It is important to make plans for what happens to your money and property if you become incapacitated and after you pass away. Although this planning may cause feelings of fear and uncertainty, it is essential to face those decisions head-on. You must determine what people, things, and values matter most to you. A key 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 the trust. It is common to consider family members or trusted friends for this important role, but that is not always the best choice. In some cases, a professional corporate trustee may be a better solution.
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. Trustees are required by law to act in the best interests of the beneficiaries. Trustees who put their interests above those of the beneficiary face significant liability imposed by law.
The trustee’s role and obligations are usually time-consuming and may require specialized skills. For example, trustees must manage the trust’s accounts and property, carry out the instructions outlined in the trust agreement, pay bills, and keep accurate records of the actions taken. These steps are time-consuming. If more complex types of accounts or property are included in the trust, the trustee roles may 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 appropriate knowledge to take on such critical and elaborate tasks.
Family and friends may also not be appropriate options for trustees because of family dynamics and the nature of relationships involved. 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 any animosities or tensions currently exist within your family, naming a family member as trustee could be adding fuel to the fire.
A neutral third party as trustee can be helpful. Corporate trustees employ skilled professionals who can better manage the different responsibilities and dynamics that are present. If disagreements arise between beneficiaries, their only job is to follow the instructions left in the trust agreement, not get involved in the fighting.
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 the appropriate corporate trustee. Factors you should consider include:
- 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. Some institutions will not be appropriate because the minimum requirements cannot be met.
- Cost of service charges. The charges associated with corporate trustee services are often based on a sliding scale determined by the account’s size. On average, it is common for rates to stay around the 1 to 2 ½ percent mark. Some institutions also implement flat fee charges. These flat rates are often seen in instances where the required minimum trust account is low or nonexistent. It is important to choose a trustee whose fees are reasonable as compared to the work involved and the type of assets that make up the trust.
- 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 and gain your valuable guidance. 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 ownership. On the other hand, if you want to have the corporate trustee step into the role when you are no longer able to act as the trustee or you have died, 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. You should choose a trustee that is able to provide the degree of communication and responsiveness to the needs of the beneficiaries that you desire. A friend or family member may have lesser ability to perform as desired because of their own commitments and obligations to family or work or other priorities.
- Experience managing money and property. The corporate trustee’s experience in handling trusts with accounts and property like yours is another qualification to consider. For example, some corporate trustees may 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 transaction’s profits. Pay careful attention to these details because they can impact what accounts or property your beneficiaries may ultimately have access to.
- Removal of the corporate trustee. An additional consideration when selecting your corporate trustee is understanding the process of removing them if it becomes necessary. For the most part, the trust agreement is the primary tool for determining the steps to remove a corporate trustee. Some trusts contains provisions stating 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 orders, which can be challenging to obtain. To obtain a judicial order, the beneficiaries or co-trustees must show some type of violation, such as fraud, misappropriation of funds and property, or excessive fees.
- 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. We can review the proposed language for you and help you ensure that it does not conflict with any of your wishes and that you understand any impacts 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. We can help! Schedule an appointment with us and we will guide you along the way.