Estate planning

Whom Should You Name as Your Successor Trustee?

5 Minute Read

Taking care of your assets as they pass to the next generation is no small task. There is plenty to think about, and it's easy to make mistakes. One common and potentially costly mistake is to name a family member as successor trustee, the person or entity tapped to carry out the wishes of the grantor, the person who sets up a trust.

The role of successor trustee is enormously important because there is so much to take care of, the stakes can be high, and errors can be costly and create delays.

Nevertheless, all too often, inexperienced and unprepared family members are named to this highly critical role, because their loved one wanted the successor trustee to be someone known and trusted.

In contrast, there are many benefits to working with a corporate trustee. Read on to learn about the advantages a corporate trustee can offer:

1. Professional service

Given the variety of responsibilities involved in being a successor trustee, from administrative duties to legal concerns, and the need for familiarity with investments, insurance, taxation, estate planning and the overall welfare of the trust's grantor and its beneficiaries, having a professional in charge can be beneficial in many ways.

2. Fiduciary role

A corporate trustee will be much more adept at upholding a fiduciary standard -- and thereby avoiding the legal liabilities that would apply in the event that standard is not met -- compared with an individual layperson. It doesn't matter that a trustee is well intended and simply being negligent because of a lack of experience or qualifications. If the fiduciary standard is violated, the consequences will be the same.

3. All-in-one comprehensive service

Hiring a corporate trustee leaves all matters in the hands of a reliable organization that specializes in trusts. That corporation can provide a full range of services, from overseeing investments to valuing real estate and other assets to doing tax reporting and being custodian of the assets. With all of that comes efficiency and cost effectiveness.

"It's an all-encompassing role," says Carlee Harmonson, Fiduciary Management Executive and Managing Director, Union Bank. "When we are named as trustee, we assume investment and tax management because the two items are so closely linked. For example, if we're selling assets, we need to be able to look at the gains versus the losses and be tax efficient in the way we sell, offsetting gains with losses as appropriate so as to minimize tax liabilities.

"We value assets and business interests such as limited partnerships and LLCs, including those that hold real estate. If a family member were entrusted with that, they'd have to separately hire a valuation firm. All those things are wrapped in our services."

4. Capable of managing special situations

Trusts sometimes involve unusual or special circumstances. What if assets are unique and difficult to value, such as art, antiques or other collectibles, farm and ranch assets, timber, minerals, royalties, hedge funds or other complex assets? This is where professional asset management and risk management can be particularly relevant and valuable.

Other special situations can involve the beneficiaries rather than the trust assets. Many beneficiaries have special needs, such as mental health issues or drug addiction. These challenges are increasingly common and can require the experience, attention and resources of a corporate trustee to find the right solution.

5. Objective decision making

Using an impartial, external, third-party trustee, such as a corporate trustee, could avert potentially damaging and difficult emotional battles that could ensue in the event that a family member was to be selected as trustee. This could be an important safeguard and way to maintain a healthier family dynamic at an already challenging time as the beneficiaries deal with the loss of a loved one.

6. Extensive resources

The extensive resources of a corporate trustee encompass the collective experience and insights of staff who specialize in managing trusts, as well as the technological resources available to them. Also invaluable is their easy access to reliable external partners, specializing in a range of services, from accounting and business valuation to insurance and legal.

7. Long-term continuity

Continuity and the avoidance of disruption are of particular relevance in situations where trusts are set up for the ongoing needs of multigenerational beneficiaries, including the children and grandchildren of the grantor. A corporate trustee will reliably maintain consistent, dependable, professional, ongoing service indefinitely.

What to look for when choosing a corporate trustee

  • Expertise. By choosing a corporate trustee, you're looking for a level of expertise that you won't find in an individual such as a close friend or family member. A good corporate trustee should have extensive, specialized expertise enabling it to handle virtually any type of transaction. Look for a corporate trustee with a well-established track record.
  • Extensive resources. The organization should be able to take all trustee-related tasks and concerns off your hands. This could mean in-house capabilities such as custodial services, investment management and estate planning, as well as strong relationships with external experts, such as accountants, lawyers and specialists in valuating businesses and real estate.
  • Ability to handle non-traditional assets and special situations. Very often, the assets in a trust consist of a variety of traditional assets, such as stocks, bonds and real estate, as well as non-traditional assets, including so-called "real assets" -- physical assets such as minerals, timber, farm equipment -- as well as patents and music and other royalties. Having a strong track record and extensive experience and resources can be a major advantage in this regard.
  • Commitment to clients and a desire to build and maintain a close long-term relationship. A level of service that goes well beyond transactions is important when dealing with the intergenerational transfer of wealth within a trust. In addition to the importance of maintaining a high level of trust when so much is at stake -- especially at a difficult family time -- the successor trustee-client relationship can go on for years or decades.
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UnionBanc Investment Services is making this article available for general informational purposes only and does not purport it to be a complete analysis of the subject discussed. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this article should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Brokerage and investment advisory services are available through UnionBanc Investment Services LLC, an SEC-registered broker-dealer, investment adviser, member FINRA/SIPC, and subsidiary of MUFG Union Bank, N.A. Insurance services are available through UnionBanc Insurance Services, a division of MUFG Union Bank, N.A. with a California domicile and principal place of business at 1201 Camino Del Mar, Suite 208, Del Mar, CA 92014. California State Insurance License No. 0817733. Non-deposit investment and insurance products: • Are NOT deposits or other obligations of, or guaranteed by, the Bank or any Bank affiliate • Are NOT insured by the FDIC or by any other federal government agency • Are subject to investment risks, including possible loss of the principal amount invested • Insurance and annuities are products of the insurance carriers.