Picking a trustee, executor or personal representative is a critical part of the estate planning process. Depending on how you want to administer your estate, not taking the time to choose the right personal representative or a successor could lead to disaster.
Creating an estate plan is something that most people should do. But there are plenty of reasons people may choose not to. These reasons include:
- Not understanding its importance.
- Not having the time or money necessary to create an estate plan.
- Being uncomfortable with the idea of making plans for one's death.
- Being intimidated by the process.
- Not knowing who should serve as a personal representative.
All of these reasons are understandable, especially the last one. It can sometimes be tricky to choose a trustee or personal representative to handle your estate or trust. So it's not surprising that individuals will either forgo the estate plan altogether or put too little thought into choosing their personal representative. This section will focus on this second situation by identifying three mistakes people often make when picking agents to represent their interests and their estate.
Many people will choose a personal representative based on traits that aren't very important from an estate planning perspective. For instance, a married couple might choose their oldest child to be the personal representative in their will. Or an individual might pick someone with a family to be the trustee of their trust. The reasoning being that having a family makes an individual more responsible and familiar with financial concerns that might come up when handling a trust.
There's nothing wrong with choosing someone to be your personal representative when they're the oldest child or have a family. But there are many other important characteristics that you should ask about when choosing someone to be your personal representative.
First, does the person have the time and emotional fortitude to handle the task? Depending on what you need a personal representative to do, the role could include overseeing an uncontested probate process. The personal representative's primary task will be to make sure your wishes get carried out as you outlined in your will. In this case, it might be OK to find someone who doesn't have the most time or isn't prepared to oversee extensive litigation or business negotiations.
But you may need your personal representative to make important financial decisions on how to invest the limited assets in the trust you created. Or perhaps you expect someone to contest your will. Either situation could require the individual you choose to be the representative of your estate to take on what amounts to a part-time job.
Not everyone can handle these types of situations. For example, some people lack the ability or willingness to learn technical information about investing, financial instruments or legal documents. And not everyone has the tact, negotiating ability or standing within a family to best deal with family disagreements.
Second, are they ethical and honest? Your first choice to be your personal representative will be someone you trust. But is this someone others can trust?
Imagine your personal representative must get a document signed by a particular individual. But they will need to leave work early to stop by the individual's office to get the signature. They don't want to do this, so instead they forge the signature. They think it's no big deal because getting the document signed was just a formality. This is not the type of person you want to be your personal representative, even if they have the best of intentions.
Third, is your personal representative conscientious and responsible? Depending on the size and complexity of your estate, the biggest challenge for your personal representative might be ensuring that things go smoothly and confirming that everything gets done as it should.
This might consist of keeping up with deadlines and seeing that the right documents get to the right person by a certain time. Someone could mean the best, but if they can't get the job done, their best efforts won't be enough to be an effective personal representative.
Fourth, are they located in a convenient location? Again, this depends on what they will need to do to handle your estate and for how long. But having a personal representative that can easily get to where they need to be is very important.
There's no set rule as to how close your personal representative should live or work to you or wherever you might need them. Perhaps someone lives across the country, but they've got a private jet and are retired. In that case, as long as they're in the United States, they're probably close enough to get the job done.
But a personal representative could live too far away if they need to drive several hours every few months. This could be an issue if they work full-time and have significant caregiving responsibilities. The primary point is that you want your personal representative to have the ability to easily travel to where they're needed, when they're needed.
Fifth, what is the overall health of your personal representative? Unfortunately, even the healthiest young adult isn't immortal. But the chance of a 30-year-old dying prematurely is far less than someone who's 60. Not convinced? Get a life insurance quote and see how much more expensive the premiums become the older you get.
Whoever you choose to be your personal representative, you want to make sure they'll be around for a while. And when they do have to step up and handle your estate, you want them to have the mental and physical ability to do so.
Sixth, are they familiar with your estate's needs and requirements? This is particularly important if there are special considerations for your estate. For instance, let's say you have a young child who has special needs and you want your personal representative to either serve as your child's guardian or choose someone else who can.
It would be extremely helpful for your personal representative to already know about any issues your child has and how they're currently handled or treated. Put another way, it's very beneficial for your personal representative to be able to “hit the ground running” when they're called in to handle your estate.
