As complicated as life can be, reconciling an estate after our death can be a tremendous task for surviving loved ones. Even if a person dies leaving a Last Will and Testament (“Will”) that names an executor to oversee the disposition of an estate, assets that are owned in individual name without a beneficiary designation need to go through a legal process called “probate” which is overseen by a court. Establishing a living trust during life can help heirs avoid a lengthy and sometimes costly probate process. Trusts created during life have several advantages, including consolidating and retitling assets during life so everything is under one umbrella (the trust) and then naming individuals to manage both the assets and the plan for distribution after death. Also, while probate details are available to the public and controlled by a court process, a living trust ensures privacy for you and your heirs while ensuring specific estate planning wishes are followed.
A “Revocable Trust” is a planning tool that allows the person creating the trust (the “grantor”) to avoid probate by titling assets in the name of a trustee. A trustee is the legal owner of all of the trust assets – so on the books, ownership is changing hands. Most individual grantors who create a Revocable Trust also serve as the trustee during life so they continue to manage all their own trust assets. The trust document itself names successor trustees, persons who step in to manage trust assets after the grantor’s death or incapacity. For many, this raises questions: How do the roles of a successor trustee and executor differ? If I name a successor trustee, do I also need an executor? How do ensure I avoid probate if I create a Trust? Can they be the same person?
How do the roles of a successor trustee and executor differ? A Revocable Trust is a Will substitute, and establishes the plan for distributing an estate without the need for a probate. A trustee is named under a Trust, and an executor is named under the Will – but both are charged with managing and disposing of assets after death. They both are fiduciaries who must act in good faith and follow the instructions of another. The trustee’s fiduciary responsibility is defined in the trust document and duties are owed to named trust beneficiaries. An executor acts in the best interests of the persons who are designated to receive an estate, meaning persons named in a Will or those identified by state law if someone dies without a Will. (Read more about an executor’s duties here.) Another difference is oversight. An executor operates under the supervision of the probate court. A successor trustee is answerable to the beneficiaries of the trust.
If I have a successor trustee, do I also need an executor? The prudent answer is “yes.” Hopefully you have taken full advantage of your Revocable Trust either by titling key assets in the name of the trustee during life, or naming the trust as a beneficiary at death. Your successor trustee would handle managing trust assets and ensuring property goes to named beneficiaries. However, if you forget to title an asset in the name of the Revocable Trust during life, an executor would be responsible for ensuring the same is transferred to the Trust after death so it follows the same plan for distribution. Also, if you have minor children, a Will is the document under which you nominate guardians of minors.
How do ensure I avoid probate if I create a Trust? It’s true that assets in your Revocable Trust typically will avoid probate. A trust simply does not do its job if it is not funded properly – that is, some of your assets will need to be re-titled into the name of the Trust, and other assets will need to list your Trust as beneficiary, or contingent beneficiary. The key to avoiding probate is to make sure you have not forgotten to re-title any of your assets during this process. If you have assets outside the Trust that are not jointly owned or have a beneficiary designation (with some exceptions) when you die, those assets likely need to be probated. The more homework you do to fund assets into your Trust during life, the better the trust will work to avoid probate after your death. (Note: There is also something called a “testamentary trust” which is established after your death according to instructions in your Will. In this case, both the trustee and the trust assets will fall under the supervision of the probate court.)
Can my successor trustee and executor be the same person? Yes. For many, this is a good solution, as it can minimize expenses and can streamline the probate process if there happens to be a stray asset accidentally left outside the Trust when you pass away. There can also be drawbacks, depending on your situation and beneficiary picture.
Consulting with a trusted attorney can help you thoroughly weigh the pros and cons of naming the same person or appointing different individuals in these roles.