John Solomon, Executive Vice President, Wealth Advisory
When establishing a trust, many people name a family member or friend to serve as trustee instead of appointing a corporate trustee to save the trust money. While it is an honor to be so named, this is a leadership position that plays a powerful role in managing a family’s wealth. Understanding that saving money is significant, it is important to fully explore both corporate and individual trustees to determine the most appropriate option for the trust.
Individual trustees often have broad powers, a good deal of responsibility, and, in turn, accountability. Trustees must interpret and follow the terms of the trust agreement, oversee the asset management of the funds held in trust, make distributions from the assets, keep records, and do the necessary tax reporting. Here are five things the job description might not tell you, but are important to know:
- Fiduciary first. Trustees have what is called a fiduciary responsibility. What that means is that as trustee, you are legally bound to fulfill your duty of putting the benefactor’s welfare first when carrying out the settlor’s (the person who created the trust) wishes. In carrying out your duties, individuals must work to remain impartial and not let emotions cloud any judgment. In instances where this becomes too difficult a task, a corporate trustee may be the right choice.
- Managing the bottom line. One of a trustee’s key responsibilities is to manage the assets in the trust. This duty requires ongoing portfolio monitoring and responding to market conditions to ensure that the trust assets are managed in accordance with its investment objectives. Investment allocation decisions must be made in light of the changing needs of the beneficiaries, and the asset managers require ongoing oversight. A corporate trustee can assist by representing the collective interests of investors and ensure the company offering the investment complies with the trust deed.
- Mistakes can be costly. A beneficiary could challenge any and all of a trustee’s decisions, from the allocation decisions made, to the investment losses the trust incurs. Many trust agreements have language that attempts to protect the trustee from liability except for cases of gross negligence or willful misconduct. A corporate trustee administers trusts under the supervision of bank regulators. While individual trustees are expected to fulfill the same duties, they are not generally subject to regulatory scrutiny or accountable to regulators to the same degree.
- You may need help. Due to the complexities and requirements of trusts, often individuals must hire outside professionals, such as Trust Companies, to assist in carrying out the trust terms. Professional trustees can be added at any time to serve as co-trustee along with you. Combining the services of a corporate trustee with the personal connection of an individual trustee can help to provide peace of mind. In this situation, the responsibilities of each of the co-trustees should be clearly outlined in the trust document.
- It’s not entirely thankless. You are entitled to compensation. Typically, trustees are given a trustee fee in connection with the performance of their duties. The fee arrangement varies depending upon the state fee schedules for trustees and the terms of the trust. Professional corporate trustees typically charge approximately one percent of the total net worth of the estate. While this expense initially may appear greater than those of an individual trustee, the individual trustee may need to utilize the services of an investment manager, tax accountant and other professionals to fulfill trustee duties, which could add to overall expenses.
By enlisting the services of a corporate trustee, the trust would benefit from the continuity, prudence and expertise that a professional organization can provide. A corporate trustee brings experience in trusts and investments, accounting, record keeping and trust laws that an individual may not possess. In addition, a corporate trustee offers unbiased decision making that may be difficult for an individual trustee that has been appointed by the family.
To help decide which corporate trustee is appropriate, you may consider engaging in some of the services that are offered through investment management firms that have relationships with a wide array of organizations. Brinker Capital Wealth Advisory works with business owners, individual investors and institutions with assets of at least $2 million and has partnerships with firms that can assist with corporate trusts.
To learn more about Brinker Capital, a 30 year old firm following a disciplined, multi-asset class approach to building portfolios, and an overview of the services available through Wealth Advisory, click here.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.