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Hello, and welcome to the PracticeLab podcast, where we talk to top advisors about what makes them successful, so that you can apply those lessons in your own business.
I'm your host, Angela Shah, and today we’re speaking with Stacey Delich-Gould and Anne Gifford Ewing, both senior trust and estate specialists with Capital Group’s Private Client Services here in Los Angeles.
In this episode, we’re going to discuss an important but often overlooked part of the estate planning process: the person who will be the executor or trustee of a client’s estate or trust. Often, clients are more focused on the “who gets what” portion of their wills, but Stacey and Anne point out that those plans could go awry unless the right person is chosen to fulfill those client wishes. Join us as we discuss the role an executor or trustee plays in estate planning and how you can help your clients make the best choice for their goals.
So grab your coffee, and let’s head into the PracticeLab.
Angela Shah
Anne, Stacey, welcome to the PracticeLab podcast. So, let's start off. How important, just generally speaking, is choosing the right person as your either trustee or an executor. Do you think advisors spend enough time on this? Or do they just take names from their clients when they're doing estate planning?
Anne Gifford Ewing
Angela, it's such an important question. And I'll start. I think this is actually one of the key questions when it comes to estate planning. I think, intuitively, clients tend to focus more on the details of their gift plan: who's going to inherit their money, and in what format, outright versus interest, et cetera. And they tend to focus less on the choice of fiduciary, whether it's an executor or trustee, depending on the instrument. But in fact, the choice of fiduciary is absolutely critical, because you can have the best-drafted document in the world that had a lot of care go into it, choosing the provisions. But if you don't have a fiduciary, who is going to be able to carry out those provisions and do it well, you’re nowhere. It's absolutely critical. And so, I do think advisors in general could probably focus more on this, and encourage their clients to consult attorneys about how to make this decision.
Stacey Delich-Gould
I was just going to jump in and say, just to piggyback on what Anne said, your fiduciary, be it an executor or the trustee of a post-death administrative trust. And those are really interchangeable roles, depending on the jurisdiction you're in. They are the quarterback of your post-death landscape. So, it is such to Anne's point. It's such an important decision. And where I think advisors can really add value is to not just take the name, both Anne and I have been involved in situations where the people being named didn't know it until it was time to act. And they didn't really want to act. It's a big job. And there's a lot of risk, and there's a lot of responsibility. So, if advisors can sort of make those conversations happen, it's incredibly valuable.
Angela Shah
It seems like maybe this is just something that gets overlooked in the grand scheme of an entire estate plan. What should they be doing first? How should they introduce this topic and kind of elevate this part of the conversation to require a bit more time than they normally do?
Anne Gifford Ewing
Well, I think — this is Anne — I think helping the clients understand that the choice of fiduciary does go beyond simply choosing a person who they trust. Often that's kind of where clients start with this conversation. But you don't want to end there, because there are a number of factors that go in to choosing the fiduciary. Just as one example, the state that the fiduciary lives in can have a huge impact on how the estate or trust is going to be administered. There could be unexpected and potentially serious tax consequences to naming a fiduciary who lives in a state that taxes a trust based on the residence of the fiduciary. California, for example, is one such state, much less a fiduciary that lives outside of the United States. That too can bring all sorts of unintended consequences and complications and potentially extra cost. So, you want to start with kind of understanding what is the job that you're looking for the fiduciary to perform when the time comes? Is it a finite, we're just going to do the post-death administration, and then the job kind of ends when that's done? Or, by contrast, is it an ongoing administration of a trust for the rest of the beneficiary's lifetime, for example. Those are two very different assignments and probably need two different approaches to selecting a fiduciary. And then, once you kind of understand what is the job we're looking to fill here, then you want to think about all of those other factors. And again, residents and location of the fiduciary is one example. So, starting with trusted parties is important. But you can't really stop there.
Stacey Delich-Gould
You know, I couldn't agree with Anne more. For another great example is, a lot of times the parties you trust more are in your same age cohort. They’re your friends. They might actually have predeceased you. They might also be elderly, you know, you might not want your best friend, when you pass away at the age of 98, who’s also age 98, serving as your fiduciary. You also want to think about, you know, do they have financial acumen? Do they have time to handle this? A lot of times, clients want to name their children. Well, if your children are busy with their own careers and their own children, they might not have time to handle all the duties associated with administering your estate.
