What is a Corporate Trustee?
A corporate trustee is a bank or independent trust company that is licensed to act as trustee of a trust.
What is a Trustee?
- A trustee is an individual or company who holds the legal title of trust assets for the benefit of the beneficiaries of a trust.
- A trustee can serve today (current trustee) or in a future capacity (successor trustee) depending on the goals of the estate plan.
- A trustee can serve alone or in a co-trustee capacity with other persons.
What is the Role of a Trustee?
The primary function of a trustee is to administer trust assets according to the grantor’s wishes while considering the interests of the beneficiaries of the trust.
A Trustee Wears Three Hats:
- Administration Hat – Responsible for keeping the books and records of the trust and signing the tax returns.
- Distribution Hat – Responsible for determining when an asset comes out of the trust and is distributed to a beneficiary.
- Investment Hat – Responsible for managing the underlying investments of the trust. The trustee must ensure the trust assets are invested prudently and fit the overall objectives of the trust.
In a traditional trustee arrangement, one trustee wears all three hats. The trustee is responsible for the investments, distributions, and administration of the trust. Thankfully, over the last twenty-five years, many states have amended their laws to allow for the splitting of trustee duties, commonly referred to as a directed trust arrangement. This arrangement allows for the bifurcation or trifurcation of trustee duties giving trust grantors, beneficiaries, and their professional advisors more control over a client’s estate plan. Grantors can now decide which hats they want their trustee(s) to wear and what powers they retain. The grantor can select one sole trustee with full powers, or multiple trustees to wear different hats and retain only certain powers.
Why a Corporate Trustee Makes Sense?
If you are setting up an irrevocable trust while you are alive, you will need a trustee to act today. Some of the reasons you might set up an irrevocable trust are for asset protection, gifting, estate tax planning, income tax planning, charitable planning, opportunity shifting, etc. You will need to separate yourself from the assets and having a trustee in a top trust jurisdiction can be to your benefit for state income tax savings and asset protection.
There are many factors to consider if you have a revocable living trust and are looking for a successor trustee to take over in the event you become incapacitated or pass away. Please look at the following chart to determine whether a family member or a corporate trustee makes the most sense within your estate plan.
What are the Advantages of a Corporate Trustee over an Individual Trustee?
|Experience||Do they have experience serving as a trustee? Do they know the responsibility & liability of serving? Do they want to serve?||Has Trust Officers trained in trust administration with expertise in record-keeping, tax and trust law.||Corporate Trustee|
|Time / Resources||Do they have the time required to administer a trust? Do they have the appropriate resources?||Has a full-time dedicated staff and a network of estate planning professionals.||Corporate Trustee|
|Cost||Has the discretion to charge a fee, usually drafted into the trust document, or determined by state statute.||Should have a published fee schedule on their website. Usually more expensive than an individual trustee.||Individual Trustee|
|Knowledge of the Family||May have more intimate knowledge of the grantor, his or her wishes, and the beneficiaries||May have less intimate knowledge of the grantor, his or her wishes, and the beneficiaries.||Individual Trustee|
|Impartiality / Objectivity||Biased. It is very difficult for individuals to not show biases during trust administration. Can they make difficult decisions without emotion, strictly based on the trust provisions?||Unbiased. They can only do what the trust document tells them to do. They are not affected by emotion and have the appropriate tools to make difficult decisions.||Corporate Trustee|
|Location for state income taxes||Do they live in a state with a state income tax or a creditor friendly jurisdiction?||Does the corporate trustee reside in a favorable jurisdiction like Nevada for tax and creditor protection?||Corporate Trustee|
|Continuity||What is their age?||Corporate trustees continue in perpetuity.||Corporate Trustee|
|Removal process||Will they resign if asked by the beneficiaries?||Run a business and will typically resign if asked by the beneficiaries.||Even|
|Regulated / Insured||Not regulated.||Financially stable and carry insurance to protect the beneficiaries.||Corporate Trustee|
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