Choosing the wrong executor or trustee can have far-reaching effects for your estate and chosen beneficiaries. In this blog we’re going to look at the role of the executor, why it’s crucial to choose the right executor or trustee, and the consequences if things go wrong.
The Role of an Executor and Trustee
Before looking into the risks of choosing the wrong executor or trustee, it’s important to understand the responsibilities of these roles.
- An executor is responsible for administering your estate after you pass away. Their duties include paying debts, filing tax returns, distributing assets according to your will, and handling probate proceedings.
- A trustee manages assets held in a trust for the benefit of others, ensuring they are handled and distributed according to the trust’s terms.
Key Issues of Choosing the Wrong Executor or Trustee
- Mismanagement of Assets
An unqualified executor or trustee may make poor financial decisions, such as failing to properly invest assets, overpaying debts, or missing critical deadlines. This can lead to a significant reduction in the estate’s value, ultimately harming beneficiaries.
- Unnecessary Delays in Estate Administration
Settling an estate is a time-sensitive process. If an executor or trustee is disorganised, unresponsive, or unfamiliar with legal and financial procedures, it can lead to long delays. Beneficiaries may have to wait years before receiving their inheritance, causing frustration and potential financial hardship.
- Conflicts with Beneficiaries
Executors and trustees are expected to act impartially, but if they favour certain beneficiaries or make unilateral decisions without transparency, disputes can arise. Family members may contest the estate, leading to expensive legal battles that could drain estate funds.
- Fraud, Embezzlement, or Self-Dealing
Unfortunately, some executors and trustees take advantage of their position for personal gain. This could involve:
- Embezzling estate funds
- Selling assets at below-market value to friends or themselves
- Making unauthorised distributions
These actions not only harm beneficiaries but also expose the executor or trustee to legal consequences.
- Legal Liability for Failing in Their Duties
Executors and trustees have a legal duty to act in the best interests of the estate and its beneficiaries. If they fail to do so—whether through negligence or intentional misconduct—they can be held personally liable. This could mean being sued by beneficiaries or being forced to repay mismanaged or stolen funds out of their own pocket.
- Ignoring or Misinterpreting the Will or Trust
A poorly chosen executor or trustee may not understand legal documents or may fail to execute them properly. This can result in assets being distributed incorrectly or against the deceased’s wishes, leading to legal action and costly corrections.
- Tax and Probate Mistakes
Estate tax laws and probate rules are complex. An inexperienced or careless executor may:
- Fail to file required tax returns on time, resulting in penalties
- Miscalculate estate taxes, leading to unnecessary losses
- Fail to pay creditors properly, which can result in lawsuits against the estate
These mistakes can cost beneficiaries a significant portion of their inheritance and cause additional stress.
- Difficulty Removing a Bad Executor or Trustee
Once an executor or trustee has been appointed, removing them can be a lengthy and expensive legal process. Beneficiaries must petition the court and provide evidence of misconduct, negligence, or incompetence. During this time, estate assets may continue to be mismanaged, worsening the situation.
What Are the Legal Consequences for a Bad Executor or Trustee?
Executors and trustees who fail in their duties can face serious legal repercussions, including:
- Removal by the Court: A judge can remove an executor or trustee if they are found to be mismanaging the estate or acting against the interests of beneficiaries.
- Financial Penalties: They may be required to compensate the estate or beneficiaries for losses caused by mismanagement or fraud.
- Civil Lawsuits: Beneficiaries can sue them for breach of fiduciary duty, leading to financial damages or even personal liability.
- Criminal Charges: In cases of fraud or embezzlement, executors and trustees can face criminal prosecution, fines, and even imprisonment.
How to Choose the Right Executor or Trustee
To prevent these issues, take the following precautions when selecting an executor or trustee:
- Choose someone responsible and financially literate: Managing an estate requires financial acumen, organisational skills, and integrity.
- Consider a professional executor or trustee: If your estate is complex, a lawyer, accountant, or trust company may be a better option than a family member.
- Appoint a backup executor or trustee: If your first choice is unable or unwilling to serve, having a backup ensures continuity.
- Include oversight mechanisms: Consider appointing co-trustees, requiring periodic financial reporting, or giving beneficiaries the right to challenge decisions in court.
Next Steps
Choosing the right executor or trustee is one of the most important estate planning decisions you’ll make. A poor choice can lead to delays, financial losses, legal battles, and emotional stress for your loved ones.
By carefully selecting a trustworthy, competent individual—or opting for a professional—you can ensure that your estate is handled smoothly and according to your wishes.
If you’re unsure who to choose, consulting an estate planning professional can help you make the best decision for your unique situation.
