Executors and trustees face many difficult and time-consuming tasks while administering an estate or trust. It is incredibly difficult to deal with some of the more complex issues without professional help. Individual fiduciaries are responsible for their actions, and in some situations may be held personally liable for not getting professional help when they lack the necessary expertise to properly perform the task. Don’t be afraid to ask for help. Becoming a trustee or executor is a big commitment, but you don’t have to go through it alone!
When and where to get help will, of course, depend on the particular issue that needs to be addressed. If the matter is one of legal interpretation or consequence, an attorney who specializes in that area of law should be consulted. If the question is procedural or authoritative in nature, such as whether or not the executor or trustee can hire agents to assist in the administration of the estate or trust, the answer can usually be found in the will or trust or by referencing local statutes.
Some individuals may feel that the reason they were selected was to save money. They may also think that they would betray this intent by hiring agents and incurring the additional expense. Just the opposite is true. While minimizing expenses is always an objective, the testator or settlor also expects the individual to perform the job correctly to protect the interests of beneficiaries. The expectation is that the individual will use the resources of the estate or trust to carry out this objective. The laws are also written with this in mind. Hiring consultants to assist and advise the executor or trustee is proper and an appropriate administration expense chargeable to income. In fact, some statutes make specific reference to the charging of agents’ fees to the estate or trust.
Accountants should be used for their expertise in the fields of accounting and taxation. Because of the high level of accounting and tax expertise required, only certified public accountants (CPAs) should be retained. A CPA can provide assistance with tax returns, tax elections, trust accounting reports, court accountings, inventories, business valuations, and addressing a variety of tax, fiduciary accounting, and planning issues. In addition, a CPA can assist the executor or trustee in developing and analyzing budgets, auditing business and commercial real estate interests, and helping resolve management problems that may exist with a closely held business.
However, accountants should not be the final answer to a particular tax or accounting question. Accountants are prohibited from engaging in the unauthorized practice of law. A tax attorney should be retained if a particular tax or accounting question requires a legal opinion with regard to interpretation or application of the tax law. Most accountants will refer a client to an attorney when this situation occurs. Accountants can also be relied upon to make objective recommendations. CPAs do not receive compensation for recommending a particular investment or insurance product or referring a client to another professional. Accountants work closely with other professionals in the community and are a good source for referrals to stockbrokers, insurance agents, attorneys, and other professionals.
An attorney is usually required when an executor or trustee interacts with the courts. This is typically the case in a formal probate proceeding. Attorneys can give advice on a broad range of legal and nonlegal matters. These include guidance with regard to probate proceedings, interpretation of contracts and other legal documents, guidance on the effects of local law on the administration of estates and trusts, dealing with creditor rights issues, interpreting the legal rights of heirs, and other issues that require interpretation and application of the law.
The attorney who prepared the will or trust is the logical choice to represent the estate or trust in court, as he or she should be familiar with the decedent’s estate plan, family, and financial affairs. However, the attorney who prepared the original will and/or trust may not have an interest in representing the estate or trust or may not have sufficient experience in the area of administration. The executor or trustee is responsible for hiring the attorney and it is therefore important to retain someone who will devote the time and who has experience with estate and trust administration. The fiduciary should also make sure that expensive attorney time is not used for tasks that can be accomplished at a lower cost by someone else.
Banks and trust companies are in the business of providing fiduciary services, including serving as an executor and trustee or acting as an agent to assist the fiduciary with administration. Banks and trust companies bill themselves as “one-stop” shops because typically, they have all of the facilities to administer estates and trusts in-house. Using a bank or trust company to serve as an executor or trustee can be expensive, particularly for smaller accounts. However, if the bank or trust company provides services as an agent of the executor or trustee, the cost might be lower depending on the particular services that are needed.
One of the advantages of using a bank or trust company is that they do not get sick or go on vacation and therefore provide continuity in the administration of the estate or trust. Individuals are human and must devote time to their own business and family affairs. Banks and trust companies can also be useful in mitigating conflicts between the executor or trustee and other family members. For example, if the individual executor or trustee is also a beneficiary, he or she could be viewed by other family members as not being totally objective with regard to the management decisions that are made. Banks and trust companies are usually not well equipped to manage a closely held family business. A family member or other individual who is familiar with the business can better handle this type of asset. If the estate or trust is complex, using a corporate fiduciary may be a way of reducing liability exposure. Banks and trust companies do this for a living and are also covered by insurance for any errors they make.
