Why You Should Use a Corporate Trustee
If you decide to establish a trust as a part of your estate plan, either under your will or by a separate trust agreement, one of the most important decisions you will need to make is who to name as trustee. You can name an individual, such as a family member or a close friend, or an institution with trust authority. This is an important decision because whoever you name as trustee will take control over the assets you transfer into the trust, and be bestowed with the powers and responsibilities of managing the assets on behalf of the trust beneficiaries.
This article explains why a corporate trustee is, in most cases, your best option to serve as trustee and why Stillman Bank, specifically, is a great choice for you and your family.
Expertise in Trust Administration: A corporate trust department has experience serving as a trustee and has a team of trust officers and a network of experts to handle every aspect of the trust administration. A corporate trustee knows all of the fiduciary obligations that a trustee must carry out, including the following:
- Legal Responsibilities – Every state has laws and regulations governing the administration of trusts. There may be times when the trustee is required under state law to provide a notice or report to the beneficiaries. There also may be times when the trustee will need to make a decision or administer the trust in a certain way based on how judges in that state have interpreted similar trust provisions or circumstances, or risk facing a legal challenge. It is important that the trustee be familiar with applicable law and comply with it when administering the trust.
- Accounting Responsibilities – The trustee must keep detailed records of all aspects of the trust administration. If the trust calls for regular distributions to beneficiaries or payment of expenses, the trustee must have a reliable system for tracking and recording all of these transactions. Accountings of the trust assets and disbursements have to be provided to the beneficiaries of the trust on a consistent basis.
- Investment Responsibilities – The trustee must invest trust assets responsibly as a prudent investor would. This generally means proper diversification of the trust assets and regularly monitoring their performance (both for income and capital appreciation). If the trust owns any non-liquid assets, such as real estate, the trustee is responsible for appropriately managing that property, which can include everything from obtaining insurance to paying tax bills to generate rental income.
- Tax Responsibilities – Managing trust assets appropriately also means taking tax considerations into account. The trustee needs to understand the tax effect that certain investments or transactions would have on the trust and seek to minimize the tax impact when warranted. The trustee must also prepare the trust’s tax return every year, or retain a tax professional to prepare it, and ensure that the beneficiaries of the trust receive the tax schedules they need.
While there may be comfort in naming a close friend or family member as trustee, there is a lot of work involved in being a trustee and it can become a heavy burden on that individual. Moreover, since a trustee can be sued by the beneficiaries of a trust for overlooking or neglecting any of its duties, there is also a liability risk for individual trustees who are not experienced with trust administration. For these reasons, a corporate trustee is usually the best choice.
Impartiality in Trust Administration: A corporate trust department will always abide by the terms of the trust and be impartial in its decision-making. This is an important function of the trustee, and one of the most meaningful benefits of using a corporate trustee rather than an individual, for the following reasons:
- Objective – Since the individual trustee tends to be a friend or family member of the grantor, that person often has a personal relationship with the beneficiaries that goes back many years. Even if unintended, the decision-making of the individual trustee can be affected by his or her personal feelings towards a beneficiary, which can lead to decisions that disregard the terms of the trust or cause one beneficiary to be favored over another. By comparison, the corporate trustee is an objective and neutral party. They are experienced in administering a trust as written, even if pressured by a beneficiary to act otherwise. The corporate trustee has procedures in place as well as administrative committees to ensure that even the most difficult decisions are handled correctly and impartially.
- Maintain Family Harmony – Trustees can be faced with tough decisions when administering a trust. There will be times when beneficiaries’ desires conflict with the terms of the trust. In these situations, family relationships can be strained when the trustee is a family member and must tell another family member no. Having a corporate trustee to make these sometimes unpopular decisions is very beneficial to maintaining family harmony.
- Avoid Conflict of Interest – It is common for individuals named as trustees to also have a beneficial interest in the trust. This is typically the case when the trustee is one of many children or siblings who are all beneficiaries of the trust. A trustee who is also a beneficiary may end up taking an action that is a conflict of interest, which could lead to a dispute with the other beneficiaries and possibly litigation. This could happen, for example, if the individual purchases an asset from the trust or enters into another type of financial transaction between themselves and the trust without properly informing the other beneficiaries or getting judicial approval of the action. These conflict of interest scenarios are avoided with a corporate trustee.
Continuity and Consistency: If you name an individual as trustee, it is possible that that person will die or become incapacitated before the trust has terminated, especially if by the trust’s terms it is likely to exist for many years. If successor trustees are named in the trust, this will result in the next-in-line taking over as trustee, who may interpret or administer the trust differently than the previous trustee (or not be as diligent in performing the responsibilities of the trustee). In some cases, a court may even need to be involved to appoint a new trustee. Trustee turnover will inevitably create some amount of turmoil and uncertainty for the beneficiaries regarding the administration of the trust. When you name a corporate trustee, you can be comfortable that there will be continuity and consistency over a long time period that the beneficiaries can count on.
Stillman Bank – A Local Connection: Here at the Stillman Bank Trust Department, we take great pride in providing excellent service and counsel to our trust grantors and beneficiaries. But just as important as our expertise in trust administration, we live and work in the communities we serve here in Northern Illinois, so our trust clients get to know us personally and we get to know them. Our clients know that they will always be able to reach the trust officer they want to speak with on the phone or meet with that individual in person at one of our local offices or even the client’s office or home. It is our local connection and our personal relationships with our clients, in addition to our knowledge and experience, which sets Stillman Bank apart.
But doesn’t a corporate trustee cost more than an individual would? Not necessarily. An individual who is not experienced with trust administration will often have to hire a lawyer, accountant, investment advisor, and/or tax preparer to assist with trustee duties, all of which could cost as much or more to the trust as the fees charged by a corporate trustee to handle these duties.
For this reason and all of the other reasons set forth above, Stillman Bank is a great option to serve as your trustee and we are always available to answer any questions you have.
J. Joseph McCoy, JD – Trust Officer
Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.