The term “personal representative” is a generic word for Successor Trustee, Executor, Administrator, Agent, Conservator and Guardian - the main legal capacities we will be dealing with in estate planning.  These terms basically mean that one person represents and acts on behalf of another person who is mentally, physically or, by law, unable to act for himself or herself.  The representative serves in a “fiduciary capacity” which means that he or she owes the highest duty of care and accountability when handling matters for the person represented.  The trustee job carries a lot of power and authority over your money and property. Mostly, it gives your trustee power over your chosen beneficiaries. We look at “to whom” the duty is owed during two time periods/events (three if you are married). 1. While you are alive and incompetent. 2. After your death. If you are married, then 2. would be to your surviving spouse (who would most likely be the successor trustee) and then 3. would be after both of your deaths.

When you really think about this decision - it is who is the ideal person or company to replace yourself. If you are papa bear of the family and take care of two teenage children who will be in college soon and you have a spouse, with a home worth $1 million, an investment portfolio worth $500,000, retirement benefits of $250,000 and life insurance of $500,000 - then would Uncle Jerry really be the best choice to handle the finances and manage a household if both of you are killed in an unfortunate turn of events?

If you are the powerful lion in the den of five children from ages two to 21 and there are two rental properties, a business, a house worth $1.5 million, an investment portfolio worth $2 million, then think through who could actually do the work? Maybe a trust company or trust department in a bank be a better fit. Meet the trust officers and get to know them.

The documents which officially appoint a personal representative range from a Living Trust appointing a Successor Trustee, a Power of Attorney appointing an Agent, a Last Will and Testament appointing an Executor (probate proceedings), or a Nomination of Conservator appointing a Conservator (for if the individual becomes incapacitated). 

The work of a Personal Representatives has become increasingly complex with a host of extensive responsibilities, notices, requirements and accounting requirements.  The proposed Conservator must attend a class to learn how to become a conservator before he or she can even be appointed.

There are continuous changes in trust law, probate procedures and laws, estate taxes, income taxes, capital gains taxes, prudent investment laws, accounting requirements, principal and income law, powers of attorney laws and conservatorship proceedings. 

Choosing the right person or company and two or more alternates are critical and essential parts of estate planning. The right person can and to the successful administration of your trust and estate when planning for after your death and in the event of your incapacity.  An imperfect decision is better than no decision at all.  It is important to remember that a trust will not fail for lack of a trustee.  There is always a way for a beneficiary to petition a court to appoint a successor trustee.  The same goes with probate, the beneficiary can always petition to appoint an administrator if the nominated executor is unwilling or unable to take on the burden and responsibility or passes away during the administration.  The Personal Representative can almost always be changed in the appropriate documents prior to your death as long as you are competent, not subject to fraud and free from undue influence etc.  Following are some considerations when thinking about who, what, when, where and why of the successor trustee, executor and agent dilemma when making your estate planning decisions.

The choices are generally as follows:

1.  Family member

        Choosing a family member to be your Successor Trustee usually provides a person who is empathetic, informed of personal family issues and will usually be personally involved in the actual day to day administration of your trust and estate.  However, in some circumstances, a family member might be too emotionally involved to be an unbiased and effective Successor Trustee.  At worst, a family member may be inexperienced in financial matters.  It’s takes special skill to deal with investments and real estate, work with banks and brokerage companies, keep accurate records, prepare and balance an accounting for the other beneficiaries and to perform all of the other trust administration work.  

It is a lot of work and if the family member already has a full-time job, then it could be a resentful and bitter experience which ends up breaking down relationships.  The relationships that exist between the trustee and your beneficiaries might become strained and the trustee may be placed in the position of making unpopular decisions.  The family member trustee may have other time commitments and priorities with family, business, work and his or her own personal responsibilities.  If the family member trustee is inexperienced or incompetent in complex accounting, taxes, reporting, and recording keeping, then he or she may end up delaying the preparation of the required accounting which usually results in mistrust and ill feelings between the beneficiaries and the trustee.

At first, the family member may say that he or she does not want to charge a trustee’s fee, but when the trustee finds out how much work is involved, then the trustee may feel regretful and dismayed and may “put off” the accounting, reports and paperwork since he or she has their own work, financial responsibilities and family to take care of first.  After all he or she has to pay his or her owns bills (which becomes a priority over getting the accounting and paperwork completed as a favor.   If the family member can hire other professionals to do the accounting, manage the real estate and do other work for which professionals can be hired, then it could all work out well.  As always, it all depends on the circumstances.

