(MoneyWatch) You may be honored when a relative or friend asks you to serve as their will's executor or their trust's trustee. But do you really know what these roles entail, and when the time comes, will you be capable of serving?
When first designated as an executor or successor trustee and the conditions that require you to serve have yet to occur (i.e., the individual naming you is still alive and well), you need not do anything.
But once a trigger event takes place, you take on the formal role of the representative of an estate or a trust and become a fiduciary. What you do in that capacity is held to the highest standard under civil law and must be carried out in the best interests of the estate, trust and their beneficiaries.
Some of the responsibilities of executors and trustees include:
1. Documenting, collecting and accounting for all income, assets and debts of the estate and/or trust
2. Promptly paying all debts, expenses and taxes of the estate or trust
3. Managing all assets of the estate or trust (or hiring qualified managers to do so)
4. Collecting benefits from retirement plans, IRAs, annuities, pensions and life insurance policies
5. Identifying all beneficiaries
6. Paying income and distributing assets to beneficiaries
7. Making elections to fund trusts and disposing of assets as called for in the will or trust
8. Filing notices to state and federal tax authorities, filing timely and accurate tax returns, and making tax payments on time
As you can see from this partial list, there are many activities that require technical and detailed financial knowledge. For that reason, your representative will likely need to seek the assistance of other accounting and legal representatives.
If you are asked to serve, here are some considerations:
Do you have the time? Settling an estate can take a minimum of nine months, and often the process, from start to finish, runs to as long as 24 months. In some months there is so much to do that you may have to take some time off from work to perform your duties. Be aware of this if or when you contemplate taking on this role, and once you have signed on, be prepared for interruptions of your work schedule.
Do you have the skills? Many of the responsibilities cited above require advanced knowledge of accounting, finance and legal matters. Even if you are a CPA and an attorney, if you lack experience in settling an estate or administering a trust, you will be out of your comfort zone and may have to seek the help of other qualified professionals. Prepare a list of persons you can turn to when the time comes and keep their contact information up to date. They will come in handy when the process begins.
Finally, you need to be aware of any potential conflicts involved with service to the beneficiaries of an estate or a trust. Poorly planned wills or trust documents and dysfunctional families and feuding beneficiaries may result in a combustible mix, and you are the one that can get caught in the flames. It may be a good idea to hire an attorney to not only assist with the settlement process but also advise you of any legal risks you might face and how best to manage these.