Now Accepting Applications: Roles and Responsibilities for Estate Plan Personnel

June 21, 2019
Wealth Planner Nicole Jackson Leslie provides an overview of key estate plan personnel and criteria to keep in mind when filling these roles.

As a business owner, you put a lot of thought into choosing partners, employees and investors. The same consideration should be given to the individuals who will make important health and financial decisions if you become incapacitated and who will administer your estate plan after you pass away. Following is an overview of these important roles and criteria to keep in mind when you are filling them.

Trustee

Unsurprisingly, a trustee is named in a trust instrument. A trustee holds legal title to trust assets, while beneficiaries hold equitable title. This means that the trustee has the power to deal with the property (for example, invest it, manage it and make distributions to beneficiaries) but must do so in the beneficiaries’ best interest.

The trustee has many responsibilities, such as managing the trust assets, making distributions in accordance with the terms of the trust, including making decisions regarding discretionary distributions if those are permitted by the trust instrument, resolving issues among beneficiaries relating to the trust, providing accountings to the beneficiaries and filing the trust’s tax returns. In addition, if a trust owns an interest in a private business, the trustee will assume the responsibilities associated with that interest. For example, if a trust owns voting shares of a company, the trustee would be responsible for voting those shares. Trustees are bound by fiduciary duties and must act in a prudent, responsible manner and manage the trust assets in the best interests of the beneficiaries. Any breach of these duties could result in personal liability for the trustee.

Criteria for selecting a trustee will vary depending on the type of trust. For a revocable trust, you may choose to serve as the sole trustee – or co-trustee along with your spouse – during your lifetime. Careful consideration should be given to whom you name as a successor to serve as trustee after you have passed away. This successor will serve as trustee of any trusts funded after your death (for example, a marital trust for a surviving spouse or separate trusts for your children).

There are more rules surrounding trustee selection for irrevocable trusts. Often, the donor is prohibited from serving as trustee because doing so could cause the trust property to be reincluded in his or her estate for estate tax purposes.

When creating a trust, it is best practice to explore options relating to removing trustees and appointing additional or successor trustees. Depending on the type of trust, these powers may be given to the donor, the donor’s spouse and other beneficiaries. Removal and appointment powers can provide some level of control even when the donor cannot serve as trustee, but there may be restrictions on who may be designated to succeed a trustee who is removed.

Another important decision will be what type of trustee you would like to appoint: an individual, professional or corporate trustee. An individual may be the donor, the donor’s spouse or child or a trusted relative or family friend. A professional trustee is often defined as someone who is covered by liability insurance with respect to his or her role as trustee, such as an attorney, a certified public accountant or a financial advisor. A corporate trustee is a bank or trust company. If a corporate trustee is named, a trust officer will usually administer the trust and be the point of contact for the donor and beneficiaries. One advantage of a corporate trustee over an individual or professional trustee is the continuity and stability of the relationship – the donor need not worry about who will succeed the person named as successor when that successor resigns or passes away.

Personal Representative

The personal representative, or executor, is designated in your will and is responsible for collecting your assets after your death, admitting your will for probate, paying debts, taxes and final expenses, filing all required state and federal tax returns and then distributing the balance of your property in accordance with the terms of your will and closing your estate. This is a temporary role. Once the estate is closed, the personal representative’s job will be complete.

Like a trustee, you may name an individual, a professional or a corporate personal representative. You may designate the same person or entity to serve as both personal representative and trustee. Some states have requirements regarding who may serve as personal representative. For example, Florida requires that a personal representative either be related to the decedent or a Florida resident.

Serving as personal representative often involves a significant amount of time and complexity. If you name a family member or friend, he or she may hire a professional to help navigate the process. Keep in mind that your personal representative may be required to post a bond with the probate court, and if estate funds are not properly administered, the personal representative may be personally liable.

Attorney-in-Fact

You designate your attorney-in-fact in a power of attorney. This is a powerful document that allows your attorney-in-fact to make financial decisions and sign documents on your behalf.

A power of attorney is only valid during your lifetime. When you pass away, your attorney-in-fact’s power is revoked, and decisions regarding your assets will be made by your personal representative and/or trustee.

There are two types of powers of attorney: a durable power of attorney and a springing power of attorney. A durable power of attorney takes effect immediately when you sign the instrument and remains valid if you become incapacitated. A springing power of attorney only takes effect when you become incapacitated. A limitation of a springing power of attorney is that your attorney-in-fact will need to prove that you are incapacitated before he or she can act on your behalf. This might require a letter from your physician, which could cause delays for your attorney-in-fact. For this reason, many opt for a durable power of attorney and store the original in a secure location until it is needed. You may choose to leave the original with your estate planning attorney so that he or she can verify any requests by the attorney-in-fact for the instrument.

There are two types of powers of attorney: a durable power of attorney and a springing power of attorney. A durable power of attorny takes effect immediately when you sign the instrument and remains valid if you become incapacitated. A springing power of attorney only takes effect when you become incapacitated. 



Many powers of attorney are based on forms but may be customized by your estate planning attorney. If you plan to use a power of attorney for a specific purpose relating to your business, you should explicitly grant your attorney-in-fact that power in the instrument.

Healthcare Agent

You designate your healthcare agent in a healthcare proxy, also referred to as a healthcare power of attorney or healthcare advance directive. Your healthcare agent is authorized to make medical decisions on your behalf when you are unable to do so yourself (for example, if you are physically or mentally incapacitated).

Your healthcare agent may not act until a physician determines you are unable to make medical decisions, and his or her authority only lasts for as long as you are incapacitated. If you regain capacity, you will be responsible for your own medical decisions, and your agent will have no authority.

Healthcare agents have a lot of responsibility, so take care when choosing someone, and talk it over with him or her to make sure he or she would be comfortable making potentially difficult decisions. You may sign something called a “living will” in which you declare your wishes regarding end-of-life treatment, but ultimately any decisions will rest with your healthcare agent.

Give copies of your healthcare proxy to all your physicians as well as your healthcare agent. If you know you are being admitted to a hospital, bring a copy with you.

Conclusion

There are many considerations when filling these important roles throughout your estate plan. In addition to selecting the best candidate for the job, you will need to navigate state laws regarding who may be designated, whether more than one agent may serve at a time, compensation and more. These appointments are valid until they are revoked or the designated person is ineligible to serve (for example, resignation, incapacity or death), so it is important to review your choices from time to time.

If you would like to learn more about this topic or discuss your options for estate planning personnel, contact your Brown Brothers Harriman wealth planner.

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