Angela Shah
What if a client says, “I don’t really think I know anyone who would want to do this, or could do it?”
Stacey Delich-Gould
You know, one option Anne and I have seen, it's becoming so much more commonplace in the last 10 years, is to hire a professional. It does not have to be an individual. It can be a trust company. We have a trust company at Capital. In California, they have licensed professional fiduciaries who are individuals who are licensed to serve in this capacity. It might be appropriate to bring a nonfamily member, non-friend into the situation.
Angela Shah
What about spouses? Is that a good person to serve in this role?
Anne Gifford Ewing
I would say that for a married couple the most common approach is to start off with the spouses as their own trustees of their personal taxable estate. So, in California, this would be their revocable trust assets. Usually in a joint trust in other states, you might have a separate trust for each spouse, but their personal assets are going to be in their taxable estate. Usually, you start off with the spouses in charge of those assets as trustee. And at the time of the death or incapacity of one spouse, most frequently, you would indeed have the surviving spouse or the “well spouse” stay on as the sole trustee. Very different if we're talking about irrevocable trusts that maybe have been set up for the purposes of some estate tax planning, perhaps for the benefit of children or grandchildren. With those types of trusts, it is more common to have a third party, such as a corporate trustee or a professional, to Stacey's comment a moment ago, serving as trustee of that trust versus either of the spouses.
Stacey Delich-Gould
I was going to say the one situation where you have to be careful with that is when there's a second marriage and there are children from the prior marriage. And that's where I think advisors can be really helpful. The more you talk about these issues, before the decisions are made, while everybody is still alive and in good health, the less fraught with acrimony it can be when the time comes.
Angela Shah
Why can advisors be an important ally when it comes to choosing an executor or trustee?
Anne Gifford Ewing
I think advisors can play a really important role here. They're obviously not the client’s legal counsel or providing legal advice. But the practical reality is that most clients talk with their financial advisor and the advisor support team more frequently than they talk to their lawyer. They might call their lawyer every five or 10 years when they need to update their plan. But no one likes being billed by the hour — it's just sort of human nature. Clients are not calling up every day. And as a result, the lawyer may not be as in touch with kind of the current family dynamics as the advisor is. And so, I think the advisor can play a very useful and important role in helping the client identify these issues, and really teeing them up and bringing them to the attorney’s attention, rather than hoping that the attorney discovers them cold when they're having to update a plan.
Angela Shah
And there's probably some level of familiarity on the part of the adviser in terms of family dynamics, and whether there is a second marriage and kids from the first marriage. And has that transition been stressful in the family, or has there been any animosity or anything? And so the adviser can perhaps provide some of that background of a client.
Stacey Delich-Gould
Oftentimes, what will happen is the advisers will come to an Anne or someone like us on their team, and we'll review the documents, and we’ll say, ”OK, who's the executor? Who's the fiduciary?” And they’ll say, “John Smith.” And we’ll say, “Really? John Smith has been in a nursing home for the last five years, or John Smith has passed away.” So then that is such a great opportunity for them to say, ”We were an add-value. We were reviewing your document, and you still have John Smith named as your fiduciary.” So, it can be as simple and natural as that. It doesn't have to be contentious.
Angela Shah
What about contingencies? So, if the named executor becomes unavailable, how should advisors counsel their clients?
Anne Gifford Ewing
In my experience, just as important as putting the thought into naming the right fiduciaries, which is what we've been talking about, is building in the right mechanisms in the instrument, whether it's a will or a trust document to name new fiduciaries down the road in a smooth and appropriate way, if needed. So, what I mean by that is, sometimes we'll have a document that says, ”Well, as my executor, or trustee, I named person one. And if person one is unavailable, I named person two.” The end. And then it doesn't say anything else after that. And guess what, if you get years into the future, and persons one and two are not available, you're kind of in a bind. Usually, the default if there's no other mechanism within the instrument to let you appoint a new fiduciary is to bring a petition in the court of competent jurisdiction governing that instrument. And that can be expensive and time-consuming and difficult. And it's usually everyone's last choice. So, the way to avoid that, and it can be different depending on the situation, but just conceptually, the way to avoid that is to build in some levers that can be pulled if needed. So, for example, sometimes there's a provision that says the last person named on this list also has the authority to name a successor after them. Or there might be a lever that says, if this office winds up vacant and there's no one to appoint a successor, the beneficiaries as a majority can appoint a successor, but it can't be one of them. Or it has to be a corporate fiduciary, or you can put whatever kind of requirements you want. Or you can name an individual that says this person is not a beneficiary. They're just an interested third party who knows the family. Sometimes this is called a trust protector, just as an example. And they are authorized to come in and appoint a new fiduciary if and when it's needed. The point is to have a couple of fail-safes in there to try to make sure that you never wind up with an unfilled office, or someone in that office who the clients wouldn't have wanted.
