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Un-Married Couples

No Children, Who Should Be Your Executor?
Jan L. Warner & Jan Collins

Question: My wife and I are in the process of planning our estates, but have run into a problem choosing our personal representative and trustee. We have no children or close relatives. The lawyer we visited suggested the trust department of a large bank or brokerage house, but we were uncomfortable with what we saw when we interviewed them. Exactly what should personal representatives and trustees do for us, and how should they be chosen?

Answer: Although childless couples like you and your wife make up a rather significant percentage of our population, there is little guidance available for this group. Basically, trustees are fiduciaries who manage assets and make distributions according to the terms of the trust document that can be created either during life (called an “intervivos,” or living trust) or upon death (called a “testamentary” trust). Personal representatives -- formerly called “executors” -- are fiduciaries appointed to administer an estate according to a will or, if there is no will, by operation of state law when an individual dies. The criteria for choosing a trustee and personal representative are similar.

Assuming a trust is an appropriate planning vehicle for you and your wife based upon your situation, you can name any person you wish as trustee of most trusts. If you decide to use a living trust, you and your wife can be the trustees of your own trusts. However, depending on the nature of the trust, you may not be able to choose yourself or your spouse as trustee. If you don’t have an individual in mind, you may choose a corporation licensed to be a trustee in the state where you live, such as a bank, a stockbrokerage company, or an independent non-depository trust company. You and your wife can choose each other as the personal representative of the other’s estate.

But no matter whom you may choose as trustee and personal representative, make sure to pick one or more "stand-by" or “alternate” fiduciaries who will act for you if your chosen fiduciary is unable or unwilling to do so. Should you choose a corporation, you may want to include language that allows the majority of the beneficiaries to replace that entity with another corporate fiduciary should stated performance standards not be met. And make sure you specify in your documents not only the compensation to be paid to the fiduciary, but also your investment instructions.

Which is better, an individual or a corporation? Generally, people may be more comfortable with individuals, but since individuals may not be bonded, if an individual is chosen and then runs off with your money, you have lost everything. That’s why oversight of the trust and estate assets, as well as bonding, is important. Generally, bonds must be renewed annually, but should an individual fiduciary not pay the premium, your assets might be at risk. On the other hand, if the corporate trustee's employee is dishonest, the trustee is bonded and the bonding company will replace the money.

In choosing a corporate fiduciary, we believe it is important to interview the people in charge to determine not only your comfort level, but also to make sure that the turnover rate is not such that the person with whom are dealing today will not be there next week. Additionally, establishing compensation is important. And if the fiduciary is authorized to make your investment decisions, we believe there may be a conflict of interest that should be addressed up front if the fiduciary intends to invest your assets in proprietary products, such as mutual funds operated by the bank or brokerage house that pay another part of the financial organization additional fees regardless of investment performance.

Our recommendation would be that the fiduciary be mandated to choose an independent money manager, or that the trustee be forbidden from investing in proprietary financial products.

For these reasons, you should talk with a knowledgeable lawyer who can help you structure what is best for you.

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