The Difference Between a Trustee, Guardian and Executor

When a close friend or family member passes away, you may be surprised to learn that you have been named to serve as executor, trustee or guardian. Sometimes you can be named to fulfill two of those roles or even all three, which carry immense responsibilities. Unfortunately, most individuals do not discuss these issues with their loved ones ahead of time.

“Anyone can be appointed as a trustee, executor or guardian, whether they're an aunt, a sister, an uncle, a friend, a financial advisor, a lawyer or a CPA," said a senior trust advisor for City National Bank. “There's no obligation to let someone know ahead of time that they will be named, but it's definitely better to prepare them."

All three roles have different obligations. Generally, an executor administers the estate of the person who died, while a trustee administers a trust for the benefit of the named beneficiaries. A guardian makes decisions for minor children of the person who died or for an incapacitated adult.

 

What's an Estate?

The term "estate" generally encompasses anything that was part of a deceased individual's net worth. In short, an estate is everything that a person owned in their name while alive.

An estate can include:

• Possessions (cars, artwork, jewelry and more).
• Real estate.
• Financial securities.
• Cash.

 

What Is a Trustee?

A trustee is responsible for oversight and management of a trust to ensure that the trust agreement is followed. A trust can be established by someone while they are alive for the benefit of another, in which case they must name the trustee and fund the trust. A trust can also be established in a will with the trustee only acting upon the death of the individual. This type of trust is called a “testamentary trust".

Responsibilities of a trustee can include:

• Asset management.
• Tax compliance.
• Reporting and distribution of trust assets.

A gut reaction a lot of people have is to appoint family and friends as trustees because people assume they're in the best position to take care of the beneficiaries, especially if they're kids.

However, being a trustee is a challenging job with the potential of many unintended consequences.

As a trustee, you have personal liability and can be sued by the beneficiaries if they're not happy with your decisions or think you haven't followed the trust agreement. There's no legal obligation to accept the role of trustee, but friends and family members often feel a moral or ethical obligation to accept the role on behalf of their friend or family member.

If you accept the role of trustee, you can hire help or delegate parts of the job.

The trustee's job is to fulfill the trust agreement themselves or with help, so they can hire a CPA for tax advice and a financial advisor for investment advice. People can also name several trustees from the beginning, including a bank, a friend and a family member.

A pitfall for friends and family members who serve as trustees is that family relationships can become fraught with tension, such as when one sibling is a trustee with responsibility over distributions from a trust for the other.

An independent corporate trustee can take the emotion and any prejudice out of the situation. That's why it's common to pair a family member with a corporate trustee. The family member can bring insight into the thinking of the deceased person while the corporate trustee can bring the benefit of being independent of family dynamics.

 

What Is an Executor?

An executor focuses on securing a deceased person's assets and distributes them according to terms set forth in that person's will. The role of executor is similar to a trustee, but it applies solely to the estate of the deceased person rather than to a trust and its beneficiaries.

The job of the executor is finite and gets wrapped up within a specific time period, as opposed to a trustee, who may have that role for life. An executor needs to collect and preserve the assets of the deceased person and distribute those assets according to the terms of the will.

Roles of an executor include:

• Overseeing estate assets.
• Notifying banks, creditors, and government agencies of a person's death.
• Representing the estate in court. Paying off the debts of the deceased. Dividing the estate among beneficiaries.

Similar to a trustee, an executor can be an individual or a bank. An executor can hire a financial institution, accountant or tax expert to help with the responsibilities.

 

What Is a Guardian?

A guardian is responsible for serving as a substitute parent to a minor child whose parents are incapacitated or have both died. A guardian is often named in a will.

The role is similar to a trustee, but instead of being solely responsible for the financial interests of the child, a guardian is responsible for the well-being of the kids. There's typically no financial compensation for being someone's guardian, but often the same person is named both as a trustee and guardian. But that's not required, so a guardian may need to work with a trustee on behalf of the kids.

The responsibilities of a guardian legally end when a child becomes of majority age, which is 18 in most states.

Responsibilities of a guardian include:

• Helping the children get medical care.
• Assisting with daily living needs.
• Overseeing their education.
• Handling financial duties.

Sometimes people name a trustee to take care of assets held in trust for the child and a guardian to take care of the children.

There's no magic formula for choosing the right guardian for your children, but you'll likely want someone with the same philosophy and lifestyle you have. They also need to have the capability and capacity to raise your kids.

 

Can an Appointed Trustee, Guardian or Executor Decline the Role?

If you are surprised that you were named as trustee, guardian or executor, or your circumstances have changed since you were asked to fulfill one of those roles, you can decline the responsibility.

Typically, there will be successors named in case the person nominated as trustee, guardian or executor can't or won't take on the job. If not, there may be a back-up process outlined to name someone other than the original person.

Naming a back-up person or institution as a trustee or executor is an important step to protect beneficiaries in case the person named is incapable or unwilling to take on the required responsibilities. For a guardian, establishing a back-up person is even more important since a guardian is expected to take on the role of a substitute parent.

 

Getting Help Fulfilling Your Responsibilities as Trustee, Guardian or Executor

One of the biggest pitfalls is that people often name just one person to take on a role that has an high level of responsibility. Providing information to trustees, executors and guardians, and giving them access to financial, tax and wealth advisors, can help make their job easier.

If you've been named to take on one or more of these roles for a friend or family member, please keep in mind that you can work with outside specialists, including their attorney, tax advisor or wealth planner, or your own for that matter, for advice.

At City National Bank, our trust and estate advisors are ready to guide you through this process. We always consider your family dynamics and focus on the unique details of your specific situation. Reach out today for more information about how we can help you come up with a plan of action.