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Trustees: Individual versus Corporate

 

 

Oft considered a planning tool exclusively for the wealthy, the use of trusts has broadened over the past few decades. Complex family dynamics, the need to care for family members with developmental or physical challenges, avoidance of probate and tax reduction are a few of the many useful applications of trust planning.

While the primary emphasis tends to revolve around the construction of the trust document and terms, an often-overlooked step in the process is the decision of who will serve as trustee. The trustee is the individual or entity charged with ensuring that the terms of the trust are carried out, while also overseeing the investments and other trust property.

When establishing a trust, the creator of the trust (also known as grantor, settlor or testator) decides not only who will serve as the initial trustee, but who will serve as the successor trustee if and when the original trustee is no longer able or willing to serve in that capacity.

Again, the trustee of a trust can either be an individual or it can be a corporate entity that has “trust powers” and is able to serve in a fiduciary capacity. Many choose to utilize an individual family member as trustee of a trust. The three most common benefits perceived by those who choose an individual trustee are cost, control
and familiarity. 

Cost - Although an individual may be entitled to compensation for their work as trustee, they often decline to accept a fee as they are frequently a friend or family member. The lack of fees charged by the individual trustee,
may preserve more funds for ultimate distribution;

Control -  Having a friend or family member serving as trustee can provide a greater degree of perceived control over the management and disposition of the trust assets;

Familiarity - A friend or family member might have a deeper understanding of unique family dynamics that may influence the appropriateness of certain expenditures and distributions.

Having pointed out some of the benefits of using an individual trustee as opposed to an institution, there are definitely some disadvantages.

Cost - Although an individual trustee sometimes will serve without charging a fee, there is often the necessity to enlist the services of a CPA, an attorney and/or an investment manager to help with the management and administration of the trust. These separate costs can add up, while a corporate trustee will usually provide all of the required trustee services for an inclusive fee that may be comparable in the long run.  

Expertise - An individual will often lack the expertise needed to serve as trustee. Complicated matters, such as managing the trust’s investments, administering the terms of the trust, maintaining accountings and filing the appropriate tax returns can overwhelm the uninitiated. This lack of expertise can ultimately prove costly, both in terms of financial and family discord. 

Conflict of Interest - A family member serving as trustee can be placed in a very difficult position when it comes to making distributions, investment decisions, disposing of property, etc.

Again, the use of a corporate trustee brings with it the “cost” that some want to avoid. The corporate trustee does charge an annual fee for the trustee services, but there are
definite advantages:

Experience - A corporate trustee will provide a degree of experience that a family member will usually not possess.

Expertise - The corporate trustee will provide the necessary skills relative to the administration of the trust and the management of the trust’s investments. The corporate trustee will see that appropriate tax filings are made, and that accountings and other trust records are properly maintained.

Objectivity - The corporate trustee can provide objectivity when dealing with the sometimes competing interests of different trust beneficiaries. The corporate trustee can deal with distribution requests from beneficiaries in a more objective manner than a family member might, while upholding the wishes and directives of the individual(s) who established the trust. On this final point, if the individual establishing the trust believes it to be helpful, a family member can be designated in the governing trust document to serve as an advisor to the corporate trustee. The advisor could assist with information about family dynamics and could help with certain other decisions that a corporate trustee may need to make.

In conclusion, the benefits of objectivity and peace of mind that can come from the enlistment of a corporate trustee often outweighs the associated cost.

John LeeVice President, Trust Officer

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    Monday, February 23, 2015

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Proactive Steps to Take in Light of Anthem Data Breach

Chances are you are a person who has Anthem insurance coverage or you know someone who does. As a result, either you or your friend has a reason to be concerned.

A typical data breach includes a compromise of debit card numbers or partial personal identifying information. This kind of breach, though inconvenient, can typically be ‘fixed’. An initial investigation indicates that the Anthem breach includes a compromise of name, birthday and/or social security number. This kind of information is all one needs to steal someone’s identity.

According to Anthem this particular breach could affect up to 80 million people. Instead of trying to ignore this has happened or just being upset, it’s now time for you to be educated and try to protect yourself as best as you can. We have some tips that will help you accomplish that.


1. Review Your Statements


First, take a moment each month to view your eStatement or monthly statement. You can monitor your accounts throughout the month with Online Banking and the MutualBank App. Monitoring your accounts will give you the quickest opportunity to see if your accounts have been compromised. If you notice any transactions that are unfamiliar or questionable, please get in touch with your MutualBanker. Call us at 800-382-8031.


