Transferring your legacy
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.
The “clueless” trustee
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:
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.”
The “bickering sibling” co-trustees
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…
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.
The “big brother knows best” trustee
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.
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Wills, trusts, foundations, and wealth planning strategies have legal, tax, accounting and other implications. Prior to implementing any wealth planning strategy, clients should consult their legal, tax, accounting and other advisers. Union Bank does not create estate plans. Estate plans should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in a client’s state.
This is a publication of The Private Bank at MUFG Union Bank, N.A. (the Bank). This publication is for general information only and is not intended to provide specific advice to any individual. Some information provided herein was obtained from third-party sources deemed to be reliable. The Bank makes no representations or warranties with respect to the timeliness, accuracy, or completeness of this publication and bears no liability for any loss arising from its use.