Making plans for your money and property after you pass away is not the most exciting thing to do. It involves thinking about situations that may cause feelings of fear and uncertainty. Nevertheless, it is essential to face those decisions head-on. You must determine what people, things, and values matter most to you. A critical decision in this process is deciding whom to appoint as trustee—the person or entity charged with managing, investing, and handing out the money and property owned by your trust. Most people typically consider trusted friends and family members for this important role. However, that is not always the best choice. In some cases, corporate trustees may be better at managing your money and property if you pass away or become impaired and unable to manage your affairs.
Why a Corporate Trustee May Be the Better Choice
The role of a trustee is complex and involves a wide variety of skills and mindsets. To start, trustees must operate in the best interests of the beneficiaries. This requirement may seem unimportant at first blush, but it is an involved process. It comes with the risk of significant liability because that obligation to act in another’s best interest is imposed by law, the trustee must put the interests of the beneficiary above all other interests.
The trustee’s role and obligations are usually time-consuming and require specialized skills. For example, trustees must manage the trust’s accounts and property, execute the instructions outlined in the trust agreement, pay bills associated with the various possessions, and keep accurate records of the actions taken. These steps are ordinarily time-consuming without factoring in the more complex types of accounts or property. It is not unusual to find that some trustee roles include managing businesses, monitoring property in multiple states, and providing oversight of unique accounts and property like stock portfolios and art collections. Family members and friends may not have the requisite knowledge to take on such critical and elaborate tasks.
Family and friends may also not be appropriate options for trustees due to the intricate nature of relationships. A friend or family member may have unconscious biases based on prior experiences that impact how they make decisions about the trust. There may also be added complexities if there is a blended family involved or if family tensions exist. If such tensions currently exist, naming a family member as trustee could be adding fuel to the fire.
Corporate trustees can better manage these different responsibilities and dynamics because they employ skilled professionals in banks and brokerage firms. Further, corporate trustees are neutral third parties. When disagreements arise between beneficiaries, their only job is to follow the instructions in the trust agreement, not get involved in family disputes.
Factors to Consider when Evaluating Corporate Trustees
If you decide to name a corporate trustee, your next decision involves evaluating the various options for choosing a corporate trustee. These factors are not all-inclusive but provide a good starting point for your analysis and understanding of the pros and cons of working with a corporate trustee.
- Minimum trust account requirements. Corporate trustees have a wide range of minimum amounts for accounts, ranging from zero dollars to $1 million, depending on the institution. You must know the value of their requirements to properly evaluate each institution.
- Service charges. The charges associated with corporate trustee services are often based on a sliding scale determined by the account’s size. It is common for rates to stay around the 1 to 2 ½ percent mark. Some institutions also levy flat fee charges. These flat rates are often seen in instances where the required minimum trust account is low. As you decide which institution to choose, consider selecting a trustee option that is reasonable for your beneficiaries and the amount of money you are expecting they will ultimately receive.
- When corporate trustees step into the role. Another important factor when selecting a corporate trustee is understanding when the corporate trustee can step into the role. As you create your trust, one option available to you is appointing a corporate trustee to serve as the co-trustee of your revocable trust or the primary trustee of your irrevocable trust. By allowing a corporate trustee to begin managing your money and property while you are alive, you create the opportunity for the trustee to learn about your preferences. Another potential benefit of having corporate trustees step into the role while you are still alive is that if structured appropriately, you may be able to save money on estate taxes if you transfer assets into the trust and out of your taxable estate. Alternatively, if you want to have the corporate trustee step into the role only when you are incapacitated, you should discuss with each institution what that process looks like and if they have any additional requirements.
- Ease of use and communication between trustees and beneficiaries. It is critical to consider how well the trustee works with and communicates with your beneficiaries. A common fear associated with corporate trustees is that their approach is more hands-off, resulting in a lack of genuine care, but this is not always the case. Corporate trustees often emphasize consistent communication and are responsive to the needs of your beneficiaries. Because they are professional trustees, it is their job to manage your trust.
- Experience in managing money and property. The corporate trustee’s experience in handling trusts with accounts and property like yours is another qualification to consider. Some corporate trustees do not want to handle real estate. Firms that feel this way may either refuse to accept the appointment as trustee or may end up liquidating the real estate and managing the resulting cash. Pay careful attention to these details because they can impact what accounts or property your beneficiaries may ultimately receive.
- Removal of the corporate trustee. An additional consideration when selecting your corporate trustee is understanding the process of removing them if it becomes necessary. By developing a comprehensive knowledge of how corporate trustees are removed, you will better understand how critical this decision is. For the most part, the trust agreement is the primary tool for determining the steps to remove a corporate trustee. Some provisions state that beneficiaries can remove trustees with a unanimous vote. Failure to include language in your trust agreement regarding the removal of trustees will limit your beneficiaries’ removal options to the use of judicial intervention. To obtain a judicial order, the beneficiaries or co-trustees may have to show some type of violation. This may mean fraud, misappropriation of funds and property, or lack of responsiveness.
- Additional provisions. Before agreeing to serve as a co-trustee or alternate trustee, some corporate trustees will have specific language that their legal department requires to be included in your trust agreement. This is a great opportunity to have us review the proposed language so we can make sure that it does not conflict with any of your wishes and you can fully understand any impact it may have on how your wishes are carried out.
We Can Help
The most important thing you can do as you choose a corporate trustee is to stay engaged by asking questions based on the information described above. Did you know that our sister company, Legacy Fiduciary Services, PLC, can act as your corporate fiduciary? If you need additional assistance or want information on our services, please call our office to schedule an appointment. One of our experienced attorneys will be available to guide you along the way.
Content provided by Wealthcounsel; edited by M. Eldridge Blanton, III, Esq.