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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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Personal Banking Security Measures for the 21st Century

clientuploads/21st-Century-Securitysquare180.pngMany of us are constantly connected to the online world these days. This means that the potential is there for our computers and personal information to be compromised which greatly increases the risk of ID theft and financial fraud to occur. However, by taking some basic precautions you can significantly reduce the risk of your computing environment being compromised. Following these simple guidelines should help your computing environment become more secure:

Keep your computer and software up-to-date

Keep your computers and network equipment secured with the latest software updates and enable automatic updates whenever possible.  This includes updates to third party applications such as Java and Adobe Products.  

Use hard drive encryption

In the event your machine is lost or stolen, drive encryption can prevent others from accessing the data on your hard drive.  The purpose is to encrypt or scramble your data on your machine so that it can only be read with your encryption key.Many operating systems offer drive encryption.  Microsoft offers Bitlocker and Apple has FileVault. There are also other third party encryption offerings.   

Enable your firewall

Think of the firewall to your computer as the fence around your property.  If there were multiple holes cut in the fence, it wouldn’t be very useful at keeping people out.  Firewalls are typically enabled by default on Windows machines, but double check to make sure it’s on.  Here are instructions to do so if you are using Windows 7. Only allow necessary applications inbound access through your firewall. The same principles apply to your network firewall. 

Configure your screensaver

Set an auto-locking screensaver so your account gets locked out after a few minutes.  This is useful if you forget to lock your machine when are away from it. On Windows machines this can usually be done by pressing the “Windows Key” and the “L” button simultaneously.

Make your passwords stronger

The longer and more complex the password, the better.  At least 16 characters with a combination of upper and lowecase letters, numbers, and special characters is a best practice.

Configure your router

Use the strongest wireless security available (currently WPA2-CCMP) with a long and complex password for your wireless network. Disable WPS on your wireless router for greater security.   

 


Think that some secure banking information
of yours has been compromised?

If you suspect that your personal financial information has been compromised, call MutualBank Customer Support at 800-382-8031.


 

Monday, April 7, 2014

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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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