Estate Planning: Trustee & Executor Checklist

Trustee vs Executor: Understanding the Key Differences

While both trustees and executors play key roles in managing someone's estate after their death, there are some important distinctions between the two. Understanding your specific role is critical to carrying out your duties properly.

A trustee is named in a trust document to manage the assets placed in the trust. This can happen during the creator's life or after their death. The trustee has a fiduciary duty to manage the trust prudently and in the best interests of the beneficiaries per the terms of the trust.

An executor is named in a will to administer the estate of the deceased and carry out the terms of their will. This only happens after death. The executor's role is to inventory assets, pay off debts and taxes, and distribute remaining assets to heirs.

Some key differences:

• A trust can be in effect during life or after death, while a will only goes into effect after death.
• A trustee manages assets in the trust, while an executor manages assets that pass through a will and probate.
• Trust assets can pass outside of probate, but assets bequeathed in a will must go through probate.

In some cases, the same person may serve as both trustee and executor if they are named as such. But each role has distinct duties to carry out.

First Steps: Securing Important Documents and Information

One of your first critical tasks as a trustee or executor is to locate and secure important documents and key information. Having these on hand will be essential to carrying out your role.

Important documents to locate:

• Trust documents
• Will
• Life insurance policies
• Deeds and titles to property
• Vehicle registrations
• Bank and investment account statements
• Stock and bond certificates
• Pension and retirement account info
• Credit card statements
• Loan documents
• Recent tax returns

Also make it a priority to:

• Get copies of the death certificate. You'll likely need multiple.
• Locate any safe deposit box and inventory contents.
• Gain access to digital accounts and records.
• Find any personal planning documents with funeral instructions.

Keeping these documents organized and in a secure location is critical. You'll need to reference them often during the estate settlement process.

Notifying Relevant Parties About the Death

Once you've located key documents and information, it's time to start notifying relevant parties of the death. Who exactly you need to contact will depend on the specifics of the estate.

Parties to notify may include:

• Beneficiaries and heirs
• Surviving spouse
• Attorney and/or accountant
• Banks and credit unions
• Investment and retirement account custodians
• Life insurance companies
• Creditors
• Government agencies like Social Security and Veterans Affairs
• Utility companies
• Post office
• Employers
• Landlord, if applicable

Be prepared to provide a copy of the death certificate to many of these parties. Consider sending notices via certified mail so you have a record of delivery.

Set up an organizational system to keep track of who you've contacted, what you sent, and any key dates or deadlines. Thorough records will be important.

Also, be sensitive to the fact that many of these contacts, especially family, may be deep in grief. An estate attorney can assist with these notifications if needed.

Creating an Inventory of Assets and Debts

With notifications underway, a key next step is creating a thorough inventory of the estate's assets and debts. You'll need to determine the date of death values for all assets. Debts will also need to be tallied.

Assets to inventory and value:

• Real estate
• Bank accounts
• Investment accounts
• Retirement accounts
• Life insurance
• Personal property like vehicles, furniture, jewelry, art, collectibles
• Business interests

Debts to identify:

• Mortgages
• Car loans
• Student loans
• Personal loans
• Credit card debts
• Medical bills
• Utility bills
• Taxes owed

Organize the inventory into clear categories. Note how each asset is titled as this will impact how it's treated - whether it's governed by the trust, subject to probate, or passes directly by beneficiary designation.

For unique assets like real estate, collectibles or business interests, professional appraisals may be recommended to arrive at accurate values.

Thoroughness is key here as the inventory will be the basis for determining estate taxes and proper distribution of assets. Work closely with an estate attorney or tax professional.

Estate Tax Considerations and Responsibilities

With the estate inventory in hand, you'll need to determine any estate tax liability. This can be a complex undertaking with big dollars at stake, so don't go it alone. Hire an experienced estate tax professional to guide you.

Key considerations:

• Determine if estate taxes are owed at the federal and/or state level based on current exemption amounts.
• Identify which assets contribute to the taxable estate.
• Factor in any lifetime giving that will count towards exemption.
• Identify any deductions that can reduce tax liability like charitable bequests or qualified business interests.
• Determine liquidity needs to pay taxes and identify which assets may need to be sold.
• Be aware of filing deadlines and estimated tax payment deadlines.

If the estate owes taxes, the executor or trustee is responsible for filing appropriate returns and paying the taxes from the estate. This is a key fiduciary duty.

