[This post was developed in cooperation with Kenny Brown and Quin Swiney for AmeriTrust. The partners of Tallgrass Estate Planning are proud to work with the trust officers and advisors at AmeriTrust, and we often refer our clients to them for help. No referral agreement exists between Tallgrass Estate Planning and AmeriTrust. AmeriTrust works with many attorneys throughout Oklahoma, and we at Tallgrass are honored to be among them.]
In most of our consultations about trusts, we eventually explore whether the client may benefit from integrating a corporate trustee into their plans. We look at family dynamics, financial advisers, and types of assets, among other things. We also consider needs that may arise during a client's disability - during which time a Will does absolutely no good at all - and whether there are new and unique needs that arise after a client's death.
Typically, criticisms of trustees center around fees, locality and beneficiaries’ perceived lack of access to funds and to the administrator. Occasionally, though, we hear this challenge: “Trust administration just isn’t that difficult.” But the reported court cases between unhappy beneficiaries and equally unhappy related trustees indicate otherwise.
In many cases, trust administration requires more than common sense, and the trustee’s duties to the beneficiaries require a keen consideration for objectivity and loyalty. Corporate trust officers are trained, credentialed, supervised and audited to ensure that the multitude of policies and procedures are followed and provide a proper - and defensible - result within the trust’s terms and the standard of care for ethical and prudent administration. There’s a lot of gray area there, and the consequences of a breach of trust - even inadvertently - can be a financial nightmare for an individual trustee just doing their best.
So what are the key benefits and considerations when choosing whether to use a corporate trustee?
01/What can corporate trustees offer that friends and family may not?
Family and friends are emotionally involved with you and your assets, which admittedly isn't always a bad thing. Sometimes, emotion and sentiment can be useful. But often they are the source of tensions - known or hidden - that can disrupt how you wish to provide for your loved ones.
A corporate trustee has no such emotional investment, no messy history with family members, no expectation to receive any particular benefit from your assets. This means their one and only goal is to effectively and efficiently administer your trust as directed. Period.
Only you know the strengths and weaknesses of your family members, putting you in the best position to decide if your spouse or your child can appreciate a trustee’s responsibilities.
Corporate trustees understand how to administer many different types of assets, whether simple or complicated. They understand sophisticated tax issues that family and friends often miss or cannot appreciate. And they know how to relate to many types of beneficiaries and their unique personalities, priorities, expectations, liabilities, and feelings.
Beyond simply administering the trust, corporate trustees also have a wealth of investment experience and are very likely to create and protect long-term growth for your trust assets.
The increase in the stock market over the past several decades has changed the nature of the trust business. Many older, high net worth individuals may have significant wealth in stocks and bonds. Those clients may need customized or more sophisticated wealth management and tax planning strategies.
Having access to wealth advisors and tax professionals is crucial to carrying out your plan and the administration of your trust as you intended.
Clients are often concerned about how to enforce trust provisions when naming family or friends as successor trustees. While there are a few mechanisms we can use to ensure trustees play by the rules, the solution is much simpler with corporate trustees.
Corporate trustees are regulated by both state and federal agencies, and often they are considered "experts," meaning they are held to a higher standards than nonprofessionals.
Being a trustee creates many duties under state law. These include, but are not limited to, impartiality between the interests of the current and future beneficiaries, properly accounting to all beneficiaries, prudently investing trust funds and prohibition against self-dealing.
Banks and trust companies provide professional fiduciary services and can act independently. All fiduciaries are held to a very high standard, and this is truer for corporate fiduciaries since we are in the business of providing fiduciary services.
Clients are often concerned about the costs associated with naming a corporate trustee. However, they fail to consider the costs of naming a relative with no trust experience who may mishandle the trust through ignorance. These costs can be significant.
Corporate trustees publish their fees, typically charging between 1.0% to 1.5% of trust assets as the annual administrative fee, but fee concessions are often negotiable. Professional advisers such as attorneys, accountants and financial advisers often charge higher administrative fees and costs than a corporate trustee who must compete on value.
One of AmeriTrust's clients, a recent widow, felt that only one of her two sons needed a trust for his share at her death.
In the end, she decided on a corporate trustee for both sons, with separate and distinct trust agreements. The responsible son’s trust provides greater access to funds and input on trustee decisions in secret. The wayward son’s more restrictive trust will protect him, hopefully without feelings of resentment.
Corporate trustees are often best suited, for many of the reasons cited above, to handle these different distribution standards. They help preserve family harmony since it is the corporate trustee, and not a family member or friend, who is following the trust rules to treat beneficiaries differently.
02/How can you use a corporate trustee?
