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How to know if you should choose a corporate trustee by davis law group pc

How to Know If You Should Choose a Corporate Trustee

October 27, 2021 Douglas Davis

Planning for how your money and assets will be taken care of after you pass away is not the most pleasant or exciting thing to do.

It requires thinking through situations that can cause feelings of fear and uncertainty. However, it is essential to face and come to terms with those decisions. You must determine what people, things, and values matter most to you. One of the most critical decisions in this process is deciding who to name as your trustee—the person or entity tasked with managing, investing, and handing out the money and property owned by the trust. For the most part, people name trusted friends or family members for this role.  But that isn’t always the best choice for everyone. 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 Make Sense for You

The role a trustee plays is complex and involves a wide variety of skills and mindsets. To start, trustees must operate in the best interests of the beneficiaries. This may not seem like a big deal at first, 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 that third party above the trustee’s interests.


The trustee’s role and obligations can  be time-consuming and require certain 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 are tasks that are time consuming regardless, but then factor in more complex types of accounts or property and the family dynamic. 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. Depending on your situation, your family or 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 any animosities or tensions currently exist within your family, 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, firms, or trust companies. Further, corporate trustees are neutral third parties. When disagreements arise between beneficiaries, their only job is to follow the instructions left in the trust agreement, not get involved in the fighting.


Things to Consider When Evaluating Corporate Trustees

If you decide to name a corporate trustee, you’ll need to evaluate all the options for choosing one. These following items 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. There are also some instances where the minimum amount varies depending upon the size of the account or property. You must know the value of the trust’s accounts and property to properly evaluate each institution.


  • 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 3 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. As you decide which institution to choose, consider selecting a trustee option that is bearable 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. When creating your trust, you’ll have the option to appoint a corporate trustee to serve as the co-trustee of your revocable trust or the primary trustee of your irrevocable trust. It  may seem strange to have an active trustee while you’re still alive, but by allowing a corporate trustee to begin managing your money and property while you’re still here, you allow 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. Alternatively, 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. 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 prioritize consistent communication and are responsive to the needs of your beneficiaries. Because they are professional trustees, it is their job to manage your trust. If you select a friend or family member, that person more than likely will have their own priorities or biases that have to be managed in addition to being in charge of your trust.


  • Experience managing money and property. A corporate trustee’s experience in handling trusts with accounts and property like yours is another benefit to consider. Some corporate trustees do not want to handle real estate. Firms with this policy 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 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 orders, which can be challenging to obtain. To obtain a judicial order, the beneficiaries or co-trustees must show some type of violation. This may mean 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. If so, it is best to  have your attorney review the proposed language so they can make sure that it does not conflict with any of your wishes and you can fully understand any impacts it may have on how your wishes are carried out.


Davis Law Group Can Help

As you choose a corporate trustee, the most important thing to do is ask questions and stay engaged. If you need additional assistance, please call our office to schedule an appointment. We have a team of experienced estate planning and trust administration attorneys who would be glad to guide you along the way.