15 months (or longer) to settle, whether or not probate is involved. If there are complications or litigation or the trust is designed to continue on for a period of years or for a beneficiary’s lifetime, it could take many years before the trustee’s duties are completed.
WHAT ABOUT COMPENSATION?
An Executor is entitled to a “statutory fee” for services performed. This amount is a percentage of the value of the assets that are subject to probate.
A Trustee is entitled to receive “reasonable compensation” for services rendered as trustee. What is “reasonable” depends on the circumstances, the trustee’s skill level, the nature and extent of the assets in the trust, and other variables. Banks and trust companies normally have standard fee schedules for trustee services. Co-trustees should be compensated in accordance with the amount of work each person performs.
In either case, compensation paid to the Executor or Trustee will be taxable income to them. [Note: You can leave a bequest “in lieu of” compensation that will be tax-free to them.]
CAN I NAME MORE THAN ONE PERSON AS EXECUTOR OR TRUSTEE?
YES. You can name two (or more) Co-Executors or Co-Trustees. However, you must decide whether each person should be authorized to act alone for the estate or trust, or if both must act together. Also, consider the possible complications, and what is to be done if they cannot agree.
It is possible to name an individual and a bank or trust company as Co-Executors or Co-Trustees, and this sometimes can be the best solution to provide a combination of personal attention and professional accountability.
WHAT IF YOU ARE ASKED TO SERVE AS AN EXECUTOR OR TRUSTEE?
Consider this very carefully. Know what you are getting yourself into ahead of time. Ask lots of questions (see “Questions You Should Know the Answers to …”). Make sure someone else is named as your backup, just in case you cannot serve (or are no longer willing to serve) when the time comes.
Beware of surprises:
If there is a possibility that any of these situations may exist, you need to have a serious discussion with the person whose estate you will have to administer. You need as much detail as you can get about what to expect and any advice on how to handle it.
REVIEW YOUR EXECUTOR/TRUSTEE DESIGNATIONS REGULARLY
Changed circumstances regularly require changing one’s designated Executor or Trustee. Death, chronic illness, estrangement, relocation, and changing family obligations are some of the most common reasons why a named Executor or Trustee may no longer be the best choice. Keep your will or trust current!
FOR MORE INFORMATION:
The Executor’s Guide: Settling a Loved One’s Estate or Trust, by Mary Randolph; Nolo Press.
How to Settle an Estate, by Charles K. Plotnick & Stephan R. Leimberg; Consumer Reports Books.
How to Settle Your Living Trust, by Henry W. Abts III; Contemporary Books.
The Executor’s Handbook: A Step-By-Step Guide to Settling an Estate for Personal Representatives, Administrators, and Beneficiaries, by Theodore E. Hughes and David Klein; Facts on File.
Executor & Trustee Survival Guide, by Douglas D. Wilson; Fiduciary Pub.
How to Administer an Estate: A Step-By-Step Guide for Families and Friends, by Stephen G. Christianson; Career Press.
GENERAL PRINCIPLES OF TRUSTEE FIDUCIARY DUTY:
[The California statutes governing the duties of a trustee are set forth in Probate Code §§16000-16105.]
UNIFORM PRUDENT INVESTOR ACT [CA Probate Code §§16045-16054]
QUESTIONS YOU SHOULD KNOW THE ANSWERS TO IF YOU ARE NAMED AS SOMEONE’S EXECUTOR OR SUCCESSOR TRUSTEE
The Executor/Successor Trustee needs to ask the following questions [not all questions will apply in every case]:
PRIMARY RESPONSIBILITIES OF THE EXECUTOR
Note that many items on this list will require the involvement of some outside professionals, such as a lawyer, accountant, appraiser, realtor, stockbroker, etc., and that this is not an exhaustive listing of all executor duties. More complicated estates involve many additional duties.
If the decedent's assets were held in a revocable living trust, there may be no need for a probate, so some of these functions related to probate will not be necessary. The trustee, however, will perform many of these functions.
THE COST OF PROBATE
The fees paid to the executor and to the estate's attorney in California for their services in handling a probated estate are set by law (See California Probate Code Sections 10800 through 10814), and represent a portion of the value of the assets that go through probate. These "statutory fees" range from 4% of the first $100,000 of assets that go through probate down to 1/2 % or a "reasonable amount to be determined by the court" for probate estates in excess of $25,000,000. [Note that estates valued below $100,000 are normally exempt from full probate proceedings; assets are typically transferred by affidavit.]
The percentages set forth in the California Probate Code are as follows:
These fees work out to the following amounts paid to both the executor and the attorney for the estate:
These fees are based upon the gross value of the assets that go through probate as shown on the estate inventory, plus the income (dividends, rents, interest) collected during probate, plus any gains from the sale of estate assets, less any losses upon the sale of estate assets. Either the executor or the attorney can waive all or a part of their statutory fee. If taken, the fee is taxable income to the recipient. If there is more than one executor or attorney, the fee is divided accordingly.
Extraordinary fees (i.e., fees payable in addition to the above statutory fees) are granted for appraisals, tax work, costs of sale of estate assets, litigation, expenses for running the decedent's business, and any unusual matters. All of the statutory and extraordinary fees are paid by the estate at the conclusion of probate and upon a court order.
In addition to these fees, there are separate fees for the probate court filing fee (which can range from a few hundred dollars to several thousand dollars, depending on the size of the estate), a legal notice publication fee, appraisal fees, and fees for certified copies of court documents.