Trusting Executors and Trustees

Trusting Executors and Trustees

Part of many estate plans is choosing an Executor and Trustee. For an estate, an Executor or Personal Representative has to be selected who will assemble the assets, pay expenses and liabilities including taxes, and turn the remaining assets over to the beneficiaries. Where there are trusts – either created while the grantor is living or through the will – a Trustee will be needed to perform services consistent with the trust document.

In some respect, the choice of Trustees is a more important decision than choosing an Executor since, once the estate is settled the Executor’s job is completed. The Trustees, however, will remain until all the assets are ultimately distributed.

The testator or grantor should select Executors and Trustees whom they believe will exercise strong, fair, compassionate, sympathetic and independent judgment and who will not dawdle and hopefully be knowledgeable about financial decisions or smart enough to recognize that they need to obtain the right professional assistance. A potential executor/trustee should make sure he or she knows what they are getting into before accepting this responsibility.

There are many stories about executors and trustees overstepping their bounds by self-dealing, paying themselves exorbitant fees, making terrible investment decisions, generally disregarding the responsibilities they assumed or engaging in illegal actions. I was recently made aware of a terrible situation and asked how a client could protect themself and their beneficiaries from similar actions. Here are a few ways:

• It is assumed “good” people are chosen with care, understanding that this is not a popularity contest and that an important and serious responsibility is being conferred
• You can appoint more than one person – preferably people that are independent of each other and require joint decisions on most matters over a stated amount – such as $10,000, $50,000 or $100,000 depending upon the amount of funds involved
• Some people appoint a bank or trust company feeling that they have more safeguards in place
• Whether Executors and Trustees need bonding will be determined by what the will or trust provides. Many times bonding is waived. A suggestion for extra caution is to require a bond. This is an expense, but the insurance company will then assure the proper performance of the Executor and Trustee. Part of their due diligence will be to assess the creditworthiness and background of the people selected
• Beneficiaries should ask for regular reports of financial activity and a listing of assets and liabilities. I suggest at least quarterly. Note that fiduciaries have the responsibility to regularly account to the beneficiaries
• When the quarterly reports are received, the changes in the assets and liabilities should be compared with the last report. The beneficiaries should make sure they understand what caused the changes and that the changes agree with the activity reports for the same period
• Ifbrokerage accounts are involved, beneficiaries should ask either for copies to be sent directly from the broker or for on-line access to view the transactions
• Makesure the funds are in accounts with recognized securities brokers
• Always question something you don’t understand and if you do not get responses you understand then assume that the transaction is improper and ask someone else to review it for you
• Engage a good accountant and attorney when you are setting up your plans. Poorly drafted wills or trust instruments can cost your family far more emotionally and financially in the long run than the upfront cost of engaging experienced professionals
• Make sure that there is a clear threat of discovery of any improper or illegal actions

It is impossible to protect against every situation, but setting up a sound plan should deter most people from dishonest actions. With regard to incompetent or inappropriate actions, you probably picked the wrong person. Exercise thorough seriousness in your decisions. Your family’s wellbeing will depend on it.

Alfred J. La Rosa, CPA, MS, Partner in our Trust & Estate Services Group assisted in the preparation of this blog.