Understanding the Use of a Corporate Trustee in Estate Planning

During estate planning, one of the most important decisions you must make is who will handle your assets once you are gone. While many people turn to family members or other loved ones to serve as trustees of revocable or irrevocable trusts, another option to consider is naming a corporate trustee.

A corporate trustee is a bank or specialized company that manages a trust. One of a corporate trustee's duties is to act in the best interests of the beneficiaries as they carry out their responsibilities, which include funding the trust, managing assets, investing, paying bills, keeping records, distributing income and proceeds to beneficiaries, and filing tax returns and any other required reports.

Benefits of using a corporate trustee

A corporate trustee may be the right choice when having a family member or loved one serve as trustee isn't advisable, such as when such an individual could be adversely influenced in the management of the trust or is not capable of staying on top of the financial and administrative aspects of the trust. There is no doubt that with a corporate trustee comes specific knowledge and expertise.

If the trust grantor can already see the potential for family discord once they are gone, this could be another reason to place control of the trust in a corporate trustee. Calming blended family situations while keeping the trust strong is another potential benefit of a corporate trustee, who can act with objectivity and without being influenced by personal feelings.

Moreover, because some trusts continue for many years beyond the grantor's death, naming a corporate trustee can provide stability and continuity. This can be beneficial for investment strategies as well as for the ability of beneficiaries to establish an ongoing, trusting relationship with the corporate trustee.

Disadvantages of a corporate trustee

While a corporate trustee can serve as a detached advisor that takes the role extremely seriously, lest they face legal action, using one could make family members feel as if their wishes or feelings are being ignored. Because the corporate trustee's fiduciary duty is to the beneficiaries equally, that can sometimes translate into individual hurt feelings and family drama.

Also, corporate trustees do tend to cost more than if you have a family member or loved one serve as a trustee, since they bring with them valuable training, knowledge, and experience—all of which pushes up their fees, which tend to range between 1% and 2.5% of the value of the trust per year.

For those who are still convinced that a family member or other loved one is the best choice, one final consideration is the possibility that your first and second choices could be unable to serve as your trustee when the time comes. To help guard against your trust falling under the management of a court-appointed trustee that you may not have approved, consider naming a corporate trustee as a trustee of last resort. Doing so can provide peace of mind that your trust will remain in capable hands even if your chosen trustees can't serve.

Practically speaking, if you decide to name a corporate trustee, you would set this up in the trust documents, which should likewise provide the proper way to change or eliminate a corporate trustee from the management of the trust.

Making sure your loved ones are taken care of once you're gone is usually a primary concern when drawing up a comprehensive estate plan. Whether or not you name a corporate trustee depends on your specific needs, but it is certainly something to consider even as a last resort. After all, a well-designed trust, combined with a smart choice for trustee, can mean a huge difference for your loved ones, so now is the perfect time to get your estate plan in check.