Estate Planning: What Is the Role of the Executor of a Trust?

You know that scene in a movie when the protagonist gets a call saying they’ve been named the trustee or executor of a million-dollar estate? That doesn’t really happen that often. But if it does, you’ve just been entrusted with a very serious job with some very specific duties.

First of all, you’ll need to know the difference between being a trustee and a trust executor.

A lot of my clients (even the young ones) are thinking of end-of-life planning and about making their wills. I think that’s great. The peace of mind that comes with doing it now is worth it! But there are some terms and concepts that need to be clear.

For example:

An executor is the personal representative of an estate and has full authority to distribute all assets within it. If you were named as an executor in someone’s will, your primary role is understanding the terms of said will and who will inherit from it. If only a will is used for an estate, you will likely need to make an appearance before a judge so they can appoint you legal executor, which gives you approval to transfer assets.
A trustee, on the other hand, is appointed to avoid probate and give the deceased more control of their estate in the event of their passing.

What’s the Difference Between an Executor and Trustee?

The primary difference between a trustee and an executor is the length of time they hold the role. An executor is a temporary position that essentially liquidates the estate, whereas a trustee’s job begins when the trust is established and continues as long as there are assets to be managed and distributed.

Executor & Trustee Responsibilities

Understanding the Documents

First things first: Read the estate documents to fully comprehend the estate and your role in its distribution and management. This could include everything from whether to bury or cremate the deceased to the dispensation of personal property like jewelry, guns, and memorabilia to heirs.

Establish the Assets

This shouldn’t be a difficult task if the deceased provided complete records for bank accounts, investment accounts, real estate holdings, life insurance, and other assets, but most executors aren’t that lucky. Even when the executor is a child who has had a close relationship with their parents, it can be tough to find and access every account holding assets.

Locate the Heirs

A professionally done will or trust will clearly identify the heirs and beneficiaries, but if the deceased did not or was not able to update their estate planning in the event of an heir’s death, things get more complicated. Ideally, the will or trust would name who is beneficiary of that heir’s portion of the estate, but this aspect is often overlooked and it is the trustee or executor’s duty to determine this based on the deceased’s wishes and state laws.

Pay the Creditors

An unfortunate part of this role is knowing that nearly every estate will have creditors who need to be paid, including credit card companies and mortgage lenders. Your duty as the executor or trustee is to pay these debts on behalf of the estate. If you fail to do so, you as the executor or the heirs will be held liable.

Secured creditors like a mortgage company or car lender will require proof of your legal authority, which would include a copy of the will or certificate of trust, and can be paid upon the sale of property or assets if the estate doesn’t hold enough cash to satisfy the debts. (Creditors should always be immediately notified of the deceased’s passing to avoid late fees or penalties.)

Unsecured creditors, such as credit card companies, can often be easily negotiated with upon the death of their customers. Don’t hesitate to begin those negotiations with a very low figure like a quarter or less of the amount owed. They often would prefer to just have the debt paid off and cleared away rather than paying legal fees to take the estate to probate court.

If the estate does go to probate court, your duty as executor or trustee is to notify all creditors of the action and assets of the estate. An unsecured creditor then has a limited amount of time to assert their claim against the estate, though many won’t take the time to do so. Wait to pay an unsecured creditor until they make their claim because you may not have to pay them if they do not!

Probate Court

The process of administering the estate will be outlined in the estate documents, though if assets are held in multiple states with only a will to dispense of them, you may be stuck doing probate in each of those states.

If there is only a will, you will need to go to probate court to be appointed the official executor, which grants you court approval for any transfers or sales of the assets within. If there is a question about any of the heirs, the court will also need to grant approval as to who is the proper heir of the estate. Probate court can also assist in clarifying any contradictory or unclear provisions in the will, especially those causing discord or disagreement amongst heirs. Getting this clarification in court will protect you against claims of wrongdoing as the executor.

Pay Final Tax Returns

The final duty of an executor or trustee is to file the final individual income tax and estate tax returns. There are many specific rules for how this is to be handled, like writing DECEASED across the top of the return, so it is best to hire a tax professional to make sure everything is done correctly.

Being the executor of a will or trustee of an estate is not an easy job, and the work required to do so is often thankless and filled with personal drama. Professional legal help can make the process much smoother. Reimbursement for out-of-pocket expenses like those can come from the estate.

Questions? Comments?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.