posted on July 01, 2012 00:00
Factors to consider in selecting a trustee
When someone establishes a trust, one of the many considerations is who will serve as trustee. In its most black-and-white form, this is a question of naming an individual or a corporation. With this newsletter, we address the advantages of each of these choices and look at some of the shades of gray in between.
What is a corporate trustee?
This is a corporation which has the powers, through its charter, to serve as trustee. This generally requires special chartering and regulatory oversight, usually through a banking regulator.
What are the advantages of a corporate trustee?
· Independence from family and its emotional ties
If you name one child as trustee for another, you risk potential strains to that relationship. A corporate trustee does not have these emotional ties; this distance may put it in a better position to carry out the intentions of the creator of the trust. This is particularly true when doing so involves tempering the wishes of beneficiaries whose desires may be at odds with the terms of the document.
· Experience handling trusts
A corporate trustee has the systems, procedures, and staff in place to handle trust issues. Their personnel have training and experience with the variety of situations which arise throughout the administration of a trust. Individual trustees, even those with the time and inclination, often lack the specialized knowledge and experience needed to serve this role effectively.
· Existence beyond the life-span of any given individual
If you are drafting a trust now which is not expected to be funded for some time (for instance, it is written into your will and hence does not exist until after your death) naming an individual can be problematic since you do not know who will be able to serve when they are needed. Likewise, if you have a trust today with young children as beneficiaries and it will exist for some time, it may be impractical to name an individual as trustee.
· Structure to assume the responsibilities and liabilities of serving as trustee
Corporate trustees have policies, procedures, audits, regulatory oversight, checks and balances--including separation of duties, and insurance coverage to handle the responsibilities which they have assumed.
What are the advantages of an individual trustee?
· Knows the family and their wishes
Much of what a trustee does requires making a judgment call. Is purchasing a certain model car now in keeping with the intention of the creator of the trust? Is sending a beneficiary to a given school for a degree or special training within the intent of the document? An individual, be it a relative, close family friend or advisor, will often have a good perspective on these choices.
· May be willing to serve without compensation
Are there ways to gain the advantages of both types of trustee?
Yes. By naming one corporate and one individual co-trustee, you gain the perspective that the individual brings and benefit from the independence and expertise which the corporate co-trustee brings.
There is another way too, if an individual trustee is named. That person may engage a corporate trustee to serve as their agent, in effect handling all the details. The individual retains responsibility yet reaps the benefit of the experience, infrastructure, and continuity of a corporate trustee.
What if the trustee needs to be changed?
The trust document should spell out the criteria for the trustee to be changed and who has the power to make the decision. It can be as easy as allowing a majority of the adult beneficiaries to choose another trustee. Or, it can be as locked down as requiring court intervention and then only with cause. Remember, a trustee often has to deliver news that a beneficiary does not want to receive; if you as the trust creator want your wishes carried out, the role of trustee must be sticky enough that the trustee has the power to enforce your instructions.
The matters discussed here are intended as an alert for our clients and not as legal or tax advice. You are urged to seek tax and accounting counsel for your particular situation before acting upon topics discussed here. At Independence Trust Company, we assist our clients in managing and enhancing their wealth. Please contact us with questions or to schedule a meeting. © 2002 Independence Trust Company
Independence Trust Company
P.O. Box 682188, Franklin, TN 37068-2188