From Our “Ask a Question” mailbag: What are the Reasons to Use a Corporate Trustee.
“I am forming a trust for my minor children. I could use my brother as Trustee or choose a Corporate Trustee. What are the reasons to use a Corporate Trustee rather than my brother?”
Choosing The Right Trustee Is An Important Decision.
In your case, you are deciding between your children’s uncle and a Corporate Trustee. A Corporate Trustee is a professional trustee, typically a Trust Company or a bank. There is not a black and white answer when choosing between the two options, but here are some considerations to help in making your decision.
- Family Dynamic: The first consideration should be the dynamic between the beneficiary and the trustee. If you select your brother, he will be telling your children when, and if, they receive distributions. A recipient, especially a young person, when told they cannot have funds, might react negatively. If your brother is the one telling them they cannot have a car or use the money for a trip, this might make for an unpleasant Thanksgiving. A Corporate Trustee can serve as a buffer. The Corporate Trustee can say no to unwise uses of the trust funds and then Thanksgiving is still pleasant.
- Protectors: You can have your cake and eat it too! A Protector is a person that has the power to hire and fire the Corporate Trustee. If you want your brother involved, he could serve as the Protector making sure the Trustee does its job but is not part of the trust management or deciding about distributions.
- Investment and Tax Skills: Unless your brother is an investment manager and a CPA, he will not likely be able to manage the trust without hiring professionals to advise him. Corporate Trustees have these people in-house.
- Cost: Unless the trust terms prohibit your brother from receiving a fee, he has the right to charge the same rate as a Corporate Trustee. Unless he has training, he will then hire a CPA and investment professionals to assist him. It is possible that the cost will be more with your brother as Trustee. A better system might be to have your brother serve as the Protector. As Protector he watches over the Trustee, making certain fees stay reasonable. If the Trustee charges too much, your brother can fire them.
- Continuity: Your brother is only mortal, while banks live forever in one form or another. If your brother is the trustee and dies, what is your continuity plan? With a Protector, if a bank is merged or bought up, the Protector can fire and replace the Corporate Trustee.
- Experience: Being a good trustee is something learned over time. If your brother is inexperienced, it will take him time to sort out a system to pay the taxes, determine a budget, account for expenses and costs. A good Corporate Trustee already possesses these skills.
There Are Many Reasons To Use a Corporate Trustee.
Selecting the right Trustee is not a decision to be taken lightly, and will be affected by your particular facts and circumstances. There are many reasons to use a corporate trustee, but in some cases, a family member is the best fit. I would be happy to brainstorm with you the available options to arrive at the best choice for you.
Contact our office for a free consultation if you have further questions about Trusts, Trustees or any other Estate Planning issues.
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Author, Peter Klenk, Esq.