Estate Planning: Who Makes the Best Executor or Trustee?

Carrie Schwab Pomerantz
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Posted: Jan 16, 2013 12:01 AM

Dear Carrie, I'm refining my estate plan and am uncertain about which of my four children to name as executor and trustee. I feel like it should be my oldest son, but my youngest daughter is an accountant and has more financial knowledge. What would you do in my situation? --A Reader

Dear Reader, Choosing the right person or people to handle the management of your assets after you die merits a lot of thought. While it's pretty common to appoint a family member or friend, that's not your only choice. A lot depends on your personal situation -- both the complexity of your estate as well as family dynamics.

Appointing a family member can be seen as a symbol of love and faith. However, in the case of multiple siblings, it could be interpreted as an expression of trust in one child over another. So I can understand your dilemma. But while there's an emotional component to this choice, you need to try to keep sentiment in check. To me, it's really about who will do the best job.

Of course, you want someone you trust implicitly to be fair to all your beneficiaries. However, you also need someone with the expertise and personality to handle a myriad of financial details over time. Being an executor (of your will) or trustee (of your trust) is a big responsibility that can go on for years. One or another of your children may well be equipped for the job. But before you make a choice, I'd step back and give some thought to the following questions.

What type of management will your estate require?

The bigger your estate, the bigger the job. An executor or trustee's responsibilities can involve not only the settling of accounts and distribution of assets, but also the ongoing management of those assets for current as well as future beneficiaries. There are tax and legal documents to file, records to keep, and ongoing financial decisions to make. If your assets are extensive and your estate is complicated, this person may need the help of outside advisors to carry out your wishes.

(SET BOLD) Who is most suited professionally? Emotionally? Practically? (END BOLD)

On top of having financial savvy, an executor or trustee must be responsible, practical, organized and able to handle potential pressure from beneficiaries with different needs and requests. Which of your children best combines these traits?

For instance, while your eldest son may have the most authority in the family, would he need more help with financial management? And while your daughter may have the financial knowhow, does she have the temperament to deal impartially with her siblings?

On a purely practical level, which of your children actually has the time to devote to ongoing management of your estate?

What's the potential for family misunderstanding?

When one person in a family is given authority or power over others, there's always the potential for problems. Your kids may all get along now, but when money is involved or issues of control arise, will that change?

To help avoid future problems, speak directly with your family about what the job will entail and why you're considering appointing one or another of them. They may have no idea of the responsibilities. In fact, once they do know, you may find that the child you think is most suited may not want the job at all.

Would a corporate trustee be a smart choice?

Another option is to appoint a corporate trustee, such as a bank or trust company, to manage your trust. On the plus side, a corporate trustee can potentially provide all the investment and legal expertise under one roof. A corporate trustee can also be impartial in assessing requests and distributing assets. On the negative side, your heirs would be working with an impersonal institution and have to deal with the possibility that the staff or even the ownership of the company could change over time. Another negative is that fees for a corporate trustee are often higher than for an individual trustee.

A few more considerations

Appointing two or more people can invite trouble. When there are only two beneficiaries, for instance a brother and sister who get along well, it could work fine. But when there are multiple beneficiaries, I think it's best to have one person or entity making the decisions and handling the details.

Compensation can be another trouble spot. Being a trustee, in particular, is a time-consuming job that can go on for years. While a fee is certainly warranted, a family trustee might feel awkward taking a fee or other beneficiaries might question if it's being earned. To avoid problems, it would be wise to specifically designate in your trust how trustee fees will be determined. Your estate-planning attorney should be able to provide some guidance.

Finally, once you make a decision, talk to all of your kids again. I encourage you to be open about your estate plan, what they can expect and why you've chosen one or more of them to be responsible for your estate. Speaking from personal experience, I also recommend stipulating that you want all of the beneficiaries to meet with your attorney as a group when the time comes. That simple step can provide an important buffer against potential hard feelings.

I'm so glad to hear that you are exploring these issues now. By trusting your family with this important information about your estate, you are passing on your legacy in the truest sense of the word.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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