One thing to keep in mind is that it might make sense to hire a third-party agent to serve as a professional representative of your estate. This might make sense if you need someone who has extensive experience and knowledge about a technical topic, like law, accounting or investing.
There's a common saying that you've probably heard of and it goes something like this: “If you want to make God laugh, tell him your plans.” This can apply to many things in life, and estate planning is definitely one of them. So it's always good to have at least one backup personal representative to administer your estate and carry out your wishes in situations where your primary choice can't do so.
What are the specific reasons you need to identify at least one other individual to serve as a successor trustee or backup representative? Well, one could easily list several dozen situations where a backup representative would be necessary. But the biggest reason you want to name at least one successor personal representative is for all the reasons you can't think of.
So what happens if the person you choose to be your personal representative is unable to do so? The exact process will depend primarily on the state you're in. States have laws that identify who will be the heirs to your estate if you die without a will (die intestate). And states also have laws that identify who can serve as your personal representative if you don't have one or the person you've chosen can't carry out the task.
What often happens is that if there's no personal presentative in place, there will be a list of family members who can fulfill the role. In many states, the top of the list will be the spouse. Then after that, children assuming they're over 18 years of age. The probate judge will use this list to choose a personal representative. If the person on the list is unavailable or refuses to take on the responsibility, the judge will then go down the list to see who's next.
In other states, an eligible individual may volunteer to serve as a personal representative. In most of these situations, a judge will have to approve the person.
Basically, if you don't have a backup personal representative, a judge or one or more of your heirs could choose one for you. Depending on your wishes, this may not be a problem. But it's also possible that the last people you might want could get assigned to manage your estate.
Another factor to consider is that having a successor in place helps your estate get administered more smoothly and efficiently. If your primary personal representative is handling your estate, but suddenly dies, there will be a period of time to find a successor. And even if you would be more than happy with who your family members or the judge picked, the delay could mean some of your wishes can't be carried out the way you planned.
You picked the perfect person to be your personal representative and you have at least one well-qualified and willing backup to serve if needed. That's great, and you're already ahead of many people with estate plans. But another common mistake is that individuals don't discuss their estate plans with their personal representatives.
This mistake could be mundane, like not telling your executor where the original copy of your will is. It could also be deceptively simple, like not telling someone you've chosen them to be your personal representative. This is more common for those chosen to be a secondary or tertiary successor. The reason being that they're never going to be called up. Therefore, there's no need to tell them about your selection.
Then there are situations where individuals don't want to discuss their estate plans with their personal representatives for privacy or confidentiality concerns. This is a common sentiment and there could be good reasons to keep a personal representative on a need-to-know basis about certain plans for the estate.
Yet there should still be a way to provide basic level of information to an individual so they can effectively serve as your personal representative. This is a good question to ask your estate planning attorney during the estate planning process. They should be able to tell you what information is necessary to give your personal representative and other information that you can keep from them until they need to start administering your estate.
There are also circumstances where your personal representative might have to honor wishes that aren't written down in any estate planning documents. This sometimes happens with wills and beneficiaries under the will. We can look at a hypothetical to illustrate.
Imagine a family with two parents and two kids and the two parents what to prepare their wills. Both kids are over 18, but the parents want to leave nothing to “Goofus” and leave everything to “Gallant.” However, the parents are concerned that if they do that, Goofus will contest the will which could result in contentious litigation for Gallant and the executor.
So what the parents decide to do is write the will where they give both Goofus and Gallant $5,000 each. But the will also gives the executor wide latitude in how the rest of the parents' estate gets distributed.
The parents then tell their executor and the executor's backup to give as much as possible of the estate to Gallant and as little as possible to Goofus. But only to the extent it doesn't upset Goofus enough to contest the will.
The parents don't want to create a specific list of things to go to Goofus and another list of things to go to Gallant. That's because they can't predict what part of the estate Goofus might want and be willing to fight Gallant over. So they want their executor to use their judgment in making these decisions while keeping the parents' ultimate goal in mind.
Without discussing these wishes ahead of time, there's almost no way the executor could carry out the parents' wishes by just looking at the will or other estate planning documents. This example might seem farfetched, but variations of this situation may exist more often than you think.
When creating an estate plan, people often don't put much thought into who their personal representative should be. But this can be a critical mistake that could threaten to undo even the best thought-out estate plan.