Revocable living trusts are a powerful and commonly used estate planning tool. Whenever a trust is created, there is also an accompanying position created called the trustee. The trustee is a person or entity appointed within the trust document that is responsible for the administration and management of the trust.
The trustmaker usually names himself or herself as the current trustee. But if the trustmaker becomes incapacitated, or when the trustmaker passes away, a backup trustee called a “successor trustee” must take over the responsibility of managing the trust. Many people who create trusts default to a child, family member, or close personal friend to be their successor trustee. In some situations, the hiring of a corporate trustee may be a wise decision.
Avoiding Family Strife
Sometimes, folks know when creating their trust and estate plan that their family or beneficiaries are not going to get along after their death. One way to reduce family friction is to appoint a corporate trustee. The corporate trustee brings objectivity and neutrality to what can be an already volatile family situation.
When a family member or friend is chosen to be the successor trustee, others involved may feel jealous they were not chosen for the role or they may not like the way the trust is being handled. Sometimes a family member that is chosen to be the trustee is resentful of the position because of the time commitment and the negative family reactions. When a third party, corporate trustee is in charge, they are in a better position to navigate these complicated family dynamics.
What about the Cost?
Avoiding the cost of a corporate trustee is one of the most common reasons people chose a family member or friend as the successor trustee. While there are costs associated with a corporate trustee, (usually a percentage of the assets under management) many individual successor trustees end up hiring other professionals to help them administer the trust. It is not uncommon for an individual trustee to hire an accountant, financial advisor, tax planner, or attorney to help with properly executing the trust. It costs money to hire these other professionals including flat fees, hourly fees, and/or a percentage of the assets under management. The corporate trustee may have many products available under one roof for one price, making the cost to administer the trust with a corporate trustee lower than one may think.
Corporate Trustees have Expertise
A corporate trustee is an experienced professional trustee. While individual trustees may be highly educated and competent, they normally do not have the time or technical knowledge to properly execute the terms of the trust in a timely and efficient manner. A corporate trustee understands the importance of accountability to the trust’s beneficiaries and already has systems in place for accurate recordkeeping and reporting.
A corporate trustee may also act as a co-trustee with the successor family member trustee. This may ensure the family member is comfortable in acting in this important role as they can rely on the expertise of the corporate trustee. It also adds a neutral party into a volatile family situation.
A corporate trustee brings objectivity, experience, and expertise at a time that is often wrought with emotion. Why leave that burden on your family and friends when a little planning on the front-end can prevent tension, headache, and heartache on the back-end? Prevention just may be what your Doctor (Juris Doctor) orders.