Cautionary Tales - So You've Been Named as Executor or Trustee... - Episode 267

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, that way you do not turn into a cautionary tale on this podcast one day! Well today is about something that a lot of people say yes to without really knowing what they just signed up for. You know the moment - you're at your parents' kitchen table, or your aunt hands you a folder, or you get a call from a lawyer's office, and someone says, "Hey, I named you as my Executor," or "I made you the Trustee of my trust." And most people just go, "Oh, sure, of course, happy to help" without really asking, wait, what does that actually mean? What am I agreeing to? That's what we're digging into today. What you're actually signing up for when you agree to serve as a Personal Representative, an Executor, or a Trustee. What the job actually involves, what you're on the hook for, what you're not on the hook for, and some stuff I think is genuinely interesting about how this all works.

Okay, first, let's clear up the vocabulary, because honestly the terminology trips people up right out of the gate. "Personal Representative" and "Executor" are basically the same job. Executor is the traditional term - it's the person named in a Last Will and Testament to handle someone's estate after they die. A lot of states have moved to the term "Personal Representative," but functionally, it’s the same role. If there's no Last Will and Testament, and the court appoints someone to do this job anyway, that person is usually called an "Administrator." Again different word or term, but very similar responsibilities. Now, the term, Trustee, is a different animal. A Trustee manages a Trust, which is this legal container that holds assets, either while someone's alive or after they die, and the Trustee's job is to manage those assets according to the instructions in the trust document, for the benefit of whoever the beneficiaries are.

So here's the thing, a lot of people end up being both the Executor and Trustee. For example, if someone sets up a trust, they typically also have a will, and both documents name the same person as Executor of the will and Trustee of the trust. Which makes sense, because honestly the mindset and the duties overlap a ton. So for most of this episode I'm going to talk about them together, and I'll try to flag when something's specific to one or the other.

Alright, so let's talk duties. What is the actual job. At the highest level, both roles boil down to the same core idea: you are, what is called, a fiduciary. That word gets thrown around a lot, but here's what it really means - you have a legal duty to act in the best interest of someone else, not yourself. Not your own convenience, not your own preferences. The estate's beneficiaries, or the trust's beneficiaries - THAT is who you're working for. So practically, what does that look like day to day?

Well, if you're an Executor, your job usually kicks off with something like this: You find the will, you file it with the probate court, and the court formally appoints you and sometimes they give you a document called "Letters Testamentary," which is basically your ID badge that says, yes, this person has legal authority to act on behalf of the estate. From there, you're doing things like: (1) Locating and taking inventory of everything the person owned - bank accounts, the house, the car, etc. (2) Sometimes getting appraisals on stuff that needs to be valued; (3) Opening a bank account for the estate itself, because the estate is kind of its own little legal entity for a while; (4) Paying the deceased person's outstanding debts and bills out of estate funds; (5) Filing final tax returns - personal ones, and sometimes an estate tax return too; (6) Notifying creditors, and sometimes notifying beneficiaries and heirs formally, which states often require; (7) And eventually, distributing what's left to the people named in the will. Then, if all goes according to plan, you close it all out.

For a Trustee, it's a similar flavor, but the timeline and details are different. If it's a trust that you really only step in after someone dies - your job is honestly pretty similar to an Executor's: gather the trust assets, pay debts and taxes if applicable, and distribute according to the trust terms. But trusts can (not always – but can!) also run for years, even decades. Think about a trust set up for a minor child, or one that pays out over someone's lifetime, or a special needs trust. In those cases, being Trustee is an ongoing job - you're managing investments, making decisions about the trust's money, filing tax returns, communicating with beneficiaries, and following whatever specific instructions the person who created the trust laid out. Maybe it says "distribute income quarterly," maybe it says "only distribute for education and health," maybe it gives you total discretion. You have to actually read that document closely and follow it.

And I'll say - this is a real time commitment. People sometimes picture this as like, sign a form, hand out a check, done in a weekend. In reality, for a moderately complicated estate, you're looking at months, sometimes over a year, sometimes multiple years for a trust. There's real administrative grind here - paperwork, phone calls, deadlines, forms.

Okay, shifting to a bit of a different topic…. here's a piece that I think is under-explained, and it trips up a LOT of new Executors. As Executor, you only have authority over assets that are actually IN the estate or as Trustee, IN the trust. That sounds obvious when you say it out loud, but here's the twist: some assets may never actually pass through the estate at all. They skip it entirely. Here's what I mean. Think about a life insurance policy. Or a 401k. Or an IRA. Or even just a regular bank account that's set up as "payable on death," sometimes called a POD account. All of these have what's called a beneficiary designation meaning the account itself, outside of any will, already says "when I die, this goes to so-and-so." And when that's the case, that asset transfers automatically to whoever's named on that form, completely bypassing the will, and bypassing you as Executor entirely. You do not manage it. You do not distribute it. You often do not even have legal authority to seethe details, unless the beneficiary chooses to tell you.

