Trustee vs. Executor: What's the Difference?
- Trustees and executors have similar roles, but there are certain key differences. Learn what trustees and executors do and how to choose the right person.
Creating a will is a key component of most people's estate plans, and you may also choose to form trusts. These instruments ensure that your wishes are followed after your death, but the jargon surrounding them can be confusing.
One of the most important decisions you need to make is who will manage your assets after you pass away, which means appointing a trustee or executor. Understanding the difference between a trustee vs. an executor and what the roles involve can help you choose the most suitable person to carry out these essential duties.
Trustee vs. Executor: What's the Difference?
Executors and trustees are fiduciaries — people who act in the best interests of another party. In both cases, these people will act in the best interests of your estate and beneficiaries after your death. However, the roles differ because an executor distributes your assets according to your last will and testament, while a trustee manages a trust on behalf of your beneficiaries.
What Is an Executor?
An executor fulfills any instructions in your will and ties up your estate after your death. Their duties end when the court issues a release after all the assets have been distributed. You must name an executor (or executors) in your will if you want a specific person to manage your estate and distribute your assets. It's also a good idea to name a backup in case your selected executor dies or is unavailable.
The court will select an administrator if you don't name an executor or the person you selected is unable or unwilling to perform the role. Courts will also appoint an administrator if you die intestate, which means that you die without creating a will. This person is usually your spouse or another close family member, although the court may engage an independent administrator if there is no one suitable available. An administrator has similar rights and responsibilities to a named executor.
Executors typically perform the following duties:
- Filing the will: The executor must file the will with the probate court with the death certificate unless the deceased person did this before their death.
- Notifying parties: Several parties will require notification of the death. These may include family members, beneficiaries and organizations, such as banks and creditors.
- Making probate decisions: Whether assets need to go through probate depends on how the deceased person bequeathed them, and laws can vary from state to state. During probate, the court will check the will's validity and supervise estate settlement. Certain bequest methods bypass probate altogether, such as living estate deeds and transfer on death deeds.
- Managing assets: The executor must discover and list the deceased person's assets and manage financial transactions on behalf of the estate. For example, they may need to open a bank account to send and receive payments. They may also be responsible for maintaining any real estate assets.
- Settling debts: Generally, heirs don't inherit debts. However, the responsibility for paying the deceased person's debts usually passes to their estate. Therefore, one of the executor's duties is to settle any debts using the estate's assets.
- Settling taxes: After someone dies, the executor must file their final tax return as if the person were still alive and pay any outstanding tax from the estate. The executor may also have to manage estate tax payments, although these may not apply if the estate's value doesn't meet the state's tax threshold or the state doesn't collect estate taxes.
- Distributing assets: After settling any outstanding debts, the executor distributes the estate's assets following instructions contained in the deceased person's will.
What Is a Trustee?
A trustee manages a trust on behalf of its beneficiaries. When you create a trust, you must select one or more trustees to handle it for you. Many people choose to name successor trustees to step in if the original trustee can no longer continue their duties or dies. Unlike an executor, the trustee takes responsibility for managing the trust's assets as soon as it's created.
Some people stipulate that the trustees should distribute assets immediately after death, in which case the trust can be settled relatively quickly. However, some people prefer their assets to be managed over an extended period, especially if the beneficiaries are young children. In this situation, the trustee may carry out their duties for years after the person dies.
Trustees may perform some of the same duties as executors. For example, they may need to notify affected parties of the person's death, including the life insurance company if the payout goes to the trust, and distribute any assets according to the person's written instructions. Often, trustees cooperate with the executor if the person also left a will. If the trust is part of the estate, the trustee may be responsible for paying any outstanding debts from funds held in the trust.
Unlike an executor, a trustee must decide how to manage the assets held in the trust. These decisions could include choosing how to invest the assets and paying any relevant taxes.
Who Should I Choose as My Executor or Trustee?
You can name anyone you like as your executor or trustee; they don't have to be the same person. However, choosing the same person as executor and trustee is often simpler, as it can make settling the estate more straightforward. Otherwise, it's worth considering whether your chosen executor and trustee can cooperate well if you choose different people, as they must collaborate to settle the estate after your death.
It's also essential to consider whether you can trust your chosen person to act honestly and follow your wishes. Performing the role of executor or trustee can be challenging, especially if you leave complex instructions or require a trustee to make investment decisions. Therefore, it's worth considering whether the person is competent and willing to complete these duties before naming them in your will or trust document.
You can name more than one person as your executor or trustee, and some people choose this option to avoid showing favoritism to a particular adult child or relative. However, naming multiple executors or trustees can cause issues later since they must agree on any actions they wish to take. For that reason, it's often best to choose a single executor and a single trustee unless you're confident that your chosen people can work well together.
You can choose a financial advisor or trust management company as a trustee, instead of a family member or friend. This is often a wise move if you need your trustee to manage your assets for a long time after your death or you don't have a trusted person with the expertise to make investment decisions. Alternatively, you can name a relative or friend as a co-trustee alongside a professional or company.