Should I Use a Corporate Trustee?
When you work with an experienced estate planning attorney to create a revocable living trust, you will usually name yourself as trustee and manage your financial assets as you have previously. However, it’s necessary to name a successor trustee. This person or entity can act, if you’re incapacitated or pass away.
Selecting the right trustee is one of the most important decisions you’ll make.
The Quad Cities Times’ recent article entitled “Benefits of a corporate trustee” warns that care should be taken when selecting someone to serve in this role. Family members may not have the experience, ability and time required to perform the duties of a trustee. Those with personal relationships with beneficiaries may cause conflicts within the family. You can name almost any adult, including family members or friends, but think about a corporate or professional trustee as the possible answer.
Keep in mind that the alternative to appointing a corporate trustee is never present while you are alive. While you are alive, YOU will be the trustee of your trust. The issue of a corporate trustee might come into play after you have passed.
There are pros and cons to a corporate trustee versus a family member as trustee. Let’s take a look at them:
Pros of Hiring a Corporate Trustee:
1. Experience and Dedication. Corporate trustees can devote their full attention to the trust assets and possess experience, resources, access to tax, legal, and investment knowledge that may be hard for the average person to duplicate. A corporate trustee can be hired as the administrative trustee—letting them concentrate on the operation of the trust. You can also hire a registered investment advisor to manage the investment assets. A corporate trustee can also be engaged as both administrative trustee and investment manager.
2. Regulation and Protection. Corporate trustees provide safety and security of your assets and are regulated by both state and federal law. Corporate trustees and registered investment advisors are both held to the fiduciary standard of acting solely in the best interests of trust beneficiaries.
Cons of Hiring a Corporate Trustee:
1. Expense. Typically, corporate trustees charge upwards of 5% per year on the trust balance under manangement. This cost may be too steep for some clients. But for others, its money well spent.
2. Strict Reading of the Trust. Actually, this can be viewed as either a pro or a con. A corporate trustee is going to strictly read the trust instrument and apply its provisions. In truth, this is what all trustees should do, but an individual family member might be inclined to “bend the rules” more than a corporate trustee. By “bending the rules”, I mean that the individual family member might be a bit more generous in making distributions than called for under the trust, or might make fewer distributions than might be approprate for a “discretionary distribution” trust (especially if other family members are the alternate beneficiaries).
Pros of Appoinitng a Family Member:
1. Cost. Unlike a corporate trustee, typically a family member is appointed at no cost to the trust. It does not have to be that way however. After all, a family member is not required to serve as trustee. They have to accept appointment. You can sweeten the pot for the family member my appoint that family member to serve for a lower cost, say 2.5% of the trust balance.
2. “Keeping it in the Family”. A family member that is a trustee knows the family history, and might be the best person in the case of a “discretionary distribution” trust. In other words, a the sibling of a beneficiary of the trust might know the issues with making too large a discretionary distribution to the sibling.
Cons of Appointing a Family Member:
1. Family Pressure. A family member appointed the trustee, especially over a “discretionary distribution” trust, might be pressured by the beneficiary. They may receive incessant phone calls and appearances at their front door for money. Sometimes, putting a family member in this position might not be the best idea.
2. Lack of Experience or Trust. Some family members are wholly unsuited ot be a trustee, either becasue they are unsophisticated or because they cannot be trusted to do what is called for in the trust. If you have any doubt about this, don’t appoint that family member as a successor trustee.
The bottom line is that if you choose to name personal trustees, you may provide in your trust documents for a corporate trustee as a successor, in case none of the personal trustees is available, capable, or willing to serve. Corporate trustees are institutions that don’t become incapacitated or die. You should consider the type of assets you own including investment securities, farmland and commercial real estate and then choose the most qualified corporate trustee to manage them.
In sum, many estate owners can benefit from the advantages of a corporate trustee. But it depends highly on the situation.
Ask an experienced estate planning attorney when creating or amending a revocable living trust, about naming the appropriate corporate trustee, and the advisability of including terms for your registered investment advisor to manage assets for your trust.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Should I Use a Corporate Trustee?” read these additional articles: What Happens If a Trust Is Invalid? and Does Louisiana Have an Inheritance Tax? and Is Prince’s Estate Settled Yet? and How Do You Split an Estate in a Blended Family?
Reference: Quad Cities Times (Nov. 28, 2021) “Benefits of a corporate trustee”