You’re a step ahead of the pack if you’ve created a will or trust. Don’t stumble at the finish line by naming the wrong executor or trustee.
See also: Reasons to reject an inheritance.
Follow these five rules to ensure your wishes are fulfilled.
1. Expertise helps, but common sense is just as good. You don’t need a Wall Street whiz to act as your executor or trustee. But you do need a person who knows when it’s time to involve an expert. “You need someone with good, basic business sense, and if you have a trust, I prefer someone who’s going to be conservative in managing the trust’s money,” says Thomas Taneff, an estate-planning lawyer in Columbus, Ohio. “Choose someone who has good judgment and common sense. I like people who aren’t afraid to research and ask for help, not know-it-alls who think they don’t need help."
2. Make sure your pick will be around to act. “Take into account the person’s age and health and the likelihood of that person being around to administer your estate,” advises Dave Heilich, a CPA and wealth planner at Brown Smith Wallace in St. Louis. “Obviously, an executor or trustee has to outlive you, so you wouldn’t want to name your brother or sister if they’re your age or older.”
Every estate-planning expert has faced an executor or trustee who was unavailable when needed — whether because of disability, distance, or death. That’s why they harp on naming backups. “I see people name their parents or an old uncle because he used to work at a bank,” says Debra L. Morrison, a wealth manager at Trovena LLC in Lincoln Park, N.J. “That’s fine, but a trust has to include successor trustees.”
You can name a successor yourself, allow your executor or trustee to name a successor, or designate a corporate executor or trustee.
“We always have a corporate trustee as final backup,” says Heilich.
3. Know when to use — and avoid — corporate trustees. Speaking of corporate trustees, there’s healthy debate over whether banks or financial services firms are a wise choice. “The advantage is that as long as that business is around, it can’t outlive the trust,” says Heilich. “But you’ll pay corporate trustees more than an individual trustee, and they can be impersonal. You could also work with different people over time. And since they’re businesses, sometimes corporate trustees are more inflexible because of increased liability and the fact that they must answer to shareholders.”
4. Name a team — sometimes. “We often use co-trustees because some trusts could last for a very long time or have a substantial amount of assets,” says Heilich. “The biggest benefit is that when you have tough decisions, they’re not all left in one person’s hands. So consider using more than one trustee — but not too many because that could cause administrative headaches.”
However, be aware of family tensions before naming co-executors or trustees. “I tell my clients not to name their children equally as trustees,” says Scott Zuckerman, president and CEO of Wexford Financial Strategies, a financial planning firm in New York. “There’s a potential they’re going to argue when it comes to money, no matter what they say when you’re alive. I’ve had clients fight over an $8,000 car when they were inheriting $3 million.”
Instead of focusing on “being fair” to your children, aim to prevent family conflict. “When it comes to legal battles, the person who makes out the best in the end is always the attorney,” explains Zuckerman. “Fights will cause more friction in the family, deplete the estate’s assets and take a lot of time. Do whatever you can to avoid legal conflict. If necessary, go with a corporate third party.”
5. Check back in a few years. Your perfect pick today may become supremely unwise tomorrow. “There may have been a divorce,” says Zuckerman. “I’ve said to clients, ‘I see your brother-in-law is listed as a trustee,’ and the client will say, ‘Oh, no, my sister and brother-in-law got divorced six years ago, and we’re estranged.’”
Avoid such situations by revisiting your choices after major life changes.
Heilich’s bottom line: “Consider corporate trustees only when there’s severe family dysfunction or you don’t have anyone qualified or who wants to serve.”
That said, Taneff says a corporate trustee may be smart for blended families. “God forbid you die and your second spouse gets involved with somebody else,” explains Taneff. “That person may start treating your biological children differently than his or her own. In that case, a corporate trustee would be good because it’s someone who’s neutral and semi-disinterested. With a second marriage, that might be preferred.”
Discounts & Benefits
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