One of the more difficult tasks in drafting a trust document is selecting a trustee. Trustees are responsible for managing the trust assets, having tax returns and accountings prepared, and distributing assets to your beneficiaries. A trust is meant to stand in for you in the event of your incompetency or death.
Most people prefer a trustee who knows the beneficiaries, however, there are times when a corporate trustee as a primary or successor trustee may be an option to consider. Before you make a decision on who to select, consider these four factors:
Continuity
Continuity issues may arise with individual trustees. A trustee may die or become incompetent, or they may be unable or unwilling to serve. This can be addressed by appointing successor trustees. There are no continuity issues with a corporate trustee.
Fees
Before you select a corporate trustee, research their fee schedule and asset minimums. Typically, a corporate trustee will charge a percentage of assets managed for their services. If the trust includes real estate, collectibles or other property, the fees will be even higher. An individual trustee can serve without compensation, but should be paid if they have a lot of oversight responsibility. They would typically delegate certain duties to financial advisors, accountants or attorneys, who would also need to be compensated for their time.
Competence
A corporate trustee employs a team of professionals to manage your assets. They have experience with trust law, filing tax returns, paying bills and maintaining records. An individual has less knowledge, and may not be as attentive if they have things in their personal lives that take time away from managing the trust. As indicated above, they can delegate much of trust administration to other professionals.
Administration
A corporate trustee will be objective, which can be a blessing and a curse. When it comes to distributions to beneficiaries, a corporate trustee will interpret the trust document exactly as it is written. However, an individual trustee who is a relative or close friend, would hopefully have knowledge of family dynamics and history. Depending on how the trust instrument is drafted, you may give the trustee wide latitude to deal with distributions to beneficiaries, or the terms of distribution can be drafted less liberally.
Drafting a trust is a major undertaking. Be sure you consider all of your options before selecting that all important trustee.
Contact us if you’re looking for help with a trust or have other financial concerns!
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