The Benefits of Utilizing Corporate Trustees in Your Estate Plan

Selection of the appropriate trustee is often an emotional decision. While many grantors may feel that naming someone outside the family to act as trustee may be seen as a “vote of no confidence” for their family, they should instead view that decision as both loving and prudent. Simply put, when a grantor names a corporate trustee to administer their trust, they chose to relieve their loved-ones of a significant burden.

Consider the following scenario, if you will:

Pretend for a moment that you are looking to establish an estate plan for you and your family. You have a net worth of over $3 million, consisting of large positions in a few equities, life insurance, a business interest and two homes. You have worked your whole life to accumulate your wealth and you wish to provide for your children, grandchildren and several charities upon your death.

Now imagine I approach you with the following proposal: My name is Adam. I’m starting my own trust company with no previous experience in the areas of tax or investment management and I have no legal background. I have another full-time job that I balance with my family obligations. And, I can sometimes be swayed by emotions, therefore making decisions I probably shouldn’t. Will you be my first client?

I’m guessing your answer will be a resounding “No thanks!” However, if you were to name a member of your family or a friend as your personal representative or trustee that is exactly what you may be doing!

This scenario aside, there are many benefits of utilizing a corporate trustee. The following are some of the most oft cited:

• Neutrality and Objectivity – Simply put, a corporate trustee is not a member of your family – meaning they can make hard, unpopular decisions without the risk of introducing strain into the family. Sadly, even the most loving, harmonious family situations can become strained when one or more of its members are required to make the difficult decisions trustees need to make. A corporate trustee can be used as a ‘lightening rod’ – absorbing negative reactions or disappointment over tough decisions.

• Experienced and Professional Administration – State and federal laws strictly regulate corporate trustees. Therefore, a corporate trustee must act in the best interest of the trust. A corporate trustee insures that all of the trust records are accurate and current, and will supply you with detailed reports of the trusts activity.

• Continuity – A trust is typically designed to last a long time. Often, the trust will outlast you and many of your family members. Age, illness or death can prevent an individual trustee from fulfilling the duties of a trustee. A corporate trustee alleviates this concern and can provide stability and uniformity from generation to generation.

• Consolidated Services – Most corporate trustees will provide investment management and tax services as part of their suite of services. By doing so, the cost savings to the trust of having the investment management, tax services and trust administration completed by your corporate trustee could be significant. The cost of hiring separate specialists in each of these areas is oftentimes more expensive than paying for them together.

• Professional Investment Management – A corporate trustee prudently invests trust funds for the maximum benefit of a trust. Further, a corporate trustee can invest in institutional funds, whereas an individual trustee can only invest in retail funds.

• Time Commitment – Trusts can be difficult to administer and may be a very time consuming endeavor. A corporate trustee’s responsibility is to ensure the grantor and beneficiaries’ needs are met. A friend or family member may not have the necessary time to appropriately administer the trust.

• Legal and Regulatory Requirements – Trustees must comply with ever-changing legal requirements and fiduciary standards. Trustees are legally accountable to grantors and/or beneficiaries for the investments and administration of a trust. Corporate trustees are well versed in the legal nuances of a trust and will help a grantor avoid potential pitfalls.

For these reasons, and many more not discussed in this article, choosing a corporate trustee to administer your trust may represent a wise and loving decision for your family. You should discuss this option with your estate planning attorney who will help you determine if using a corporate trustee is appropriate for you and your estate plan.