People often confuse executors and trustees. Both roles are fundamental to estate planning, but the roles are distinctly different. Understanding the difference between is essential to estate planning.
Simply put, executors are to Wills what trustees are to Trusts. An accurate picture of the difference, however, requires more detail.
Most everyone knows that a Will is a document in which a person explains how his or her estate should be handled after death. The executor of a Will is the person who carries out the instructions in the Will. If you are connecting the dot, then you might suppose that the trustee of a Trust is the person who carries out the instructions in the trust – and you would be right!
Understanding the difference between executors and trustees, then, requires understanding the difference between Wills and Trusts. Since most people understand, basically, what a Will is, the knowledge gap is usually in understanding what a Trust is.
A Trust may be best understood describing the “players” in a Trust. A Trust requires three roles: a settlor; a trustee and a beneficiary. The settlor is the person who establishes the Trust; a trustee is the person who carries out the instructions of the settlor (stated in the Trust); and the beneficiary is the person for whose benefit the Trust is established.
A Trust can take many forms, but the most basic forms of a Trust used for estate planning are a living Trust and a testamentary Trust. A living Trust is simply a Trust that is established during life; and a testamentary Trust is a Trust established after death – in a Will. Thus, Trusts and Wills can be used in conjunction with each other and, in fact, most often are used in conjunction with each other.
Wills and Trusts are used with each other in two fundamental ways: 1) a Will that creates testamentary Trusts; or 2) a living Trust with a “pourover” Will. A Will that creates testamentary Trusts provides for the distribution of assets into those Trusts after the estate affairs are wrapped up. A living Trust is commonly used in estate planning to be the primary means for handling the estate, in place of the Will, and a “pourover” Will is used to direct assets into the Trust after death.
The affairs of an estate that is subject to a Will are handled in the Probate Court. The probate proceeding is the process of informing heirs, other people named in the Will and creditors, providing a platform for claims to be heard, paying all the final expenses and taxes of the decedent (the person who died), selling property (if necessary), collecting all the property into the Probate Estate and, ultimately, distributing the assets that are left over to the people named in the Will. The Executor handles the probate process from start to finish.
When a Will directs the assets into testamentary Trusts, the executor transfers the assets to the trustee at the end of the probate process, and the trustee takes over handling the assets for the benefit of the beneficiaries according to the instructions in the Trusts.
The affairs of an estate that is subject to a Trust are handled by the trustee. When a living Trust is created for estate planning purposes, it is usually the intention for all of the estate to be handled after death according to the terms of the Trust, not the Will. The “pourover” Will is simply done to direct assets that were not placed in the Trust during life into the Trust on the death. The executor’s role is to get the assets into the Trust; the Trustee handles the assets in the Trust and carries out the terms of the Trust.
Living Trusts, however, are not just active after death. When a living Trust is established, assets are transferred into the Trust during life. A Living Trust becomes another way of owning assets. The Settlor is also the Trustee and the Beneficiary. When a living Trust is created, the person setting up the Trust continues to own the property (albeit in Trust) and to handle the property just as he or she would handle the property if not owned in a Trust. If the person becomes incapacitated, or dies, the Trust continues on, and the successor trustee takes over and carries out the instructions for handling the Trust. During the settlor’s life, the Trust is handled for the settlor’s benefit; after death the Trust is carried out for the benefit of the next beneficiaries named in the Trust.
This is a very simple explanation of Wills and Trusts and the roles of executors and trustees. Executors carry out the terms of a Will, and trustees carry out the terms of a Trust. Wills are subject to the Probate Act in Illinois; and Trusts are subject to the Trusts and Trustees Act in Illinois. There are many nuances and complexities, but the difference between executors and trustees boils down to the difference between the person who carries out the terms of a Will and the person who carries out the terms of a Trust.Kevin G. Drendel Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 630-523-0543 630-406-6179 fax [email protected] foxvalleyestateplanning.com