July 17, 2020 | eFocus @ Legacy

If trusts are to be a part of any estate plan, a key decision will be selecting the trustee.  Although the first thought is often a family member, a professional, corporate trustee could be the better alternative.

It is understandable why someone would want a family member who knows their values and wishes to be in charge of managing and administering the family assets, but few people truly understand the work involved and the skill and time needed to be an effective trustee and fiduciary.  In fact, some individuals who accepted the job would say they would have declined had they known the difficulties and pressures they would encounter dealing with the beneficiaries.  Face it, it is hard enough to find the time to keep up with one’s own family finances.

For many individuals and families, a professional, corporate trustee (such as a bank trust department or trust company) is the perfect alternative – and not nearly as expensive as one might think, particularly given the duties and potential liability that trustees face.

In general, Corporate Trustees are:

  1. Held to the Highest “Fiduciary” Standards.  A common term used in wealth management marketing lately is “fiduciary.”  Everyone claims to be a “fiduciary.”  But what does it mean?  It means that that the person or entity in charge of someone’s money will work for the client and the client’s best interests and not their own.  A trustee is a fiduciary that owes a fiduciary duty to the trust creator (otherwise known as the grantor or settlor) and the trust beneficiaries.  A trustee must administer a trust for the benefit of the beneficiaries, pursuant to the stated objectives of the trust’s grantor(s).  No self-dealing is allowed.  A trustee must understand and follow the terms of the trust document; manage the trust assets effectively, efficiently, and prudently; and provide an accounting to the beneficiaries.  A corporate trustee’s employees are trained to accomplish these tasks and understand their fiduciary role.  Corporate trustees are held to an even higher standard than individual trustees, particularly because they are experts, both with respect to investments and administration.  “Fiduciary” is even baked into the way corporate trustees charge for their services.  For example, most corporate trustees charge based on the market value of accounts, usually with rates that decrease as market values rise. Corporate trustees typically do not charge retail-style commissions for trades and, therefore, do not make money buying and selling securities.
  2. Regularly Examined by State or Federal Regulators.  Regulated by state or federal government agencies, a corporate trustee is audited on a regular basis to ensure financial stability and that its fiduciary duties are being carried out.
  3. Heavily Capitalized and Insured.  Corporate trustees are required to maintain a significant capital level.  In addition, corporate trustees generally carry various and significant liability insurance coverages.
  4. Skilled, Educated and Experienced.  Those who work for a corporate trustee are professionals, many of whom have advanced degrees and certifications unique to trusts, investments, tax, and financial planning.  Serving as trustee is what they know and what they do, every day.
  5. Objective Decision Makers.  When it comes to decision-making, a corporate trustee’s process often involves a team of experts, as opposed to one individual.  Would a family member trustee be comfortable saying “no” to a beneficiary, if needed?  Sometimes the pressure is too difficult to resist.  A corporate trustee, on the other hand, can be more objective, weighing all the factors and making the necessary and hard decisions without the same level of family pressure.
  6. Real People Who Provide Continuity. A corporate trustee endeavors to ensure that it hires the right people.  Trust officers, by nature, are personable and caring relationship builders.  They do not make decisions in a vacuum.  Great care is taken to get to know the grantors who set up the trust, if possible, and the beneficiaries.   Most corporate trustees also work in teams, with a trust officer as the lead and a portfolio manager and account assistant as critical members.  Tax professionals, financial planners, and those who work behind the scenes in Operations support the team, as well.  And, everyone on the team wants to do what is right and best for the beneficiaries, keeping in mind the wishes and objectives of the grantor(s).  This team approach also allows for the continuity needed for the duration of a trust’s term, even if there are changes within the team membership.
  7. Often Less Expensive to Employ than the Individual Trustee Alternative.  The fees paid to a corporate trustee often are less than the total costs that a trust would have to pay if an individual trustee were in charge.  Most individual trustees can handle distribution decisions, but what about the other services required of a trustee, such as investment management, tax counsel, tax return preparation, trust accounting, and legal counsel?  Rarely can an individual trustee tackle all of these duties without hiring outside professionals.  And, even if an individual waives the compensation that he or she would be entitled to receive as trustee, the costs for the outside services can add up.  An individual may even need (and probably would want) to purchase additional liability insurance coverage, at the trust’s expense, as protection.  You never know when things could go sideways with family.
  8. Are Willing to Partner Up.   Many people are attracted to the expertise, experience, and all of the other strengths of a corporate trustee, yet they feel it is important to involve a family member, as well.  One way is to name a family member as a trust advisor to assist the corporate trustee with distribution decisions.  Another option, though it may be a bit more expensive, is to name a family member as a co-trustee with a corporate trustee.

Selecting the right trustee can be difficult.  There are times when a family member may be a perfect and willing choice.  But when a family member would prefer not to serve or you are looking for a better alternative, consider the strengths of a corporate trustee.  And when it comes to selecting a corporate trustee, be sure to shop around to find the right fit.  Corporate trustees have much in common, but the people, experience level, and services offered can vary.  At Legacy, we welcome the opportunity to meet with anyone considering a corporate trustee or wealth advisor.