When it comes to estate planning, two crucial roles often come into play: executor and trustee. Both positions involve the administration and management of a person’s assets. But they differ in their functions, responsibilities, and the contexts in which they operate. While there is some overlap, the roles of executor vs trustee are distinct.
Let’s explore some of the similarities and differences between these two positions and how they play into a person’s estate plan. We’ll discuss the fiduciary nature of these positions and the weight of holding these titles and their respective responsibilities.
Executors: Managing Probate
An executor—not to be confused with an executioner—is an individual appointed in a Will to carry out the deceased person’s wishes regarding their property. The executor’s primary responsibility is to manage the probate process. This ensures that the decedent’s debts are settled and the remaining assets are distributed to the Will’s named beneficiaries.
The executor will need to several things during the probate process. This includes:
- Filing a petition to probate the Will,
- Filing an inventory of assets held by the decedent,
- Notifying creditors of the decedent’s death,
- Paying debts that creditors file claims for,
- Conducting an accounting,
- Distributing funds and property to the beneficiaries, and
- Closing out the estate.
In Tennessee, the executor is an office held solely for the management of the probate process. It is a limited position that is only supposed to last as long as needed to administer and close out the estate. Tennessee law states that probate should generally not take more than 15 months.
Once the beneficiaries receive their legacies and the probate court orders the estate closed, the executor does not have any further role to play.
Trustees: Administration of a Trust
A trust instrument generally creates the office of trustee. This can be created during one’s lifetime (living trust), or by a Will at death (testamentary trust). The trustee will often have certain responsibilities that generally go beyond merely distributing property to beneficiaries upon a person’s death.
Trusts, especially revocable living trusts, have broad grants of power to allow the trustee to manage assets the trust holds. For our purposes, let’s consider a revocable living trust with one Settlor (creator).
The Settlor usually occupies three roles while living: Settlor, Trustee, and Beneficiary. The Settlor will manage the trust’s property for him or herself during life. The trust instrument will name specific beneficiaries to whom trust property will go after the Settlor passes away.
The trustee will generally have powers to manage trust property during incapacity. Well-drafted trust instrument name Successor Trustees, as well. So, if our Settlor is in a coma after a major car crash, the Successor Trustee will manage trust assets on his or her behalf until the Settlor has recovered. This is similar to how a durable power of attorney for property functions.
The trustee must adhere to the trust instrument’s instructions. This may include investment of funds on the beneficiary’s behalf, paying for higher education, assisting with major life expenses, and/or distributing at a certain age or life milestone.
The main point is that the trust instrument will state its purpose, and the trustee must carry out that purpose as a fiduciary. He or she must follow those instructions closely and use good judgment in making decisions regarding management of funds. Decisions must be for the benefit of the beneficiary only and not for the trustee’s benefit.
Similarities Between Executors and Trustees
Whether executor or trustee, both roles are fiduciary positions. This means the one holding the office has a legal duty to certain people to act in their best interests. Executors and trustees must act with loyalty, competence, impartiality, and prudence in carrying out their duties.
Both roles require the office-holder to follow another person’s instructions. Those instructions are typically in a document. If the executor or trustee fails to follow those instructions, the beneficiaries of the estate or trust could sue for breach of fiduciary duty.
Additionally, the one naming who will occupy these positions generally does so in a written document. The Will names the executor, and the trust instrument names the trustee. For those who pass away without a Will, the one who handles the estate is an administrator (a subject for another article).
Differences Between Each Role
The differences between an executor vs a trustee are more numerous than the similarities. As noted above, the position of executor is supposed to be a short-term office. The primary goal is to oversee the transfer of assets to other people and to do so in an expeditious manner.
On the other hand, a trustee may occupy the office indefinitely. It will depend on the purposes of the trust. One trust may direct the trustee to immediately transfer trust assets to the beneficiaries. Another trust may direct the trustee to make support payments to beneficiaries over a lifetime.
Executors have some leeway on how they administer the decedent’s estate, but not much. Once the person dies, the Will comes into effect and the executor must generally follow the terms as written.
But a trustee may have significant discretion in carrying out the trust’s objectives. This can include choice of investments, whether to make distributions, or even to create a new trust instrument and “decant” the trust’s assets into a new trust.
What it boils down to is that executors have a smaller amount of discretion with their decision-making. Trustees will usually have wide discretion in carrying out their duties as trustee.
Final Comments on Executors vs Trustees
In an estate plan, it’s important to know how executors vs trustees fit into things. Some estate plans may just involve an executor. Others may have both executor and trustee. In many plans, the same person may occupy both roles.
But for those involved, including the creator of the plan and the ones named as the officer-holders, they all need to know their place in things. They need to know what their duties are and who to contact for assistance in carrying out the plan.
Connell Law, PLLC helps residents of Rutherford County and throughout Middle Tennessee with their estate planning needs. We take an educational approach to our practice, helping our clients understand the ins and outs of how their plans will work.
Reach out to us today to discuss executors and trustees further, along with your other estate planning needs. We’re here to help you plan today for a more peaceful tomorrow.