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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.

 

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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.

 

Contact a Representative Today

Back to Education Resources

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