  2.  Private Professional Fiduciary

        A Private Professional Fiduciary(PPF) is an individual who conducts a professional business of acting as a trustee, executor, agent under a power of attorney or conservator.  The PPF usually has prior experience in a bank trust department, a trust company or has been a Certified Public Accountant or Enrolled Agent in the past.  They are now required to be licensed by the California Secretary of State and must have minimum educational requirements.  They are required to maintain minimum continuing education requirements in a relevant field of study.  In most cases, they charge less than a bank or trust company and will accept lower valued estates.  Since administering trusts and estates is their business, they are competent and responsive to personal and financial issues. 

Private Professional Fiduciaries may hire investment advisors to advise them on the financial investments if the work is an ongoing assignment they will develop a prudent investment plan with the aid of that advisor.  They will hire professional estate sale administrators to deal with the personal property of the trust/estate.  They will hire attorneys to advise them on legal matters, with communicating with the beneficiaries on major components of the trust administration, legal aspects of the sale of real estate and representation in court proceedings, as necessary.  They are competent in preparing timely accountings and communicating with beneficiaries.  Many have special talents with handling difficult beneficiaries.  They have certain reputations before the probate judges because they are often appointed by the judges when executors and trustees are removed for misconduct and failure to account. 

  3.  Friends or business associates

         The considerations for choosing a friend or business associate can be similar to those of a family member – finding an individual with the time, requisite financial acumen, accounting expertise, reporting capabilities and one who is also empathetic, honest, and hardworking.   Filling the role of Trustee brings with it many responsibilities.  It can be time-consuming and may simply be too burdensome for some individuals.   When the trustee hires professionals to prepare the Trustee’s accounting, obtain financial advice, manage and/or sell real estate and to prepare reports, then the expenses may outweigh the benefit.  Business associates with special skills are expected to use those special skills when acting as trustee but unless agreed to in advance in writing, may not be able to charge their professional fees.   How you want to compensate your successor trustee should be specifically set forth in the document appointing him or her.

4.  Investment advisor

        This type of person would ideally be an honest, hardworking trained professional with investment and portfolio management expertise and experience.  Such as advisor might not have equivalent expertise in matters of trust administration, accounting or a knowledge of fiduciary laws and principles, nor perhaps the deep knowledge of the family’s personal affairs that is so often beneficial.  The investment advisor might not be experienced is the sale of real property and the exposure to liability that can come with inexperience if the sale is not completed correctly.  There could be a conflict of interest between the financial advisor’s desire to make commissions and earn money for the investments and the duty to maintain only prudent investments for the trust.  Usually, the post-death administration objective is to liquidate the assets and investments so that they can be easily distributed to the beneficiaries equally.  There are brokerage companies like Schwab and others who will sell the stocks and mutual funds commission free.  An investment advisor might be focused on keeping the investments and distributing them between the beneficiaries which sometimes can be a challenge since the investments fluctuate in value and an equal division is hard to calculate if the beneficiaries do not agree. Many times, the division ends up in pesty little fractional shares which plague portfolios for years.  However, the financial advisor can be experienced and provide valuable services on the liquidation of the estate’s investments so why not just use him or her for that service only instead of as a trustee or executor.  The financial advisor’s company may have a policy about the use of company time for personal work.  Or their company might have their own experienced trust department which will act as Trustee and do the trust administration work (instead of the specific financial advisor).  Be sure to check about the fees for that company.  They could be above market rate.

5.  Corporate Trustee

            The corporate trustee is usually a trust company or a bank with a trust department.  The corporate trustee tends to be professional, experienced, and available, and is not invested emotionally, so it can be objective.  The beneficiaries usually are assigned a “trust officer” to communicate, to receive requests and to make payments to or for the beneficiary on behalf of the corporate trustee.  Longer-term trusts may be best served through corporate trustees, since they will have a greater likelihood of being able to administer the trust for the long term and keep pace with the changing fiduciary laws and principles, even over multiple generations if need be. 

            The potential disadvantage might be having a dispassionate and uncaring trustee who may lack an understanding of family dynamics.  However, many corporate trustees have very personable trust officers who stay in touch with the beneficiaries and maintain personal relationships with them.  Many discretionary distribution decisions are made by committee.  Banks and trust companies have been known to merge over the years and the corporate trustee you intended to act at the beginning may end up being a different organization that you or your beneficiaries formerly disliked.  Your beneficiary may end up having to call a 1-800 number and talking with a different trustee representative each time.  The corporate trustees usually have minimum yearly trustee’s fees based upon a percentage of the trust assets - which make it uneconomical for lower valued estates.  Some corporate trustees refuse to accept trusts and estates under a minimum value, such as $1,000,000.00. Some refuse to accept certain types of real estate, businesses, and other unique assets.  If they do accept real estate, it must go through toxic and environmental investigations before the property is accepted by the corporate trustee.  Corporate trustees have been around for over a hundred years and will do a good job at accounting and doing what they are supposed to do.

