25 Aug 2015

Should You Select a Corporate Trustee for Your Estate Plan?

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One of the most difficult decisions my clients face when creating an estate plan is naming a trustee to administer to the trust if they become incapacitated or after their death. Many questions need to be asked. Do you have an individual you can trust to follow your wishes? Does that person have the wisdom to make good decisions? Does that person even want to be a trustee? How complicated is your estate — does it require a great deal of legal or financial acumen? Will your trustee live long enough to administer your estate?

For complicated estates or if you have no family member or friend you feel you can trust, a corporate trustee might be an option to make sure your beneficiaries are well taken care of.

Connection
The first choice many people make for a trustee is an individual trustee — most likely a relative or friend. He or she may find it difficult to say no to your request to be your trustee based on your connection or friendship. In addition, because they have a connection to your family, that person may have difficulty turning down requests for funds distributions from your children. Unless your trustee is an attorney, he or she probably doesn’t have the training to have difficult conversations and the emotional element involved with the family makes it even more difficult. Selecting a corporate trustee takes the emotional element out of the equation and allows for difficult conversations without straining relationships.

Lack of Expertise
Your individual trustee may lack the fiduciary experience necessary to properly administer your trust or estate plan. Selecting a corporate trustee that has years of fiduciary experience is the answer to the problem. In addition, a trustee should have a strong understanding of trust law, federal and state tax rules and many other issues. The rules are constantly changing, and a corporate trustee with an ongoing knowledge of changing law, can help prevent unintentional harm to the estate and avoid nasty tax consequences.

Cost
Often the first questions clients ask is about the cost of hiring a corporate trustee. It may be cheaper overall for a corporate trustee to administer to your trust. The corporate trustee will have a team of qualified people with specialized knowledge to handle every detail. An individual trustee who doesn’t have fiduciary experience may need to hire attorneys, accountants, investment advisors and more, and the costs will add up. In addition, if you find a corporate trustee that can also manage your funds, the fees will be adjusted for both services for a lower overall cost.

Oversight
An individual trustee isn’t subject to any regulatory or audit oversight. Potentially, they can — and often do — whatever they want. A corporate trustee is periodically examined and reviewed by independent auditors and either state or federal banking regulators. Corporate trustees are licensed, bonded and insured for protecting your trust or estate.

Reporting
Individual trustees may not know that, by law, they must report to beneficiaries. More than likely, the individual trustee will lack the proper tools to provide reports and to account for separate funds for income beneficiaries and funds available for remainder beneficiaries.

Longevity
An individual trustee could become disabled, infirm or die and then your estate is thrown into disarray. Who will administer to the trust then? By selecting a corporate trustee, theoretically, the corporation will outlast any individual and be able to administer to your trust indefinitely.

Choose Both
The best of both worlds it to appoint both. That is, appoint an individual trustee, who has the intimate knowledge of the beneficiaries, and a corporate trustee with the expertise in the relevant laws and has the fiduciary abilities your individual trustee may lack. Make sure this trustee team can work well together.

Arizona Fiduciary Licensing Program
Note: Here in Arizona, there is a benefit for the elderly called the Arizona Fiduciary Licensing Program. This program is designed to help ensure Arizona’s elderly, mentally incapacitated and other vulnerable citizens have licensed individuals or businesses managing their financial affairs, medical decisions and other vital matters.

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