New York Estate Planning & Elder Law Blog
Who you name as a trustee is possibly the most important decision that a person who decides to create a trust will make. The trustee is responsible for distributing income and principal to the beneficiaries of the trust according to the terms of the trust. This typically involves extensive recordkeeping, managing investments and property and being in contact with beneficiaries and other professionals to help manage the assets. Traditionally many people have named trusted individuals such as friends or family to administer the trust, but these days many people turn to corporate trustees for managing trust assets. What are the benefits of a corporate trustee over a personal trustee?
Personal or Corporate
Typically, many settlors, the person who brings the trust into existence, will name themselves, a family member or a friend as the trustee. After all, being a trustee is a major responsibility and failure to administer a trust properly may result in liability being taken on by the trustee, which is why it makes sense to name someone that a settlor has a lot of trust and a strong relationship with.
The other alternative to a personal trustee is a corporate trustee. Corporate trustees are often financial institutions or completely independent companies that focus solely on administering and managing trusts.
Advantages of Corporate Trustees
Perhaps the biggest advantage of a corporate trustee is the fact that the primary duty of the corporate trustee is to carry out the financial and legal duties associated with the trust above all else. The corporate trustee is not connected to the beneficiaries, it is impartial above all else and it has a strong duty to carry out the terms of the trust to the letter. Naming a personal trustee who is a friend or family member can complicate trust administration when the family trustee also has to maintain social relationships with beneficiaries.
Corporate trustees often employ in-house professionals such as accountants and investment managers who will work to manage trust assets. A personal trustee such a trusted family friend may not have the necessary financial or legal experience required to properly invest and manage trust assets or know the duties required with being a trustee. Furthermore, personal trustees usually have to consult with experts such as accountants and lawyers in order to properly manage a trust. With a corporate trustee, the experts that have to be consulted with are already provided for.
Another significant advantage of a corporate trustee is continuity. A personal trustee is usually an individual. Individuals unfortunately may pass away, become incapacitated or may eventually be forced to step down as trustee. Corporate trustees may be perpetual in their existence, a fact that may be important for a family dynasty trust that should last multiple generations.
Risks of Corporate Trustees
Just because it may be advantageous to have a corporate trustee does not mean that it is not without its downsides. Corporate trustees like all trustees are entitled to reasonable costs for trust administration. However, this is typically higher than a personal trustee would charge and is usually charged according a fee schedule.
Corporate trustees are also impartial, which while may be advantageous to some, may be a disadvantage to others. Some settlors may prefer having a close family friend administer the trust simply due to the fact that it would be easier to maintain control over trust assets or have easier access to the trustee him or herself. The impartiality may come at a cost of time though. Corporate trustees tend to be more rigid and slower in their examination of requests for distributions than personal trustees.
Ultimately the choice will be up to the settlor whether or not a corporate trustee is chosen. The advantages and disadvantages are readily apparent and should be discussed before bringing the trust into existence.