Trustees and executors are both fiduciaries. They enjoy positions of trust and confidence and are required to act in a manner that is always in the best interest of their beneficiaries. The roles they play are different, however. The executor only acts upon death, while a trustee can act both upon death or even when the grantor is still alive, depending on the terms of the trust.
To understand the difference between trustee vs. executor, we need to learn more about what happens when a person dies.
When a person dies and he leaves a will, the will normally state the disposition of the deceased’s property and his preference of the person who will manage his property when he dies. For example, in a will, you will see words like… “I bequeath my car to my son, (insert name),”
or “I give my only house located in (insert address) to my daughter, (insert name).”
These are called specific bequests because what is being given is a particular item.
Sometimes, after specific bequests are made, the deceased still has other property that he has not disposed of. In this case, he will write in his will something like, “I give the rest, residue, and remainder of my estate (my residuary estate) to my spouse, (insert name). If she does not survive me, I give my residuary estate to my children in equal shares.”
In the will, you will also see an appointment of a person who the deceased wishes to manage his property upon his death. This appointment will be something like, “I appoint (insert name) as executor of this will. In case he fails to qualify for any reason as executor, or having qualified, shall die, resign or cease to act for any reason as executor, I appoint (insert name) as alternate executor.”
In this example, we have the executor who was appointed by the testator (the person who wrote the will) to manage the dispositions stated in his will upon his death. When the testator dies, the executor’s job is to gather the deceased’s assets, to file returns, to pay the taxes and debts, and thereafter, to distribute the remaining property to the beneficiaries.
In this case, the beneficiaries are the son (to whom the deceased left his car), the daughter (to whom the deceased left his house), and the spouse (to whom the deceased left the remainder of his property – the residuary estate). The executor, as a fiduciary, has to always act in the best interests of the estate and to preserve the assets for the benefit of the beneficiaries.
The executor has to observe the fiduciary duties of care, loyalty, and honesty. He must exercise care in preserving the estate assets. Thus, he cannot unreasonably sell property at $1000 when the market value is $5000. It will be considered a breach of fiduciary duty due to the wasteful dissipation of assets.
The executor also has a duty of loyalty to the estate and its beneficiaries. He cannot sell estate property to himself because it will be considered self-dealing. His loyalty should always be to the beneficiaries. He has the duty of honesty to his beneficiaries. He should always volunteer relevant information relating to a transaction. If he wants to sell real property of the estate to his friend, he should inform the beneficiaries that he is selling it to a friend.
What happens when an executor breaches his fiduciary duty? For example, if the executor was found to have negligently sold real property below market value, he can be held liable to the beneficiaries for the difference between the selling price and the market value.
As can be seen above, an executor only acts when a person dies with a will. When a person dies without a will, the one who manages the property of the deceased is called an administrator. Both the executor and administrator are fiduciaries who are expected to observe the fiduciary duties of care, loyalty, and honesty.
A trustee, like an executor and administrator, is also a fiduciary and is expected to observe the fiduciary duties of care, loyalty, and honesty. However, unlike an executor and administrator, a trustee does not always act only upon the death of a person. A trustee can act as a trustee, even if the grantor (the one who established the trust) is still alive. However, in cases of testamentary trusts, the trustee acts when the grantor dies.
What is a testamentary trust? A testamentary trust is a trust created by will. In the example above where the testator writes in his will that he leaves the remainder of his estate to his spouse, in a testamentary trust, the testator will leave the residuary estate to a trust. In this case, the residuary estate will be transferred in the name of the trustee of the trust. The trustee will then manage the residuary estate assets in favor of the named beneficiaries.
For example, if the testator’s residuary estate consisted of $100,000 in the bank account and a condominium unit in Manhattan worth $300,000, both the bank account and the condominium unit will be transferred in the name of the trustee, Trustee of ABC Trust. The trustee will manage the bank account and the condominium unit in accordance with the provisions of the trust. In a trust document, the testator has more flexibility in the disposition of his property.
The testator does not need to immediately dispose of the property. He can direct in the trust instrument that his surviving spouse receive the income of the trust assets (the bank account and the condominium unit) and upon his spouse’s death, the principal is distributed to the children.
As you can see, unlike an executor who gathers the assets, pays the debts, and immediately distributes to the beneficiaries, a trustee can manage the assets for a long time without distributing the trust assets to the beneficiaries. This gives a person more flexibility in managing the assets even after death.
Trustee vs. executor
Now that we have a general idea of an executor and a trustee, here are some distinguishing characteristics between the two.
Trustee vs. executor in terms of duration of management
The executor can only manage the estate assets for a limited time. Once assets are gathered and debts are paid, the executor has to immediately distribute the remaining assets to the beneficiaries. In the case of a trustee, the trustee does not need to immediately distribute the remaining assets to the beneficiaries. The distribution of assets depends on the terms of the trust, and these terms are normally established by the grantor. Sometimes, the trustee can distribute the trust assets after 20 years or when the last beneficiary turns 21 years old. The grantor generally has the flexibility to dictate the rules on when trust assets can be distributed.
Trustee vs. executor in terms of assumption of duties
An executor assumes duties only upon the death of the decedent, after the will has been admitted to probate, and the court has issued the executor letters testamentary. A trustee assumes duties once the trust document is executed and property is transferred in the name of the trustee, regardless of whether the person who established the trust is dead or alive.
Trustee vs. executor in terms of legal ownership over the estate assets
The executor does not acquire title over estate assets. For example, if there is a bank account left by the deceased, it is not transferred to the name of the executor but to an estate account. The trustee, on the other hand, is given legal title over the trust assets. In the case of a bank account, it is transferred to the name of the trustee in the style of “Name, Trustee of (ABC) Trust.”
Similarities between a trustee and executor
Despite the above distinguishing characteristics, the trustee and executor are still similar in many ways because both are fiduciaries. Both are expected to observe the fiduciary duties of care, loyalty, and honesty to their beneficiaries. If they breach these fiduciary duties, both the trustee and executor can be held liable. For example, if the trustee sells trust property with a market value of $5000 for $1000, the beneficiaries can question this sale, and the trustee can be ordered by the court to pay the beneficiaries the difference of $4000.
Both the trustee and executor need to follow a standard procedure if they would like to be discharged from their duties without any liability.
If you want to know the difference between trustee vs. executor, have issues in your role as trustee or executor, or you are a beneficiary with questions about the performance of your trustee or executor, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at firstname.lastname@example.org.