A trust is an indispensable component of many estate plans. A key element in structuring trusts is the appointment of a trustee. This is the individual or entity responsible for managing assets according to the stipulations of the trust agreement. One aspect often overlooked is the appointment of a successor trustee who assumes responsibility when the original trustee can no longer fulfill their duties. Today, we will delve into the idea of appointing a corporate trustee as your successor trustee and weigh the potential pros and cons of such a decision.

What Are Successor and Corporate Trustees?

First, let’s define the key terms. A successor trustee is an individual or entity that steps in to manage a trust when the original trustee cannot continue due to death, incapacity, resignation, or other factors.

A corporate trustee is a bank or trust company that provides professional trust management services. They are highly regulated, offer continuity, and provide expertise in managing trusts. They can help ensure compliance with complex legal and tax regulations, and successfully navigate challenging family dynamics.

Why Consider a Corporate Trustee?

Many trust grantors choose family members or friends as trustees or successor trustees. This decision is a natural inclination, as these individuals are trusted, familiar with the family dynamics, and presumably have the beneficiaries’ best interests at heart. However, being a trustee can be demanding, requiring financial acuity, impartiality, and a significant amount of time.

As an alternative, you might designate a corporate trustee as the successor trustee. A corporate trustee has experience and resources to handle complicated financial tasks, such as investment management, tax planning, and compliance with state and federal laws. This expertise can be invaluable in maximizing the value of the trust and minimizing potential liabilities.

Continuity is another compelling reason to consider a corporate trustee. Corporate trustees, unlike individuals, do not retire, become incapacitated, or die. This continuous, uninterrupted service may provide peace of mind to trust grantors and beneficiaries alike.

Corporate trustees are also bound by fiduciary standards, which means they are legally required to act in the best interest of the trust beneficiaries. This fiduciary obligation can help reduce potential family conflicts that might arise when family members are appointed as trustees.

What Are the Potential Drawbacks?

Corporate trustees do have potential downsides. One such concern is cost. Corporate trustees charge for their services, and while these fees may be outweighed by the benefits provided, they are a factor to consider.

Another potential disadvantage is the impersonal nature of corporate trustees. A corporate trustee may lack the intimate knowledge of the family dynamics and personal wishes of the grantor that a close family member or friend might have. This could lead to decisions that, while legally sound and in the best interest of the trust, may not align with the personal nuances of the family.

Despite these potential downsides, you may find it worth considering the appointment of a corporate trustee, especially if your estate is large or complex, your family dynamics are complicated, or there is no suitable individual to take on the role.

It’s essential to discuss your options with an experienced estate planning attorney who understands your situation and can provide appropriate advice. Your financial advisor can also help you decide the best route, given their comprehensive knowledge of your finances and goals.

Final Thoughts

While appointing a family member or friend as a successor trustee might seem like the most straightforward option, appointing a corporate trustee may provide valuable advantages. These include expertise, continuity of service, and fiduciary responsibility.

Despite a corporate trustee’s potential costs and impersonal nature, their professionalism could make them the best choice for managing your trust in the long term. As always, consider all options carefully and consult a professional. As fiduciary financial advisors, we help clients make such decisions as part of their ongoing wealth management services.

Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.

This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.