Angela Shah
Stacey, what’s an example of something else advisors need to pay attention to when it comes to executors?
Stacey Delich-Gould
So, my top one builds on what Anne said. And it goes back to the question of communication. We have had several instances that we've experienced in the last year where people have been named in documents, and no one talked to them about it, and they don't want to serve. They know the family. It's a lot of work. And it's a lot of risk. Fiduciaries get sued all the time. You are essentially a person. From the point of view of the beneficiary, you are what is between them and what they consider to be their money. And that is fraught with peril, for lack of a less dramatic way to put it. So, talking to them, making sure they're comfortable with it, and making sure the person you are naming understands what you're thinking, and you're trusting this person to quarterback your entire estate plan. You need to say things to them like, “My daughter is a spendthrift. She's going to start coming to you for money right away after I'm dead. Be prepared. This is why I put you in charge.” You know, a lot of people document this in a letter of wishes. It's a nonbinding instrument that they leave to their fiduciary saying, “This is what I was thinking when I put the structure together. These are my concerns. And this is how I'd like to see this play out.”
Angela Shah
Is there anything that an advisor could do to help prepare that person, to help prepare this designee? What can the advisor do to help make that transition easy for the person who will end up doing the work?
Anne Gifford Ewing
Well, I think a really important piece of that is to keep good and accessible records for the trust. I can't tell you how frequently we have experiences like, Oh, gosh, you know, the trustee just died? We've got a new trustee coming on board. They don't know who is the CPA who was preparing this trust’s tax returns? Where is a copy of the trust tax returns? Do we have a complete schedule of all of the trust assets? If they're all, if it's just one account at Capital Group, that's easy. But it's often not that simple. There may be multiple trust assets that are difficult to quickly identify if they haven't been listed on a schedule and kept up to date, because trust assets often change over time. Real estate gets sold, and accounts move, and so forth. So, I think just those basics of keeping all the records centralized and organized and communicating — getting back to Stacey's point about communication — communicating where they are. They're at my lawyer's office. They're with my advisor. They're in the file cabinet in my home office, whatever is going to work for that situation, but being organized and communicative is key.
Stacey Delich-Gould
That is so key, and I'm not sure it should be the adviser having the initial conversation. It probably needs to be the client, but the advisor can be that central repository that Anne's talking about, that sort of nexus organization. And there's a lot of information out there. I know there's some good stuff on PracticeLab about what are the responsibilities of being a fiduciary. The American College of Trust and Estate Counsel has a wonderful website, ACTEC, where you can find information that is very accessible for advisors and clients on, what does it mean to be a trustee. What does it mean to be an executor to really understand the role?
Anne Gifford Ewing
I'm going to add to that briefly. I think another thing that isn't always clearly communicated to new trustees or executors as they're coming on to their new job is the importance of having legal counsel for them, representing them and telling them what are their legal duties in that fiduciary role. I think this is sort of elementary to Stacey and me, but it may not be for those who don't do this every day. It's not always obvious, especially to a layperson family member or friend trustee, that they need an attorney. They may say, “Well, I read the document. I know what Uncle John wanted me to do.” And they just start acting. And that is almost always a bad idea. There are almost always legal duties that even the most well intentioned, responsible layperson fiduciary is just not going to realize that they have. And so having an experienced attorney in their jurisdiction, walking them through and kind of holding their hand as to what they need to be doing, is really important.
Angela Shah
That’s great advice. We’ll end it here. Thank you both so much.
Angela Shah
And that’s the end of this episode of the PracticeLab podcast. I want to thank my guests, Stacey Delich-Gould and Anne Gifford Ewing, for joining me for a great discussion.
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