Most investment firms provide individual portfolio management services in addition to their retail brokerage activities (i.e., recommending stocks and bonds for purchase or sale). The large investment firms now own one or more trust companies through which fiduciary services are also offered. However, they are new at this business and the services may be limited and only available in the state where the trust company is located. Some firms deliver limited fiduciary services through their local offices, using the account executive (broker) as a liaison between the trustee client and the trust officer who works out of the nearest trust company office.
Investment firms are capable of managing a trust’s securities portfolio, but are not usually equipped to handle the management of other assets, such as real estate. Management of the portfolio is either handled by portfolio managers within the firm or outside money managers hired by the company. Management fees can run anywhere between 1% to 3% of the portfolio’s value annually.
A financial planner’s primary function is to help individuals develop and implement a comprehensive personal financial plan. Financial planning includes budgeting and cash flow analyses, long-term savings, retirement planning, investments, tax planning, estate planning, and risk (insurance) management. Financial planners can assist an executor or trustee with any of these component needs if the planner has experience in dealing with these issues in a fiduciary context. Financial planners usually have an orientation toward investments and insurance, since they may be compensated through the use of these products. A financial planner may also have a strong background in estate planning and can be helpful to an executor or trustee in making decisions that affect a beneficiary’s estate plan. Some planners emphasize tax planning and may have expertise in fiduciary taxation.
An insurance agent should be consulted when evaluating the insurance coverage for estate and trust assets. Agents should be engaged to investigate the physical condition of estate or trust property and recommend any changes necessary to reduce hazards and protect fiduciary assets. The coverage should include protection from fire, theft, loss of use, liability, and other risk exposures. If additional coverage is needed, the executor or trustee should be advised as to the most economical way to obtain the needed coverage. The fiduciary should use the insurance agent who handled the decedent’s policies prior to death. However, the executor or trustee can use any agent or firm as long as it does not create a conflict of interest.
A real estate agent should be retained if the estate or trust holds real estate that needs to be sold. Hiring an agent that has expertise in the area in which the property is located is the prudent choice. The realtor should also specialize in the particular type of property (residential, commercial, or industrial) that is being sold. Before making a selection, the executor or trustee should discuss the sale with three different realtors and list the property with the realtor that has the highest level of experience and success in marketing the particular type of property that is being sold.
Some real estate firms can also provide property management services for income-producing residential and commercial properties, including marketing and advertising, collection of rents, physical care of the premises, procuring supplies and equipment, making repairs, hiring employees, and maintaining accounting records. Although a realtor may be familiar with the principles of valuing real estate, most do not provide formal appraisal services. However, they are a good source for referrals. Most are very familiar with the quality and price ranges of experienced appraisers and can recommend one that is best suited to the particular property that needs to be valued.
Who should you hire to assist with the administration? Does he or she have the necessary skills and expertise? Will you pay too much? The number and variety of financial experts out there is mind-boggling. Anyone can call him- or herself a financial planner or advisor, and there are many to choose from. There are a variety of certified professionals out there, including certified public accountants (CPAs), chartered financial analysts (CFAs), certified financial planners (CFPs), chartered life underwriters (CLUs), chartered financial consultants (ChFcs), certified trust and financial advisors (CTFAs), and many, many others. To add to the confusion, there is no one agency that regulates all financial advisors or uniform standards that apply to all groups. Fees that financial advisors charge vary widely, and some will not accept a client whose assets fall below a minimum dollar amount. Deciding on who to hire can be a perplexing experience, but it does not have to be.
Doing your homework and asking some basic questions will greatly improve your chances of hiring the right person. Some basic questions to ask when selecting an advisor include:
The selection should be based on the particular service that is needed and additional information pertaining to the advisor’s particular area of expertise should be obtained before you make the final selection.
In carrying out the responsibilities imposed on an executor or trustee as set forth in the governing document and/or local law, a fiduciary must select advisors wisely. While technical competence is important, so too is the advisor’s business philosophy regarding the management of the estate or trust. The advisor’s attitudes should be agreeable and compatible with your own. The needed services should be clearly explained to the agent and outlined in a written agreement signed by both the agent and the executor or trustee. Professional advisors should not be used for routine work that you can perform yourself.
You should keep good records of the services each agent provides. The records can be used as a reference in the event a question arises regarding the services that were performed. Remember that the executor or trustee is expected to exercise care, skill, and caution in managing the estate or trust. In carrying out this responsibility, he or she must exercise a reasonable degree of prudence in selecting the agent. Once an agent has been hired, the executor or trustee must employ oversight and supervision of the agent’s activities to assure that the services contracted for are delivered satisfactorily and that the integrity and interests of the beneficiaries are preserved.