Who Do You Trust? Selecting an Executor or Trustee - A Primer
by James V. Quillinan, Attorney at Law
The Letitia Building
70 South First Street
San Jose, California 95113-2406

Bond

Some states have statutes requiring requiring bond for all fiduciaries unless the will or trust provides otherwise, while other states require fiduciaries to post bond only if the instrument or a court requires it. In addition, some states exempt corporate fiduciaries from the bonding requirement.

You must make the decision whether or not to waive bond during the drafting stage of the will or trust. Bond provides the beneficiaries with protection from dishonest fiduciaries. However, bond is expensive and its cost, as well as the expenses of the court hearings to set the amount of bond, are proper estate or trust expenses. Thus, requiring bond to protect the beneficiaries actually ends up reducing the amount of property that the beneficiaries eventually receive.

You must be alert to the tax ramifications of fiduciary selection. Designating an individual fiduciary, especially a family member, may have unanticipated adverse tax- consequences. Although a complete discussion of tax concerns is beyond the scope of this study, some basic principles are discussed below.

"A family member who serves as a trustee may be a beneficiary of the trust and could be taxed on the trust's income if he or she has the power to distribute trust principal or income to himself or herself (IRC Sec. 678). If the family member/trustee has children who are also beneficiaries of the trust and uses trust income for the support of those children, then he or she will be taxed on that income [Sec. 672(c)]. If the trustee has the power to spend trust principal for his or her own benefit (as well as the benefit of other beneficiaries), and he or she dies holding this power, the trust assets subject to that power will be included in his or her estate (Sec. 2041)."

On the other hand, a settlor may give a corporate trustee [or an individual who is not the settlor, a beneficiary, or a related or subordinated party under Sec. 672(c)] "complete discretion to distribute income and principal to the trust beneficiaries without causing the trust to be included in the estate and of the grantor or the beneficiary or classified as a grantor trust for tax purposes."



There is no blanket rule that you can use to answer the question, "who do you think I should name as the executor of my will and the trustee of my trust?" You must make the decision based on the facts of your particular situation. By counseling with your attorney on the important factors to consider as outlined in this study, you will be able to make educated and wise choices.