Corporate Trustee Pros and Cons: Navigating the Successor Trustee Decision

There are few tasks more critical than sorting your affairs to ensure the financial security of your family once you pass on. For many, one of the hardest parts of doing this can be choosing a successor trustee. Who’s willing and able to take on the job? It’s a lot bigger than simply placing a mantle of honor on a loved one’s shoulders.

It is time-consuming, mistakes are easy to make, and essential to the job is the ability and willingness to secure the buy-in of all beneficiaries (even in-laws) every step of the way. You’re faced with a complicated decision, even more so when you realize the role you’ve played as referee for any sibling discord among your children – whether arguing over toys or the use of the family’s vacation home. But would sidestepping the family altogether and selecting an outside trustee make it any easier?

To help you more confidently navigate the trustee decision, here we outline the duties of a trustee, the potential consequences of inattentiveness or neglect, and the pros and cons of choosing a corporate trustee versus a personal one.

Understanding the responsibilities of a trustee

Like anyone you’re looking to pass the baton on to, choosing the right trustee first requires a full understanding of the job you expect them to perform. Here are three things about the duties of a successor trustee it helps to know as you begin your search for the right candidate:

1. It’s complicated.

Among a host of other duties, the job of successor trustee includes overseeing investments to make sure they are managed prudently, provide competitive returns, and are appropriately diversified to deliver reasonable growth at minimal risk. The trustee must faithfully follow the trust document, keep accurate records, report to the beneficiaries while treating all of them impartially, and never use trust assets for personal benefit.

One capability you should evaluate upfront is what level of expertise you think your estate requires. For instance, are your assets difficult to value, such as art and antiques, farm and ranch assets, royalties, hedge funds or other complex assets? Not only are these types of diverse assets difficult to value, many can expose the estate to high levels of risk, including environmental liabilities, as well as involve unique forms of documentation. Here’s where a strong track record and extensive experience and resources can ultimately make a big difference in terms of both time and money.

2. It demands a comprehensive approach.

There’s no wiggle room here to attend just to the tasks your trustee finds interesting or feels most comfortable doing. It’s a big job and an important one, with many responsibilities, including:

• Valuing the estate, including cash, business interests, personal items, securities and real estate
• Managing all property, interests and assets
• Paying all debts, bills and obligations, including selling appropriate assets to settle debts
• Completing all tax returns
• Communicating with all beneficiaries (family, charities) and periodic accounting to beneficiaries
• Ensuring all cash flow needs, particularly if there’s a need for long-term care for any length of time
• Safeguarding any income
• Governing and/or managing operating businesses
• Investing money not needed immediately in a prudent way
• Collecting and safeguarding all valuables
• Insuring all properties
• Selling or transferring real estate
• Determining the fair division of all personal and real property

3. It’s time-consuming.

Every trust situation is different, but the many responsibilities outlined above can consume a lot of the trustee’s time. This is especially relevant when naming a family member as successor trustee because they often accept the role out of obligation when, in reality, they may well be juggling other pressing responsibilities (job, family). In this case, the trustee appointment can substantially add to their already demanding load.

Understanding the potential consequences of neglect or inexperience

It’s important to know that, no matter which direction you take, all successor trustees are held to a fiduciary standard. That means they are required by law to be the caretaker of your rights and assets and/or provide for your well-being as outlined in the trust. As such, the successor trustee must carry out responsibilities to you, the grantor, and your beneficiaries with the highest degree of care, honesty and loyalty. Whether a personal or corporate trustee, if they fail in this regard, they can be held legally liable.

“A lot of family members who take on this role think they’re immune from liability because they’re not getting paid, although they are entitled to,” says Claudine Bachelor, Senior Fiduciary Management Executive, The Private Bank at Union Bank. “In fact, saving the estate that ongoing fee is often a primary driver of the grantor’s trustee decision. This is a mistake and, legally, it doesn’t matter. The court will hold family to the same responsibility level as a corporate trustee.”

Making the first cut - Questions to ask in choosing a trustee

You can help clarify the decision upfront as to whether a personal or corporate trustee would best serve the needs of your estate by asking yourself a set of 8 questions.

Is your candidate…

1. Able to perform the full scope of duties required to fulfill their fiduciary responsibilities, including investment management, accounting, record-keeping and tax reporting services?
2. Experienced in dealing with specialized or unique assets, such as real estate, art, jewelry or business interests?
3. Fully capable of protecting the trust assets for future generations?
4. Able to make objective decisions in administering the trust and take quick action under any situation?
5. Able to act impartially when working through issues where the beneficiaries don’t see eye to eye?
6. Able to perform long-term administration for multiple generations?
7. Capable of managing the trust in the most tax-efficient manner?
8. Possessing sufficient resources to compensate the beneficiaries for an error, even one resulting from inexperience?

Snapshot of pros and cons: Corporate trustee vs. personal trustee

The comparison below highlights those benefits and drawbacks most common to personal trustees, such as a family member or close friend, versus an outside professional, such as a member of your financial team, your attorney or accountant, your bank, or other professional fiduciary advisor.

Can you have both a personal and corporate trustee?

If you like certain aspects of a personal trustee, but worry about lack of experience, and also like certain aspects of a corporate trustee, but aren’t confident that an outsider can manage the family dynamic, you can set up an arrangement whereby a personal and corporate trustee work in partnership as equal but separate co-trustees. This is especially advantageous in situations where important decisions need to be made or special situations need to be managed.

This approach can benefit both personal and corporate trustees. The personal trustee, who normally maintains a better understanding of the uniqueness of each family member, can educate the corporate trustee and act as intermediary for other beneficiaries. The corporate trustee, on the other hand, can provide those specialized services where experience can make a big difference, such as investment management and tax preparation, as well as offer the advantage of negotiated pricing efficiencies for estate administration and liquidation services.

Finally, this dual approach brings a stronger element of continuity to the management of your estate by allowing one trustee to back up the other in the event of resignation or passing.

Union Bank offers corporate trustee services and specialized services to protect your wealth. To find out more, speak with your relationship manager or explore trust services from The Private Bank.

Investment management services offered by MUFG Union Bank, N.A. in conjunction with its subsidiary, HighMark Capital Management, an SEC-registered investment adviser. Investments employing managed strategies: • 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.