Previously on the blog, we wrote about how to choose a fiduciary. To recap, a fiduciary is someone that you allow to act on your behalf. Similarly, a trustee will act on your behalf by administering the things in trust to your beneficiaries. A trustee should have the same qualities as your other fiduciaries: they should be able to manage money; have a good credit score and financial history; and, be someone you trust.
The difference between choosing a trustee and another fiduciary, such as an executor, is that the role of your executor has a clear end-date. Trustees will be responsible for administering money to your beneficiaries long after your estate wraps up. When your attorney drafts your trust, they can determine how long the trust will last and the terms that dictate when and why your beneficiaries can draw from the trust. A trustee is responsible for enforcing those restrictions. Also, a trustee is responsible for filing taxes for the trust every year and investing the trust wisely. If a trustee mismanages the trust, they are legally liable and must pay the beneficiaries back.
Because a trustee’s responsibilities are lengthier and weightier than other fiduciaries, many people choose to appoint a corporate trustee. A corporate trustee is a bank or wealth management company that serves as the trustee for your trust. There are several factors to consider when deciding if a corporate trustee is right for you:
1. How large is your trust?
A lot of corporate trustees will not manage smaller trusts because they charge a fee based on the lump sum. Traditionally, a corporate trustee charges a percentage of the assets in trust on a yearly basis. This means smaller trusts may lose more money than the funds will earn by being invested with a corporate trustee. Your attorney can advise you on whether your trust is large enough to warrant a corporate trustee.
2. How do you want your trust funds invested?
Corporate trustees can offer your beneficiaries different investment portfolios, much like a financial investor. Often, a beneficiary can decide whether to invest their trust funds aggressively or securely. An individual trustee will likely place the funds in a brokerage or bank account that has little to no growth. An invested trust can allow your beneficiaries to grow their money while keeping it protected in trust.
3. How do you want the funds dispersed?
Commonly, trusts are established when the beneficiaries of your estate have special needs or are minors. This means that their money is kept from them until they reach a certain age or need to use it for certain reasons. The trustee has the responsibility to take the request for money from the beneficiary, make sure their request is allowed under the language of the trust, and, in many cases, determine what an appropriate amount of money should be. Corporate trustees analyze these situations and make these decisions for a living. They work closely with attorneys to understand trust language, are informed about current estate law, and can make an unbiased decision.
It is also important to include language that allows your appointed trustee to decline the role and possible appoint a successor trustee or include alternates. This is especially important if you choose and individual trustee. Individuals may look at your trust and realize it is a bigger responsibility than they feel comfortable taking on. Trust language that allows an individual trustee to appoint a corporate trustee could be helpful. A trust should always be drafted by your estate planning attorney. And, your choice of trustee should also be discussed with that attorney.