Responsibilities of an Estate Trustee
It is important to understand the difference between the roles of an executor and estate trustee, because most of the time the executor also takes on the role of an estate trustee. The executor’s duty is to call in the estate assets, discharge the estate debts and liabilities, and file the appropriate taxes to IRAS. This is known as the estate administration process.
The trusteeship arises when the estate has been fully administered and the residue estate (or the net estate) is being ascertained. Distribution of the assets of the estate will commence at this stage. This is the duty of the estate trustee. The process of the trusteeship duty involves (1) the holding of the estate assets for the beneficiaries; (2) the prudent investment of the estate assets; and (3) the distribution of the estate assets to the beneficiaries according to the terms of the will or according to intestacy laws.
Responsibility of Holding the Estate Assets
Immediately after the estate administration has been done, it is important for the estate trustee to segregate the estate assets into an separate account from his personal funds. In many cases, the estate assets are not distributed immediately. If this is the case, the estate trustee will complete his duty after the distribution is done. In some situations, the estate trustee needs to hold the assets for the beneficiaries. This occurs when:
- The will specifies a testamentary trust to be set up for the beneficiaries;
- Beneficiaries are still minor (especially if both parents have died);
- The beneficiary has special needs (i.e. mentally handicapped). The beneficiary in this situation does not necessarily have to refer to a child; it can also be an elderly parent suffering from dementia;
- The beneficiary is not in a position to hold assets (e.g. when the beneficiary bankrupt, is undergoing a divorce, is involved in a law suit, is a compulsive gambler, or lacks financial discipline);
- The beneficiaries challenge the estate settlement process;
- The beneficiary has passed away;
- The beneficiary is uncontactable;
- The deceased wanted the assets to be held as trust for legacy purposes;
- The deceased wanted the estate assets to be distributed according to a timeline.
While holding the estate assets in trust, the estate trustee needs to exercise care and prudence. He/she is accountable to the beneficiaries.
Responsibility of Investing the Estate Assets
The estate trustee has the duty to preserve the value of the estate assets under his care, and invest the trust funds which will generate reasonable income for the estate. This duty needs to be done with prudence; and it is advisable for the estate trustee to appoint suitable professionals to assist in this area. This is especially important if the trust fund is to be held for a long period of time. For example, a trust fund left behind by both parents (who perished together in a road accident) to a one-year-old child, is to be held for at least 20 years until the child turns 21 years old.
Responsibility of Distributing the Estate Assets
The acid test of whether the estate trustee has done a good job is at the distribution stage of the estate assets to the beneficiaries. The trustee has to make a reasonable effort to (a) identify, (b) locate, and (c) distribute the estate assets to the beneficiaries.
- Identifying the Beneficiaries
If the deceased leaves a will, the beneficiaries will be identified according to the terms of the will. If the deceased dies without a will, the beneficiaries will be identified according to the intestacy laws. If the deceased is a Muslim, the beneficiaries will be identified according to the Faraid. If at the time of distribution, one of the beneficiaries passes away; the estate of the beneficiary will inherit the share, unless otherwise stated in the will.
- Locating the Beneficiaries
The estate trustee has to locate and trace all the beneficiaries that are entitled to the estate. This will involve personal contacts, advertisements, and, in some extreme cases, hiring professionals to locate the beneficiary (especially if the beneficiary is in overseas).
- Distributing Estate Assets to the Beneficiaries
The estate trustee has to distribute the estate assets to the beneficiaries according to the timeline stated in the will (if any). It is not unusual for a parent to specify a certain percentage of the estate assets be sequentially distributed to a son or daughter who lacks good judgment.
Sometimes, the estate trustee has to distribute only the capital, income or a mixture of both, to the beneficiaries according to the will or testamentary trust. In some situations, the estate trustee needs to sell the assets (e.g. property) and distribute the proceeds to the beneficiaries.
Points to pay attention to:
- The responsibility of an estate trustee is onerous and fiduciary in nature. The trustee is held accountable to the beneficiaries. If effort is found lacking in holding, investing and distributing the estate assets, the trustee can be sued by the beneficiaries for breach of trust and/or negligence. Therefore, sometimes it is advisable to appoint a professional trustee.
- In Singapore, the trustee needs to file for a court order to sell an estate property if the property has been held for more than 6 years after the deceased’s death (Section 35 of the Conveyancing & Law of Property Act).
- Trustees act jointly and severally. The act of commission or omission by one trustee would affect the other trustee as well, unless the trustee who acted recklessly had acted on his own without consulting the other trustees.
- If a lay-trustee is appointed, this trustee should have his own estate planning done to include trustee-succession instruction, just in case he dies before discharging the trusteeship duty.
- The estate trustee should be reasonably compensated financially.