Key Takeaways
Assigning a trustee to look over your children's interests when you’re gone should not be taken lightly.
Not everyone has a close sibling or relative they can count on.
A corporate trustee can provide professional management and record keeping, objectivity, continuity, and regulatory oversight. Most relatives cannot.
Several clients have told us recently that for one reason or another they aren't comfortable naming an individual to be the trustee for trusts they plan to set up for their children when they pass. This reluctance can arise for a variety of reasons. Sometimes they’re not close with their siblings and don’t have any close relatives they can ask to be the trustee for their trusts. Perhaps they have a strained relationship with their children. They need someone they can trust to abide by the language in the trust. They need someone who won’t cave into the kids and hand them money any time they ask -- or worse, start funneling some of that money to themselves to avoid family squabbling.
That’s where a corporate trustee comes in. A corporate trustee is a professional trustee company that specializes in managing trusts for individuals and businesses. They have experience and expertise in handling complex financial matters and can provide unbiased guidance and support to ensure your assets are protected and managed effectively. Corporate trustees are departments at banks or other investment firms that are hired to build and manage a trust. People also enlist corporate trustees for their professional experience in trust matters that a family member or close friend often doesn’t have.
Real World Example
One of our clients is a widow who works full-time and has two children in their mid-20's. One of the children has a substance abuse addiction. She’s worried that he won’t be responsible enough with his inheritance when she passes and wants to spare her siblings and close relatives with the stress of having to manage her trust. Depending on the nature of the trust, the trustee may be required to perform many time-consuming and complex duties. The standard duties typically include investing and managing trust assets, paying bills, maintaining records, making income and principal distributions to beneficiaries per the terms of the trust agreement, and filing trust tax returns and reports.
As is often the case, close relatives feel guilty about saying no to their nieces and nephews when it comes to money. When we suggested a corporate trustee to her, she was initially taken aback, because she didn’t work with a large company. When we explained that a corporate trustee is a professional manager of trusts – not an individual -- she became very intrigued. She liked the fact that there would be objective and responsible management of the trust – always available -- and that there would be no bias in dealing with her children. Another big benefit of a corporate trustee over an individual trustee is continuity. An individual trustee can pass away, become incapacitated or simply choose not to fulfill their role. By contrast, corporate trustees have continuity; they're an entity and so they can’t retire, pass away or become incapacitated.
Accurate record keeping is another advantage of a corporate trustee vs. an individual trustee. A corporate trustee makes sure everything is done by the book and is legally compliant. It provides regular statements and ensures that tax filings are completed in a timely manner. Also, it has regulatory oversight, which provides an extra layer of protection for the trust assets.
Again, the four key benefits of a corporate trust over an individual trust are:
Professional management.
Unbiased approach.
Continuity and record keeping.
Regulatory oversight.
So why don’t more successful people utilize corporate trusts? First there is an awareness challenge; many simply aren’t aware of their trust options. Or, they may think they don’t have enough assets to justify the cost. Most corporate trust programs we work with require minimum assets of just $500,000 to $1 million. Many of our clients are surprised to find that corporate trusts are surprisingly affordable – 0.5% of the value of the assets (50 basis points) is typical.
Getting Started
Simply designate in your will, or within an already created trust, that you would like to name a corporate trustee as either the primary trustee or successor trustee. Then, once your trust becomes established, we as the financial planner will coordinate with a trusted institution that we work with. All of the trust language and documentation is taken care of through that institution. The beneficiary will communicate directly with the contacts there for any questions related to the trust or with requests that fall outside of the typical trust provisions. As your planner of record, we can ensure that your wishes are carried out as you specify, especially if you become incapacitated or pass away. We’re positioned to maintain all of your family relationships going forward so we can do the generational planning.
Conclusion
If you have concerns about your estate plan or wish to learn more about corporate trustees, please reach out any time. I’m happy to assist.
DAN SATZ MS, CFP® is a Wealth Manager at Novi Wealth Partners.