You may nominate a corporate trustee to be your trustee even while you are alive. This is required when dealing with certain types of complex trusts designed for asset protection or tax planning. But it may be a wise decision even when dealing with a fairly straightforward revocable trust.
If you are elderly and have few people, or none, you can trust with your finances, a corporate trustee is a great option to ensure your assets are available for your use but protected from predators who seek out people in vulnerable situations.
Or even if you are otherwise capable of handling your finances, you might be a stage in life where you are too busy or have other urgent priorities, not allowing you much time or attention to invest and plan effectively. Corporate trustees can be great options in such cases.
Hiring a corporate fiduciary, like AmeriTrust Corporation, as agent for a personal trustee gives the family member or friend a team of professionals who have a passion for serving families, standing behind them as their coach. It provides a deep bench of talent, giving the trustee the guidance and wisdom of professionals who work with beneficiaries and trusts on a daily basis while still allowing him or her to make final decisions.
You may wish to remain involved in the management of your assets while still taking advantage of a corporate trustee's experience and objectivity. In such a situation, you might consider naming a corporate co-trustee.
This has the added advantage of letting you know how the corporate trustee may function if you are incapacitated or after your death. Naming a corporate co-trustee, then, allows for a thorough "interview" of sorts for the long-term.
For those who wish to serve as their own trustees during their capacity, which is most people, naming a corporate successor trustee gives peace of mind about how assets may be managed for surviving spouses, children, charities, or other beneficiaries.
This is a crucial consideration if you are seeking to provide robust asset protection to your loved ones - protecting assets from divorcing spouses, your children's business and personal liabilities, special needs benefits, substance dependence, or just a beneficiary's financial immaturity.
Perhaps naming a corporation as a trustee is never the right fit for you and your trust, but it may still be wise to consider naming a corporation as an investment adviser or manager.
This allows you limit the role a corporation might play to overseeing brokerage assets, mineral interests, business management, while leaving more mundane administration and distribution to trusted friends or family members.
Finally, naming a corporate trustee as an investment adviser or manager can be a great way to get to know if it is the right fit for you and your family and affords you the opportunity to make a change before naming them as your successor trustee.
03/Does everyone need a corporate trustee?
Absolutely not. We do not advise all of our clients to appoint corporate trustees, and most corporate trustees are honest enough with families to let them know when they are unnecessary. The amount and type of assets, the circumstances of the beneficiaries, and your priorities all come together to let us know whether including a corporate trustee is right for you.
So consider these questions:
Can your trustee separate his or her personal feelings and interests from those of the beneficiaries and exercise good judgment at all times?
Will everyone be treated impartially (for instance, if your children are not your spouse’s children)?
Does your trustee have an ability to analyze investments?
Will there be temptation for your trustee to take risk hoping for a hefty return at the expense of the other beneficiaries?
What if your spouse re-marries?
Will a child who is trustee be able to exercise good judgment when a sibling is a beneficiary or will tension develop between them?
Can your sons-in-law and daughters-in-law and their children work peacefully together?
Will a child who is balancing his or her family and career have adequate time to devote to serving as trustee?
04/How do I choose a corporate trustee?
You can and should take your time in choosing a corporate trustee. Investigate any publicly available information about services, fees, and client feedback. When you've identified a few you would like to learn more about, schedule a meeting to discuss your priorities, assets, and the people who are important to you.
It may sound obvious but first look in your own backyard when selecting a trust company. Make sure you can talk in-person to your trust officer, investment officer and others to help you or your beneficiaries make decisions. All too often people will select a trust company only to find important decisions are being made at the corporate headquarters or regional office several states or hundreds of miles away. Impress upon the trust company the importance of being able to meet in person and talk directly with those empowered to make decisions regarding your trust. Your attorney or accountant may also appreciate the flexibility and convenience of being able to talk with a trust officer or investment officer face-to-face.
Communication with the trustee should feel comfortable. If you don't feel like it's a good fit, then move on to the next on your list. It's not a one-size-fits-all solution, so it's okay if you need to meet with several. Don't get discouraged if your first meeting doesn't go as expected.
Don't be afraid to ask for real numbers. How many trusts do they administer? How long have they been in business? How many assets do they have under management? What are their returns? What is their response time with clients and beneficiaries?
Do they listen to you? Do they understand your concerns? Just as importantly, do you understand THEM?
If you have an estate planning attorney or financial adviser, ask for a referral or even include them in meetings with potential corporate trustees. Use your existing relationships to create a trusted team for you and your family for the long-term.
Here's the stuff we always put at the end:
If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 (in the Tulsa area) or (405) 358-3848 (in the OKC area) or send an email to firstname.lastname@example.org to set up a free consultation, either in person, video chat, or phone call.
Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.