09 May Personal Representative or Trustee? Estate Planning Roles & Titles
Most people consider it an honor to be named the Personal Representative or Trustee of a person’s estate. That’s true: it means someone considers you responsible, trustworthy, organized, and clear-headed, as these are all critical traits in a fiduciary. However, it’s more than an honor. It’s also a great responsibility.
Naming a Personal Representative or a Trustee (or both!) is possibly the most important part of estate planning. This is the person who will carry out your wishes, as stated in your estate plan. Naming the wrong person, failing to properly direct assets under their management, or providing inadequate instruction can all result in disaster.
So, let’s learn some more about these important roles, starting with common legal terms everyone should know.
Common Estate Planning Terms
- Beneficiary – The person who benefits from the assets distributed by a Will or Trust; also the person who is to receive property, either outright or in trust, now or later.
- Fiduciary – An individual or institution that acts on behalf of, and for the benefit of, another. Trustees, agents with power of attorney, and personal representatives are all fiduciaries. This is the highest responsibility under the law, and requires putting the needs of the beneficiary or principal first at all times.
- Personal Representative – (In other States known as an “executor”). An individual or entity that settles the estate of a testator according to the terms of the Will. If an individual dies intestate (meaning, without a Will), or if the existing Will is found to be invalid, the Personal Representative will act in accordance with state laws. (In this instance, a person acting in intestacy may be called by a different name, such as administrator.)
- Principal and Income – These terms refer, respectively, to the property or capital of an estate and the returns from the property. Returns can be in the form of interest, rents, dividends, etc. This may sound like a boring topic, but distinguishing principal from income can be the source of fierce combat when one beneficiary of a trust is entitled to receive its income and another is entitled to receive its principal.
- Testator – The person who makes a valid Will (when that person is a woman, she is referred to as the “Testatrix”).
- Trustee – An individual or entity that holds assets under the terms of a Trust Agreement. The Trustee always holds the assets for the benefit of the Beneficiary and must act according to the terms of the Trust.
- Trustmaker – (Also called “settlor” or “grantor”) The person who transfers property to a Trustee by using a Trust Agreement. The Trustee is instructed to hold or own the assets subject to specific terms, usually for the benefit of the Beneficiary (see below.) For income tax purposes the same term is used to mean the person who is taxed on the income from the trust. This can be somewhat confusing, so keep in mind that the same term is being used to refer to different concepts in different circumstances.
With these terms as a background, we can now explore in more depth what a Personal Representative or Trustee actually needs to do. Stay tuned for Part Two of this three-part series on Understanding Personal Representatives and Trusteeship.
If you live in Colorado and need a Will, or have been named as someone’s Fiduciary, we can help! You can contact us from this website or call (303) 500-8846 for advice and guidance throughout the estate planning process.