Why a Corporate Trustee May Be Your Best Option When Creating a Trust
Adriane Baker, Chief Compliance Officer
Choosing the right trustee for your trust is one of the most critical decisions a grantor can make. The trustee you choose will be tasked with oversight of your legacy by ensuring the trust is administered in accordance with your wishes, as laid out in your trust document.
Your options for choosing a trustee are:
- serve as your own trustee
- serve jointly with a co-trustee;
- ·name someone else as an Individual Trustee
- ·name a corporate trustee.
The primary advantages to naming a corporate trustee are experience, objectivity, and at-the-ready professional resources that normally are not available to an individual trustee. These advantages help ensure the trust is administered according to your wishes as expressed in the trust document. A corporate trustee can also help maintain family harmony by taking sole responsibility for all distributions versus having to rely on the decisions of a family member.
What is a Corporate Trustee?
Corporate trustees are typically Independent trust companies, banks, or other professional organizations hired to build and manage a trust. Corporate trustees are granted authority through either state or national charters and are subject to regular audits and examinations by a variety of governmental agencies and regulators.
What are the benefits of using a corporate trustee versus an individual trustee?
- Proper allocation between principal and income is extremely important to effectively manage the trust. Many individual trustees do not have the resources available to properly tracked the allocation.
- When using a corporate trustee, tax preparation is handled by a professional tax group that specializes in trust taxes. This is also a resource that many individual trustees do not have access to.
- Trust administration
- Balancing the needs of both current and future beneficiaries is extremely important when administering the trust. This includes making discretionary distributions as well as managing the assets owned by the trust. A corporate trustee typically has the professional skill set to properly determine that balance and ensure that all parties’ needs are being considered in the overall administration.
- Impartiality with decision making can be a challenge when using an individual trustee, so a corporate trustee is a great option to ensure that the trust document is being followed. Corporate trustees can maintain an impartiality that a family member or close friend may find difficult.
- Investment management
- A corporate trustee provides professional investment management for the long-term needs of the beneficiaries, focusing on both present and future growth of the trust principal.
- A corporate trustee is more likely to adhere to the “prudent investor rule” which is a legal guideline for trustees of investment portfolios. The prudent investor rule requires a trustee, or other fiduciary, to act in the best interest of the trust’s beneficiaries and outlines standards for legally managing investment portfolios. A corporate trustee is more likely to have the knowledge and systems required to balance the provision of regular income and the preservation of trust assets, while avoiding investments that are excessively risky.
- Unlike most individual trustees or co-trustees, corporate trustees have an infrastructure that facilitates trust management over a long period of time without the risk of having to replace a specific individual.
What should I look for when choosing a corporate trustee?
- Corporate trustees typically have a team of professionals who are available to provide outstanding service to you whenever you need them. Many corporate trustees will provide you with a dedicated trust officer, and some will have a team that you will work with.
- Understanding how your trust will be administered is important in developing a lasting partnership with your corporate trustee. Proper expectations for discretionary distributions, who gets to receive statements, who is considered a beneficiary of the trust, and how are changes made (if applicable) are many of the issues that you want to have resolved prior to executing your trust document and when working with a corporate trustee. It truly is a partnership that both you, and the corporate trustee, want to be successful.
- A corporate trustee typically will have a team of investment professionals to oversee the management of your trust assets, allowing you the flexibility to have many different investment models available to you.When discussing your portfolio with a corporate trustee, inform them of your goals and expectations of your trust, and work with them to find the investment model that best fits your needs and preferences.
- A corporate trustee can also work with an existing financial advisor that you may have.Many corporate trustees can handle the account administration while your family financial advisor manages the trust assets, in partnership with the corporate trustee overseeing the investment program.
- Understanding how fees are calculated and charged is important when determining who should serve as trustee. A corporate trustee will disclose all that information up front and provide appropriate pricing for your particular portfolio. When comparing trust companies, you should always be provided with their current fee schedule documentation.
- Corporate trustees also have separate pricing for many of the provided specialized services such as special asset management, tax preparation, and legal services.While corporate trustees usually charge an annual fee that is more than an individual trustee would charge, use of a corporate trustee may ultimately be less expensive by the time other professional fees required to supplement the efforts of an individual trustee are paid.
There are many factors to take into account when choosing a trustee. However, if your primary goals are objectivity, adherence to your stated intentions and professional administration and management of your assets—you should strongly consider a corporate trustee.
Arden Trust Company does not provide legal or tax advice. Please consult a legal or tax professional for advice specific to your circumstances.