2. Be Cautious with Any Anthem Emails You Receive


Next, if you receive an email stating it is from Anthem, be cautious. Anthem’s website warns customers not to reply with information, click any links or open any attachments within the email. Anthem is not calling their customers and will not ask for information. Never give your credit card information, social security number, or other sensitive information to someone via email or over the phone.


3. Consider Freezing Your Credit


If you are a resident in Indiana, the Attorney General’s office website (http://www.in.gov/attorneygeneral/2853.htm) is offering and encouraging you to sign up for a free credit freeze with each of the three credit bureaus. A credit freeze places a hold on your credit where a new line of credit could not be obtained without you unfreezing your credit. This doesn’t affect already open credit lines like an existing credit card, yet helps to protect you against someone opening new lines of credit in your name.


4. Keep in the Know


Finally, try to keep in the loop on the Anthem Breach. The best source for current information about this breach can be found at Anthem’s Frequently Asked Questions. (http://www.anthemfacts.com/faq)

MutualBank is here to help inform you of ways to help protect against identity theft. Thank you for trusting us.

Sunday, February 15, 2015

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Trustees: Individual versus Corporate

 

 

Oft considered a planning tool exclusively for the wealthy, the use of trusts has broadened over the past few decades. Complex family dynamics, the need to care for family members with developmental or physical challenges, avoidance of probate and tax reduction are a few of the many useful applications of trust planning.

While the primary emphasis tends to revolve around the construction of the trust document and terms, an often-overlooked step in the process is the decision of who will serve as trustee. The trustee is the individual or entity charged with ensuring that the terms of the trust are carried out, while also overseeing the investments and other trust property.

When establishing a trust, the creator of the trust (also known as grantor, settlor or testator) decides not only who will serve as the initial trustee, but who will serve as the successor trustee if and when the original trustee is no longer able or willing to serve in that capacity.

Again, the trustee of a trust can either be an individual or it can be a corporate entity that has “trust powers” and is able to serve in a fiduciary capacity. Many choose to utilize an individual family member as trustee of a trust. The three most common benefits perceived by those who choose an individual trustee are cost, control
and familiarity. 

Cost - Although an individual may be entitled to compensation for their work as trustee, they often decline to accept a fee as they are frequently a friend or family member. The lack of fees charged by the individual trustee,
may preserve more funds for ultimate distribution;

Control -  Having a friend or family member serving as trustee can provide a greater degree of perceived control over the management and disposition of the trust assets;

Familiarity - A friend or family member might have a deeper understanding of unique family dynamics that may influence the appropriateness of certain expenditures and distributions.

Having pointed out some of the benefits of using an individual trustee as opposed to an institution, there are definitely some disadvantages.

Cost - Although an individual trustee sometimes will serve without charging a fee, there is often the necessity to enlist the services of a CPA, an attorney and/or an investment manager to help with the management and administration of the trust. These separate costs can add up, while a corporate trustee will usually provide all of the required trustee services for an inclusive fee that may be comparable in the long run.  

Expertise - An individual will often lack the expertise needed to serve as trustee. Complicated matters, such as managing the trust’s investments, administering the terms of the trust, maintaining accountings and filing the appropriate tax returns can overwhelm the uninitiated. This lack of expertise can ultimately prove costly, both in terms of financial and family discord. 

Conflict of Interest - A family member serving as trustee can be placed in a very difficult position when it comes to making distributions, investment decisions, disposing of property, etc.

Again, the use of a corporate trustee brings with it the “cost” that some want to avoid. The corporate trustee does charge an annual fee for the trustee services, but there are
definite advantages:

Experience - A corporate trustee will provide a degree of experience that a family member will usually not possess.

Expertise - The corporate trustee will provide the necessary skills relative to the administration of the trust and the management of the trust’s investments. The corporate trustee will see that appropriate tax filings are made, and that accountings and other trust records are properly maintained.

Objectivity - The corporate trustee can provide objectivity when dealing with the sometimes competing interests of different trust beneficiaries. The corporate trustee can deal with distribution requests from beneficiaries in a more objective manner than a family member might, while upholding the wishes and directives of the individual(s) who established the trust. On this final point, if the individual establishing the trust believes it to be helpful, a family member can be designated in the governing trust document to serve as an advisor to the corporate trustee. The advisor could assist with information about family dynamics and could help with certain other decisions that a corporate trustee may need to make.

In conclusion, the benefits of objectivity and peace of mind that can come from the enlistment of a corporate trustee often outweighs the associated cost.

John LeeVice President, Trust Officer

Contact a Representative Today

Back to Education Resources

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