When you create any trust, in particular a trust designed to last decades into the future, finding the right trustee is of paramount importance to the trust’s longevity and ultimate success. At first blush, one may believe that a family member, a sibling, “Uncle Bill” to your children (who are the initial beneficiaries to your long term trust) will be an excellent choice as trustee. The trusted family friend has always understood the personalities and workings and varying needs of your children, loved ones and beneficiaries. This family member or this friend has always been an excellent money manager, he has been frugal and he will not spend a lot of money administering the trust. Clearly, these are good reasons to use a family member as a trustee.
However, your family member or old friend might not be a great trustee for a long-lasting trust. There are several fiduciary obligations that a family member or friend may not be able to handle. As a result, the family friend or relative may need to hire an investment advisor to see that the body of the trust is being properly invested. The family friend or relative may need to hire professional tax advisors to ensure that distributions are properly made and that tax returns are properly filed. The management and investment of trust funds is a fiduciary responsibility and your trusted friend or relative may not be able to do these things. Hiring separate professionals can make these expenses add up. Probably, they will cost more than the fees of a corporate trustee, that is, a bank or a trust company. Many corporate trustees can meet all fiduciary obligations under one roof for one comprehensive fee.
Here are seven reasons why you should think about a corporate trustee for your long term trusts rather than a trusted friend or relative:
1. Corporate Trustees Are Perpetual. Since a corporate trustee is a perpetual entity, you do not have to worry about your trusted friend or relative surviving as long as your long term trust.
2. A Corporate Trustee is Regulated by State Law. As such, corporate trustees are required to follow many regulations designed to protect the trusts that they administer. This is simply an additional layer of protection rather than the always-present fiduciary obligations any trustee has towards the beneficiaries. A corporate trustee will have a better understanding of these obligations and will be accustomed to dealing with these regulations and obligations on a historical and ongoing basis.
3. A Corporate Trustee Will Not Have a Potentially Disruptive Personal Life. Corporate trustees do not become ill and they do not die. They do not get married, they do not get divorced. They do not have children and they do not have grandchildren and they do not go on extended vacations or move to foreign countries. They do not get distracted by day-to-day life that can get in the way of properly administering your trust. Corporate trustees have staffs of people who all have personal lives, but managing your money and your trust is their profession and their personal lives will generally not get in the way.
4. A Corporate Trustee Will Not Be Biased. Corporate trustees are not personally involved in your trust. They are not personally involved in the lives of your children and beneficiaries. As a result, they are a great deal less likely to favor one beneficiary over another unless that is what you have written into your trust. Corporate trustees are often the best way to treat each of the children fairly. However, this does take some time to draft instructions to the corporate trustee to prepare them for the task at hand.
5. A Corporate Trustee Avoids Conflicts of Interest and Self-Dealing. A corporate trustee, being regulated by state agencies, and fiduciary standards, will not sell the family company or vacation home (that you intended to eventually go to the grandchildren) to himself or herself or to a friend at less than fair market value.
6. A Corporate Trustee Will Invest According to Industry Standards. That means that they are going to spread the assets around and diversify the portfolio as best as possible. Financial advisors advise that a diversified portfolio will be far more stable and likely to take far better advantage of the stability of diversification that is their profession.
7. A Corporate Trustee Has Expert Knowledge. A corporate trustee will not need to hire a slew of attorneys and accountants to interpret the trust agreement. Corporate trustees are accustomed to dealing with trusts. Corporate trustees are familiar with well-drafted and less-than-well-drafted trusts. However, a good corporate trustee can be provided a copy of the trust when you create it. They may have suggestions for changes and if changes need to be made they can point out problems at the outset. Corporate trustees will also keep up on changes in tax laws and other laws governing trusts, fiduciaries and other taxes. A corporate trustee is a very good device when used in conjunction with a trust protector to keep your trust up to date at all times.
It is a lot of work to be a trustee. Trustees need to manage the requests and expectations of current and remainder beneficiaries. They need to provide periodic reports of the trust assets. They need to provide reports on liabilities, receipts and dispersements to the current and remainder beneficiaries. They need to prudently invest the trust assets according to fiduciary standards and they need to prepare and file all required tax forms. The work of a trustee will seemingly never end. As a result a corporate trustee is a substantially better choice than your old pal because your old pal or trusted relative may not be up to the job.
Because of the breadth of duties and responsibilities that fall on trustee, a corporate trustee rather than your trusted relative or friend may be a better option for your long-term trust. Please give me a call if you have any questions about the selection of a trustee generally or the use of corporate trustees. We can certainly help you in selecting the right individual or entity to serve as your trustee.