Difference between executor and trustee
One of the questions most frequently asked in relation to wills is “What is the difference between executors and trustees?" Well, as far as your will is concerned, we can try and summarise it like this:
- Executors are the people who organise your affairs after your death.
- Trustees are people who run the trust that your will creates.
But it isn’t quite that simple: sorry. And it’s no wonder that people sometimes get confused about this.
We can try to explain it by answering some of the different ways that people ask, such as:
- What do executors do?
- What do trustees do?
- Are they the same thing?
- Do I need both?
- Do I need a trust in my will?
In order to explain, we first need to say a little bit about how a will usually works.
How does a will work?
When a person dies, everything that they own – property, possessions, money, shares and everything else, is described collectively as their estate. The purpose of a will is for that person to decide how they want to share out their estate after their death.
They can decide to leave amounts of money, or particular property, or specific possessions to named people or charities: these would be called specific gifts.
Everything they don’t leave in specific gifts is described as their residuary estate. So that means that if they don’t leave any specific gifts, everything they own makes up the residuary estate.
In a person’s will, the residuary estate is often called the “trust fund”. It is held by the trustees until it is distributed to the people who are going to inherit it.
What do executors do?
The executors have two main sets of responsibilities:
- ensuring that your estate is dealt with according to the law; and
- carrying out your wishes as you have set them out in your will.
One of the first things that the executors have to do is to value your estate, by assessing your assets and liabilities. This is so that they can determine whether any inheritance tax is payable, because in most cases the inheritance tax must be paid before a grant of probate can be obtained. It is probate that gives them the permission to distribute your estate.
In practice, a person’s executors often also perform the function of notifying the death to any public bodies that may have been making payments to the deceased person, though it is quite common now for the Registrar’s office to provide for this when the death is registered.
When it comes to dealing with your property, the executors’ duties cover:
- collecting together all of your assets
- making an inheritance tax return and paying any inheritance tax due.
Executors should open a new bank account just for the purpose of managing the estate. Most banks are used to dealing with executor accounts, which remain open until the whole estate is dealt with.
The executors must apply for a grant of probate. Only when that is done can they go on to distribute your estate as instructed by the will. Before any gifts are paid out, they must:
- ensure that all your debts are paid and other liabilities are met; and
- ensure that outstanding funeral expenses are paid out of the estate.
Then they distribute the estate. That means, for specific gifts of assets or possessions, transferring the asset or possessions to the beneficiaries. For the residuary estate, it depends on what your will says. If your will creates a trust of the residuary estate, then it means transferring it to the trustees. If your will does not create a trust, it means transferring it straight to the beneficiaries.
Your will with Bequeathed creates a trust of the residuary estate, so that after the specific gifts are made, everything is passed to the trustees.
More often than not, the executors and the trustees are the same people but their role changes from executor to trustee. In that case there may be no need for a separate stage to transfer the property to the trustees.
Until the estate is distributed, the executors should make sure that any ongoing bills are paid, and that the property and assets are maintained.
The role of an executor comes to an end once the assets of your estate have been distributed (either outright to beneficiaries or to the trustees).
So the executors have a duty to you, to your heirs, and to the law.
If you don’t have a will, then someone still has to be responsible for dealing with your affairs after your death. Such a person is usually referred to simply as an “administrator”.
It is possible to have only one executor but in nearly all cases you will need to have at least two trustees. So if you are considering creating a will trust in your will, you should think about appointing at least two executors so that they can then be the trustees of the will trust.
In theory you can have as many executors as you like, but only four can apply for probate. See Grant of probate for more information.
Who should I appoint as executor?
The obvious people are your family members, and most people do choose them. There is a lot to be said for having them supported by someone who is not quite so close, because the task can be onerous and sometimes distressing. So, especially if you were thinking about choosing just your partner, consider whether it would be sensible to appoint a second executor to help.
Many people choose professional executors, who are experienced in all aspects of estate administration.
Do executors get paid?
Being an executor is not a paid role, unless you have chosen a law firm or other professional – acting in their professional capacity – to be your executor. However, executors should not be out of pocket because of their role, and they can generally claim their expenses from the estate. For more information see What is an executor?
Professional executors, such as law firms, will charge for their services. The charge will vary from firm to firm, and may be a fixed fee or an amount based on a percentage of your estate. See Choosing an executor for more information.
What do trustees do?
The roles of executors and trustees are different, even though they may be the same people.
The role of a trustee of a will trust starts after the administration period of your estate. If assets in the estate are to be held on ongoing will trusts, the executors pass those assets to the trustees of the will trust, who then become the legal owners of the assets and manage them in accordance with the terms of the will trust.
This explains why a will that contains a trust makes reference to the ‘executors’ and then, later in the will, to the ‘trustees’. If the will creates a trust of the whole estate, or the residuary estate, then the residuary estate is usually referred to as the ‘trust fund’ in the will.
Your will with Bequeathed is of that kind. We believe that this is the surest way to distribute an estate. If the estate is simple, it does not make anything more complex, but if there are any complications or unusual features, or any of the assets cannot be distributed immediately, a trust is the best way of doing this, and the trustees have more powers to take care of the assets.
As well as a general trusts covering the residuary estate, a will may contain other trusts for specific purposes. For example, gifts to people under 18 go into trust, and your will with Bequeathed automatically makes provision for that.
You can create some of the other specific trusts in your will with Bequeathed, including life interest trusts and discretionary trusts. For others, such as a disabled person’s trust or a bereaved minor’s trust (which are also known collectively as a vulnerable person’s trust), you should have specialist advice.
Whatever kind of trust is created by a will, the trustees have a number of duties and powers. Some of those are described by the trust document – which is often the will itself. The trustees must act in accordance with the terms of the trust, and the law. The trust may include powers relating to:
- distribution of trust assets;
- management of property;
- use of capital;
- the exercise of discretion in relation to a discretionary trust;
and so on. Many of these are not stated directly in the will, but are often contained in a document called the STEP Provisions. The will often contains a section which states that the STEP Provisions are to be treated as part of your will, and this is what gives the trustees many of their powers.
Additionally, trustees must:
- act in the interests of the beneficiaries;
- act promptly and with reasonable care; and
- not personally make a profit from the will trust.
Professional trustees can be appointed, and the STEP Provisions allow professionals to charge for their services. Many people choose the executors also to be their trustees – and many wills make this a standard provision. This is worth remembering when considering whether to appoint professional persons as executors, because you may also be choosing trustees, for which there may be additional charges if the trusts are ongoing.
Trust corporations may be set up, for example by law firms, to carry out certain responsibilities that the law firm has taken on. These might include acting as executor if you choose the law firm to be your executor, or acting as attorney under a finance and property LPA. The advantage of this arrangement is that it does not require a particular person to act, such as a named partner who was named in a will but has since retired. Usually, senior members of the firm at any time would be the people responsible for carrying out the trust corporation's duties.
Trustees, executors and guardians
If you have children under 18 when you die, then any property you leave them automatically goes into trust. So the role of the trustee is particularly important.
It is usually recommended that, if your executors are to be the trustees, they should not be the same people as the guardians, so that they can fulfil their trustee duties objectively.
Of course, you would expect trustees and the guardians to work closely together to ensure that the children are provided for properly before they reach 18. When the children become entitled to their inheritance, the trustees of course have the obligation to pay it over to them.