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There's a downside to being reliable and good with money. Sooner or later, someone will ask you to be an executor or a trustee.
You may think you're just being asked to handle the details of an estate or trust after this someone dies. But you could be setting yourself up for aggravation, bureaucratic red tape, years of work, angry battles with family members and even lawsuits.
"I think people would be shocked to know what's often involved," said wealth expert Blanche Lark Christerson, a director in Wealth Planning Strategies Group for Deutsche Bank Private Banking in New York City. "Somebody's really not doing them a favor by asking them to be a fiduciary."
You may be the one who has to call the sheriff when the ne'er-do-well relative cleans out Grandma's house while the rest of the family is at the funeral. Or the person who has to fend off late night calls from a spendthrift sister who's convinced you're unnecessarily tying up "her" money. Or the one who has to search through a packrat's home just to find the will and any valuables among decades of old magazines and saved string.
Navigating family feuds
You also may be called to referee family battles when the will or trust isn't clear enough about who gets what.Often the most difficult part is not dealing with the money or the lawyers or the courts," said Columbus, Ohio attorney William J. Browning of the National Academy of Elder Law Attorneys. "It's the personal property. I've had people fight over Tonka toys."
An executor's job typically lasts from a few months to two years. (If you're asked to be a successor trustee for a living trust, your function will be much like that of an executor.) Executors' duties include:
- Locating and valuing the dead person's assets
- Finding and paying any creditors
- Filing estate tax returns if the estate is large enough; and
- Making sure the remaining property and money are transferred to the person's heirs according to the terms of the will or living trust.
If you're asked to be the trustee of an ongoing trust, by contrast, your job could go on for decades. You'll be in charge of investing the money in the trust, making distributions and filing tax returns. Of the two jobs, attorneys say, the trustee's job is often harder and has the potential for more conflict.
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Many states have raised the bar on fiduciaries by allowing them to take more risk when investing trust money -- which leaves trustees vulnerable in two ways. If they don't take enough risk, beneficiaries can sue them. If they take too much and lose money, beneficiaries can sue them.
What? They might sue me?
"If you're held to have mismanaged the trust, then you're held personally responsible," Christerson said. "You're required to make the trust whole out of your own pocket."Executors can also be sued. Plus, an executor who screws up an estate tax return can be held personally liable for any additional estate tax that's owed.
That doesn't mean you should necessarily say no. Many people with very small estates have little choice other than to ask family or friends because there isn't enough money to pay professional fees. Even many people with larger estates would prefer to have someone they know serve as overseer rather than turn the duties over to an impersonal bank or other professional fiduciary.
You have to weigh the potential problems, attorneys say, against your sense of responsibility to the person making the request.
Look for the big red flags
"It's…a labor of love," said attorney Denis Clifford, co-author of self-help legal books including "Plan Your Estate." "The question is, do you care about the people involved?"Most of the time, Clifford insists, things go fine. Very few wills or trusts are contested in court -- fewer than 3%, according to attorney Browning -- and a competent lawyer can help guide you through the details of your duties.
"You pay money to a lawyer and every once in a while you sign something," Clifford says. "Then you deal with people who come to you and ask why it's taking so long."
Warning signs
But if any of the following red flags are present, you should think twice before saying yes:You're being left in the dark. You should get a copy of the will or trust, and read it, before agreeing to be an executor or trustee. Otherwise, you can't make an informed decision about how much family conflict is likely to ensue or whether you're capable of handling your fiduciary duties.
"If they won't tell you (what's in the document)," Clifford said, "I wouldn't do it."
Browning recommends that you also sit down with the lawyer who drafted the document to discuss your duties and the situation you're likely to face. If the estate is particularly large or complex, or no lawyer was involved in creating the documents, you'd be smart to hire your own attorney to review the paperwork.
Have a very frank discussion of what can go wrong here," Browning recommended. "If you feel overwhelmed by the duties or the personalities involved, then decline."
This discussion is best held while your friend or relative is still alive, so that someone else can be chosen to serve. But you can still say no after the death, since the document almost certainly names a backup in case you're not able or willing.
Someone's being disinherited. A properly written disinheritance clause can stand up in court -- but you probably don't want to be the one standing there with it. Disinheritance clauses and wildly inequitable distributions are bound to cause hard feelings and increase the chances of a lawsuit.
"If everyone is being treated the same, you're going to have relatively few problems," said estate planner Pete Pettler, an attorney in Torrance, Calif. "But if somebody is being disinherited or gets way more than the others, these are danger signs."
There is already family tension. A family that can't get along while everyone is alive is going to disintegrate when death and money are involved. The executor or trustee may become a lightning rod for everyone's dissatisfaction.
Managing an ongoing trust for such a family can be particularly difficult. One of the most common tax-saving trusts, the A-B or bypass trust, can pit the children against a surviving spouse, creating an ugly situation for all concerned.
These trusts give income to the surviving spouse; when he or she dies, the money goes to the final beneficiaries, usually the children. Since the spouse often wants the biggest payout possible while the kids have an interest in making sure the trust remains as large as possible, the trustee is left with a difficult balance and can easily alienate both sides.
If anyone in the family has drug, alcohol or mental problems, the job is just that much tougher, attorneys say.
"The trustee may have to stand up to a combative or abusive beneficiary," said Mark Shalloway, an elder law attorney in West Palm Beach, Florida.
The person who's asking you isn't well organized. Tracking down, managing and distributing assets can be time-consuming under the best of circumstances. If you have to go hunting for documents, property or other assets, the job can be overwhelming.
Beware, too, of someone who may have promised the same items to more than one person. The best-prepared estates include a list of personal property and who's to get what.
You're being put in charge of a sibling's money. Your parents may think your brother will waste his inheritance -- and maybe it's true, particularly if the sib has addiction problems, mental illness or is developmentally disabled. But leaving one child in the gatekeeper role is often a bad solution.
"That sets up a conflict," Pettler said, "that really can destroy family relationships."
If you can't convince your folks to give the money outright -- or if it's really not in your sibling's best interest to do so -- try to convince them to let you hire a professional co-trustee such as a bank. That way, the professional can be the "bad cop" and you might still get invited to family dinners.
The trust was created with a kit or software rather than by a lawyer. If it's more than a simple will, a professional should probably be involved. Estate planning is an incredibly complicated field, so much so that even Clifford, the estate planning self-help king, warns that trusts shouldn't be drafted by amateurs.
"Any kind of ongoing trust," he says, "needs to be set up by somebody who is really knowledgeable in the field."
If you take the job
If after reviewing all the pitfalls you decide to take on the job of executor or trustee, you can take some steps to limit the problems and to protect yourself. Among them:- Ask for language in the document that limits your liability. Most well-drafted estate planning documents will restrict liability unless the executor or trustee shows "gross negligence." How well this works depends on what state you're in, attorneys say, and how well the clause is worded. It won't prohibit someone from suing you -- it just may prevent them from winning the case. You may still be out legal fees and time.
- Make sure you're allowed to hire an attorney and/or an accountant to help you, then do it. "A lot of times, you really have to know the answer to know the right questions to ask," said estate planning attorney Jon Gallo of Los Angeles.
- Make things easier for your own executor and trustee. Your experience will teach you a lot about what works, and what doesn't, when it comes to estate planning. Leverage what you learn by making sure your own estate planning documents are clear, and that your executor and trustee have all the information and support they need.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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