What is the difference between an executor and a trustee? I get that question a lot. Most often when a client has a reason to have a trust in his last will and testament.
A trust in a Will is called a “testamentary trust.” It is a testamentary trust because it is found in the last will and testament of a person. A testamentary trust is ineffective until the person in whose Will the trust exists dies. Until that person dies, the testamentary trust can be revoked at any time and no assets can be placed into the trust.
A testamentary trust can be compared to a “living trust.” A living trust is a trust that does not exist in a person’s last will and testament. A living trust can be effective during the person’s life and can have assets titled into it during the person’s life.
A trust is merely a contract, typically, a written contract, between the person who formed the trust, called the “grantor,” and the trustee. Whether the trust is a testamentary trust or a living trust, the role of the trustee is the same.
When a client asks me to draft a Will for him, I always ask him the name of the person he wishes to name as the executor of his estate. Sometimes, the client may tell me that one of his beneficiaries is a minor or is disabled or has problems spending money. In these instances, I may recommend that the client have a testamentary trust drafted into his Will.
After discussing with the client the terms he would like drafted into his testamentary trust, I ask him the name of the person he would like to name as the trustee of the trust. It is often at this time that I am asked the question, “What is the difference between an executor and a trustee?”
An executor is essentially a liquidator. His role is to wind down the business that you conducted during your life.
An executor must submit your last will and testament to probate before the surrogate of the county in which you resided when you died. The executor must gather up your assets, which is frequently called “marshalling” your assets. He may deposit those assets into an estate account or multiple estate accounts.
An executor must pay all of the bona fide debts that you incurred and the debts of your estate. Part of a person’s debts includes any death taxes that may be owed upon his death. An executor must account to the beneficiaries of the estate and must distribute the assets of the estate to the beneficiaries after the beneficiaries have approved his accounting.
An executor is a fiduciary, meaning that he has the highest duty of care in administering the estate for the benefit of the beneficiaries of the estate. A typical estate may take anywhere from nine months to two years to fully administer.
A trustee is also a fiduciary, meaning that a trustee has the highest duty of care to administer the assets of the trust for the benefit of the trust’s beneficiaries. A trustee is responsible for investing and administering the assets of the trust. A trustee can be held liable to the beneficiaries of the trust if he invests the assets of the trust in an imprudent manner.
A trustee must also distribute the assets of the trust to the beneficiaries of the trust according to the terms of the trust. The trust may say that the trustee can distribute the assets of the trust to a beneficiary for his education and only his education. The trustee would be bound by those terms.
The role of trustee may last for several months or several decades. So, unlike an executor, a trustee may be serving in his role for a long, long time.
An executor and a trustee are similar in that they both have a duty of absolute care to the beneficiaries of the estate/trust, but their roles in respect of the beneficiaries are quite different. An executor is more of a liquidator, whereas a trustee is more of a business manager.