The Benefits of a Corporate Trustee
The trustee’s role
When we think of a trustee, we think of an individual who is literally in a position of trust – this usually refers to someone managing property, authority or responsibility on behalf of others.
Serving as a trustee carries with it a fiduciary obligation that may, in addition to a meaningful commitment of time, also require investment, accounting and legal expertise.
A trustee has many specific responsibilities such as record-keeping for allocating between principal and income for receipts, expenses and distributions. A trustee must also ensure that the trust’s tax returns are prepared and filed in a timely fashion.
The trustee may also be responsible for professional investment management advice, such as recommendations on investment strategies, asset management, etc.
The weight of trustee responsibility
There often comes a time when the person serving as a sole individual trustee, for their own or the trust of another, decides that they no longer want or have the necessary expertise to serve in that role, they are no longer individually capable of managing the responsibilities of the trust or simply that they would like to partner with someone to help them out.
Transitioning to a professional corporate trustee can often be an appropriate solution to this situation. The corporate trustee may act as either a sole trustee – replacing the existing individual trustee – or by joining the existing individual as a co-trustee.
Many times, the latter option is the ideal combination, as it develops a partnership between a trustee who generally has intimate knowledge of the trust’s creator and its beneficiaries – often a single individual or family – and the experience and resources of an industry professional.
Augmenting resources through a corporate trustee
A corporate trustee can offer experience, objectivity and technical resources that many individuals simply do not possess, supplied by a variety of professionals who can bring their individual knowledge and talents to assure faithful execution of the trust’s intent and wishes. And beyond this, corporate trustees are not constrained by mortality.
As opposed to individual trustees, corporate trustees exist in perpetuity, which now many trusts are designed to do as well. This offers a continuity factor that individual trustees are not able to provide – an individual trustee may retire, pass away or become otherwise unable to exercise their duties, whereas a corporate trustee is not susceptible to any of those constraints and can provide continuity in the management of the trust indefinitely.
A corporate trustee may also do a better job with certain complicated responsibilities such as correctly filing taxes or other administrative burdens. For larger, more complicated trusts compliance is a big issue. Making sure the trust complies with all applicable laws and regulations can be essential to the trust’s efficacy and may be beyond the capabilities of an individual trustee.
Finally, a corporate trustee can help maintain family harmony within the trust by bringing objectivity to the relationship. Corporate trustees are neutral actors who are not influenced by complicated family dynamics or personal histories. This objectivity may be especially useful in complex family situations or when managing large trusts. For example, a corporate trustee may assume the responsibility for making all distribution requests from the trust, a tricky function especially when a trustee has to “just say no.” This is often an easier option than when a parent, sibling or family friend has to make those difficult decisions.
A trust can be forever, but your corporate trustee doesn’t have to be
While a corporate trustee may bring professionalism and expertise to the management of a trust, the relationship may require a shift in strategy over the tenure of the trust for any number of reasons.
As with any professional relationship there are potential risks and drawbacks. A corporate trustee may potentially charge higher management fees than an individual trustee, or may be part of a larger organization that works with many clients, limiting the amount of personal attention the corporate trustee is able to pay to the trust.
There is also the potential for conflicts of interest, where a corporate trustee may also provide other products or services that they recommend for the trust with less objectivity. A corporate trustee may also be less agile than an individual trustee, which may be problematic if the trust needs to quickly respond to changing circumstances. That’s why due diligence and the selection of a corporate trustee without conflict or compromise from the outset remains of paramount importance.
If a situation evolves to require a change, almost all “modern” trusts permit the removal or replacement of a corporate trustee through a variety of methods. This may include the vote of a majority of the beneficiaries or the decision of a “trust protector.” The latter is an individual who holds power under a trust but is not a trustee themselves. The trust protector serves as a check-and-balance, monitoring the administration of the trust by the trustees.
The enduring power of corporate trustees
Corporate trustees bring professionalism, experience and objectivity to the management of a trust. A corporate trustee may bring technical expertise that individual trustees do not possess, and also offer continuity beyond the lifespan of any individual as they can exist in perpetuity. Given their institutional capabilities and teams of professionals, corporate trustees may do a better job of executing certain complicated responsibilities, like filing taxes and complying with all technical compliance issues, especially for larger or more complicated trusts. And maintaining family harmony through a professional, corporate trustee can in certain circumstances be nothing short of priceless.
Although many trusts continue to have family members and close relations serve as trustees, the versatility and diverse capabilities of corporate trustees can be a superior choice for many situations.