Returns to be aware of:

• Federal Estate Tax Return (IRS Form 706)
• State estate tax returns
• Deceased's final income tax returns (federal and state)
• Estate income tax returns (federal and state)

Staying on top of deadlines is critical as late filing and payment penalties can be steep. Your tax professional can help keep you on track.

Administering the Estate Per the Trust or Will Terms

At the core of the trustee or executor role is administering the estate in line with the deceased's wishes outlined in their trust and will documents. This means reading the documents thoroughly, interpreting them properly, and implementing the instructions faithfully.

Key duties:

• Prudently manage assets until distribution, balancing preservation and growth.
• Collect any income or pay any expenses on behalf of the estate.
• Liquidate or sell assets as needed to pay debts, taxes, or facilitate distribution.
• Impartially follow the trust or will terms for asset distribution to beneficiaries.
• Communicate regularly with beneficiaries about the estate and the process.

Trusts often contain more complex, long-term instructions than wills. For example, assets may remain in trust over time with the trustee making decisions about investment management, ongoing distributions, payment for expenses, etc.

Wills tend to be more straightforward - with assets being distributed outright after debts and taxes are addressed. Although, a will may create testamentary trusts that also continue.

In some cases, a trust or will may lack clarity or face legal challenges. Working with an attorney is wise to ensure proper interpretation and administration. You don't want to run afoul of your fiduciary duties.

Distributing Assets to Beneficiaries

After debts and taxes are paid, a key responsibility is distributing the remaining estate assets to beneficiaries as outlined in the trust or will. Approach this task methodically.

Steps to take:

• Identify the specific beneficiaries and what each is to receive per the terms.
• Determine a target distribution date to communicate to beneficiaries.
• Liquidate or divide assets as needed for distribution.
• Utilize transfer documents like deeds, titles, and assignments with the help of an attorney.
• Obtain signed receipts from each beneficiary upon distribution.
• Keep records of each asset distributed including date, value, and recipient.

Distribution comes with important decisions. Some assets may need to be sold to facilitate dividing them among multiple beneficiaries. Or, beneficiaries may be given the choice of taking an in-kind asset or cash value.

Consider too whether assets will receive a step-up in tax cost basis to date of death value. This can impact whether to distribute an asset in-kind or sell it first.

For assets remaining in trust, be sure to properly title them in the name of the trust. And re-register ownership of any accounts or real estate accordingly.

Communication with beneficiaries is key during this time. Provide a clear inventory and valuation, along with a target distribution schedule. Professional appraisals can help facilitate agreement on valuation.

Maintaining Proper Records and Accounting

Throughout the entirety of the estate settlement process, one of your most vital responsibilities is keeping accurate, thorough records. You have a duty to track every penny in and out and provide a detailed accounting to beneficiaries.

Key records to maintain:

• Inventory of assets and date of death values
• Ongoing investment account statements
• Appraisals of real estate and valuable property
• Accounting of all income received
• Accounting of all expenses and bills paid
• Accounting of all sales of property
• Accounting of all distributions to beneficiaries
• Tax returns filed

A clear system is a must. Consider setting up an estate checking account to handle all income and expenses, rather than mingling with your own funds. Keep a detailed spreadsheet or ledger of all transactions.

You may need to provide a formal accounting to beneficiaries and to the probate court. You want this to be crystal clear and easily tie back to all your records.

Don't forget to keep receipts, sales documents, and transfer deeds. If ever questioned, you'll be glad you have thorough documentation.

Maintain records even after the estate is settled. The IRS can audit for years after, and you want to be prepared. Consult with your legal and tax advisors on retention guidelines.

Wrapping Things Up: Getting Professional Help

Serving as trustee or executor is a big job, often during an emotional time. There are many legal, financial, tax, and interpersonal considerations at play. It's wise to not go it alone.

Your support team may include:

• Estate attorney to guide you through the legal process
• CPA to handle tax matters and assist with accounting
• Financial advisor to help with investment management and liquidation decisions
• Appraiser for valuing assets like real estate, collectibles, and business interests
• Realtor to list and sell real property
• Mediator to navigate any disputes that arise among beneficiaries

Even with professional help, the role requires a significant time commitment on your part. Be sure you have the bandwidth before saying yes. If you're not up for the task, it's okay to decline.

Administering an estate is a heavy responsibility - legally and emotionally. But with good organization and professional advice, you can successfully see it through and honor the wishes of your deceased loved one.

For more detailed guidance on the trustee/executor role, see this resource:
American Bar Association - Guidelines for Individual Executors & Trustees