When to Consider a Professional Trustee or Executor
A Trustee or Executor (sometimes called a Personal Representative) is the person responsible for gathering and distributing your assets after you pass and settling your final affairs. In some cases, this person also may be responsible for managing assets held in trust for your beneficiaries for a certain period of time. Although this may sound simple enough, depending on the nature of your assets, these tasks can be time-consuming, complex, and require a high degree of financial sophistication.
While many people select friends or family members (often adult children) to serve in this role, for some people it makes more sense to appoint a professional fiduciary. A professional fiduciary is a company, bank, or individual, such as an accountant, who specializes in serving as a trustee or executor. These professionals have years of institutional experience administering estates and have the staff and resources to manage long term trusts.
A professional fiduciary charges your estate for its services. Charges may include a set minimum fee to settle an estate plus hourly fees for administrative services. Alternatively, the fee may be calculated as a percentage of the value of the estate. If the professional fiduciary is managing the assets held in trust for a period of time, they will also charge asset management fees.
Paying a stranger to perform tasks you believe your friends or family members could do for free may feel like an extravagance. But there are many situations in which the benefits provided by a professional fiduciary significantly outweigh the costs, including:
Complex family situations with potential for conflict over distributions. Although a fiduciary’s job is to follow the instructions set forth in a Will or Trust, giving one sibling power the others by appointing that sibling as the trustee or executor can lead to accusations of bias or self-dealing, especially when the trustee/sibling is also a beneficiary of the estate. Professional fiduciaries are impartial and have experience navigating complex family dynamics to minimize conflict.
Holding assets in trust for a beneficiary with substance abuse problems. Managing assets held for a beneficiary who struggles with addiction can be challenging. The trustee must decide whether to distribute assets directly to the beneficiary or make payments on the beneficiary’s behalf to third parties, field what can be emotionally-charged requests from the beneficiary for distributions, and objectively assess the beneficiary’s mental status and financial needs. Professional fiduciaries have experience handling these issues and maintaining clear boundaries with beneficiaries.
Holding assets in trust for an extended period of time, such as for minor children or others who lack financial sophistication or money management skills. Selecting a competent trustee is particularly important for parents with minor children or anyone leaving assets in a long-term trust. The trustee will be responsible not only for making distribution decisions but also for actively managing and investing the trust assets for many years. It is important to consider the emotional toll that imposing such a long-term responsibility on a friend or family member might exact on that person. If your friends or family members do not have experience managing an estate of your size or if they are not good with money, using a professional trustee can ensure that the assets you leave to your beneficiaries will be managed responsibly.
Beneficiaries who live out of state and/or do not have time to serve as a fiduciary. Settling even the simplest of estates is time-consuming. The fiduciary has to locate assets, file tax returns, pay debts, make distributions, and, in the case of a Will, commence and manage a probate proceeding. Professional fiduciaries are familiar with these tasks and can accomplish them more efficiently than an individual who has never served as a fiduciary before.
Taxable, or potentially taxable, estates. The trustee of a taxable estate has to file an estate tax return and make important decisions concerning tax compliance and tax planning. Professional trustees have accounting and tax planning experience that most individuals do not have. They can use this experience to ensure that your estate is settled in the most tax-advantaged way.
If any of the above situations apply to you, you should strongly consider using a professional fiduciary to ease the burden on your friends and family and ensure that your estate plan is carried out according to your wishes in the most effective way.