So here's a scenario that happens ALL the time and confuses families: someone's will says "I leave everything equally to my three kids." But then it turns out Mom's life insurance policy names only one of the kids as beneficiary, and her retirement account also names just that one kid, because those beneficiary forms never got updated. The Executor has zero power to fix that. Zero. You cannot say "well the will says split it evenly, so I'm going to override the beneficiary form." That's not how it works. The beneficiary designation wins. It's a separate legal contract between the account holder and the financial institution, and it operates completely outside the will. This is honestly one of the most common sources of family conflict and confusion in this whole process - people assume the will is the master document that controls everything, and it's just not true. The will only controls what's called the "probate estate" - stuff titled solely in the deceased person's name, with no other transfer mechanism attached to it like a beneficiary designation.

Same logic applies to a Trustee, by the way, just phrased differently. A Trustee only controls what's actually been retitled into the name of the trust. This is actually a huge, huge issue with trusts specifically - it's called "funding the trust." People go through all this effort to set up a beautiful trust document, and then never actually transfer their house, or their bank accounts, into the trust's name. So the trust exists on paper, but it's basically an empty box. Anything left outside of it may have to go through probate like the trust was never created. As Trustee, you can only manage what's actually, legally, in the trust's name. So, takeaway here: if you are an Executor or Trustee, one of the very first things you want to do is figure out exactly what's actually part of your job and what is not. Don't assume. Get a full picture of the beneficiary designations, the joint accounts, the trust funding, before you start making promises to anybody about who gets what.

Alright, let's talk about the kind of scary part. Liability. Because I think this is honestly why some people hesitate to say yes to this role in the first place, and it's worth understanding for real, rather than just vaguely worrying about it. So remember that fiduciary duty I mentioned? That's not just a nice phrase - it's legally enforceable. If you mess up in certain ways, beneficiaries or heirs can actually sue you personally. What does "messing up" look like? Basically four things: First, breaching your fiduciary duty - acting in your own interest instead of the beneficiaries'. Classic example: selling estate property to yourself under market value. Or using estate funds for personal expenses - even "borrowing" it with every intention to pay it back is a serious breach. Second, Negligence - this is more about carelessness than bad intent. Missing tax deadlines and racking up penalties. Letting property sit uninsured and it gets damaged. Investing trust assets recklessly. You don't have to be malicious to be liable - you can just be sloppy, and that's enough to create real financial exposure for you personally. Third, Self-dealing - paying yourself excessive fees or steering business to your own company. And fourth, just not following the document's instructions, even with good intentions.

But here's the reassuring part - the law generally just holds you to a "reasonably prudent person" standard, not perfection. And you can protect yourself pretty easily: keep good records, hire a lawyer and accountant when you're unsure - that's paid out of estate funds, not your pocket - and know that you are usually entitled to compensation for doing this job.

So, big picture: if someone asks you to be their Executor or their Trustee, that is a real, meaningful ask. It's not just a line in a document - it's a legal role with real duties, a real time commitment, and real personal liability if you're careless. But I don't want to scare you off it. It's also very manageable if you go in with your eyes open. Know that you're only responsible for what's actually part of the estate or the trust - not everything the person owned. Know that you can lean on professionals - lawyers, CPAs, financial advisors - to surround you and keep you protected, and that's not a cop-out, that's just doing the job right. Know that good records are your best friend if anyone ever questions a decision you made. And know that it's genuinely okay to say no if this isn't the right fit for you - and just as okay to say yes and do it well. At the end of the day, being named Executor or Trustee is one of the biggest votes of confidence someone can give you. It means they trusted you to make sure their wishes actually get carried out. That's a big deal. So hopefully this episode gave you a real, honest picture of what that role entails, what it does not, and what protects you along the way - so if you're ever handed this job, you can walk into it informed, instead of just winging it.

Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that are relevant to this podcast. Next week, we're going to talk about how to make sure your documents are safe, protected, and will be accessible when needed. As I sit here about to record next week’s episode, my state of Indiana experienced historical flooding. Lives were lost. Properties were lost. It’s been awful. It reminded me, though, that I should do an episode on … what if someone’s house was destroyed and their documents were inside? Then what? So that’s what next week is on, Legal Tea Listeners. Be well and take care!

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