6. Attorney

         Attorneys can be expected to have the requisite degree of legal knowledge and expertise – particularly if trusts and estates are their primary practice area – as well as perhaps deep knowledge of the family’s personal and business affairs. However, they may not always possess sufficient investment and portfolio management skills to manage a trust effectively through changing market conditions and across multiple generations.  California law generally prevents an attorney from qualifying to act as the Trustee if the attorney “caused the trust to be drafted.”  The creator of the trust usually must obtain an “independent review” by a different attorney.  The attorney may not be willing to act as trustee – he or she may not want to be the one to clean out a garage or conduct an estate sale to dispose of the furniture, furnishings, and personal effects that the beneficiaries do not want.  The attorney may not want to be exposed to personal liability for failure to act promptly and due to exposure to trustee liability.  If the attorney has a busy law practice, then the attorney may not be able to devote a sufficient amount of time to the personal issues involved with the beneficiaries and the trust administration.  Generally, a trustee cannot charge trustee’s fee and attorney’s fees for the same work so it may be hard to distinguish from the work of the trustee and the work of the attorney.  If the attorney trustee is charging an hourly rate instead of percentage compensation, such as 1% of the gross value of the trust estate, then the cost may outweigh the benefits. 

Conclusion.

Once you choose a Successor Trustee and the documents are in place, then you need to keep in contact with the proposed Successor Trustee on a periodic basis.  Invite them to your home if they are a corporate or private professional trustee.  Show them where your files are located.  Add them on your safe deposit box for access.  Give them a key to your home and your safe deposit box.  Give them the combination to your safe(s) if applicable.  Give them contact information for your beneficiaries and your “heirs” or next of kin.

Below are some questions you might ask a potential successor trustee. Of course, I recommend that you interview several of them.

Potential Successor Trustee Questions:

 1.  How will you know that I am incapacitated and/or deceased?  What is your plan to keep in contact with me if I name you as Successor Trustee?

2.  What is your experience with trust administration?  How long have you been in business?  What is your education, licensing and experience that makes you qualified to act as a Successor Trustee?

3.  What is your experience with probate proceedings?

4.  What is your experience with conservatorship proceedings?

5.  What is your experience with avoiding probate & conservatorship proceedings?

6.  What is your experience with administering trusts for minors (if applicable)?

7.  What is your experience with activating and using powers of attorney?

8.  Have you ever had beneficiaries that disagree with your or your company’s work?  What will you do if the beneficiaries disagree on anything that you do?

9.  What is your experience with preparing accountings and presenting them to the beneficiaries?  Have you ever had a beneficiary or other person object to any of your or your company’s accountings?

10.  Have you ever had a beneficiary complain about your or your company’s delay in administering a trust or estate?

11.  Have you ever had a beneficiary complain about your or your company’s lack of communication or inadequate communication?

12.  How do you decide on discretionary distributions to beneficiaries?  (Trust administrator’s personal decision? Do you have a committee?  Do you or your company have any policies or guidelines?)

13.  What do you charge for your basic post-death trust administration services?

14.  What do you consider “extraordinary” services?  How much do you charge for extraordinary services (current hourly rates)?  How often do you increase or change your rates?

15.  Do you have minimum requirements for accepting a trust or estate or certain types of assets?

16.  How do you perform your environmental or toxic evaluation of real estate before you accept real estate?  How much does the evaluation cost?

Questions for Family-Member Trustee Candidates:

 17.  Do you have time to do the trust administration? (Going to banks, brokerage companies, title, escrow, reviewing statements, preparing the accounting, communicating with beneficiaries, working with investment advisors, brokerage companies, realtors, banks, reviewing and filling out paperwork, working with lawyers, working with accountants etc.)

18.  Do you balance your checkbooks each month?  Do you have any experience in bookkeeping and preparing accountings?  Do you know what to include in an accounting?

19.  Can you read a broker’s statement?  Ask them to review your own personal brokerage statement(s) and identify the account title, broker’s address and contact information, asset details, income, distributions, realized and unrealized capital gains, expenses, fees and charges.

20.  Have you ever sold real estate?  How did you choose a real estate broker?  How many offers did you review?  How did you deal with the disclosures? What were the problems or issues during escrow?  What were the problems with potential buyers?

21.  What do you foresee as potential conflict areas between the beneficiaries (assuming they know them)?  Can you be impartial?

22.  Have you ever been a beneficiary of a trust administered by someone other than yourself?  What was your experience?  What would you do differently as a trustee?

23.  What would you do if I became incapacitated (car accident, stroke, heart attack, cancer, dementia/Alzheimer’s, mental illness etc.)?  

24.  Would you put me in a care facility or keep me at home?  Why for each choice?

25.  What steps would you take to hire caregivers if I became incapacitated?  How would you find caregivers?