Articles

There are several reasons you may need to provide for a trust in your estate plan. You may want to set aside assets for someone who is receiving government benefits, for example, and a supplemental needs trust would keep the assets you designate to that person from disqualifying him or her from receiving those governmental benefits. You may wish to provide for the protection and preservation of assets designated to minor children and young adults, or to direct how assets are held and spent as between your children and a spouse who is not their parent. Or you may have been advised that a trust would be necessary to minimize estate taxes in your estate.

In addition, because of their familiar relationship to the beneficiaries, it can be a challenge for a family member serving as trustee to maintain objectivity among beneficiaries and administer the trust as provided for in the trust document. Engaging a corporate fiduciary can relieve the family members from such predicaments.

Whatever the reason for the trust, you now need to decide on a trustee. A bank having trust powers can act as Trustee. An individual can act as Trustee, as long as he or she is adult and competent and fit to act, and otherwise meets state law requirements. There are circumstances in which an individual may be well-suited to serve as Trustee, and circumstances in which a bank Trustee is more appropriate to act, or at least be set up as an alternate if an individual Trustee can’t serve or ceases to serve. Banks and individuals can also act together as Co-Trustees.

Duties of a Trustee

The responsibilities of a Trustee are significant and complex. A Trustee is charged with the management of the trust assets pursuant to the Prudent Investor Standard under state law, and can be held liable if they fail to ensure the portfolio is appropriately invested, with a prudent asset allocation and growth-to-income ratio based on the specific needs of the trust beneficiaries.

If the trust beneficiaries entitled to income from the trust are not the same beneficiaries as those who are to receive the remainder of the trust assets upon the termination of the trust, the Trustee must balance the competing interests of all beneficiaries and administer and manage the trust impartially as between them. If the Trustee, for example, favors the income beneficiary over the remainder beneficiary by investing in only income-producing assets instead of assets designed to increase in value over time, the remainder beneficiary can object and the Trustee can be required to remunerate the remainder beneficiary – from his or her own personal funds, in certain circumstances.

In addition to managing the assets of the trust, the Trustee is responsible for the preparation and filing of all tax returns and court-required accountings for the trust, and ensuring that all items of income and principal are correctly reported on the trust statements.

The Trustee is also responsible for making any discretionary distributions from the principal assets of the trust to the beneficiaries in accordance with the terms of the trust document. If the Trustee makes distributions to beneficiaries that are unauthorized or are inappropriate under the circumstances, the Trustee can be held liable for the return of the assets to the trust. In general, the Trustee is charged with the responsibility of knowing and applying all state trust laws appropriately to the trust.

The Benefits of a Corporate Fiduciary

When deciding between an individual Trustee and a bank Trustee, note that a bank Trustee is held to a higher fiduciary standard than most individual Trustees by the courts that review trustee activity. A bank Trustee is also “always going to be there,” versus an individual who may become incapacitated or die during his or her term of service.

With all of its benefits, you might expect that a bank Trustee would be expensive. Not so! Unless you provide that a Trustee is to serve without compensation, an individual Trustee would be entitled to take a statutory commission for his or her services, which is taxable to them as ordinary earned income. An individual Trustee would also likely have to engage an investment advisor to manage the trust investments and the trust would pay an additional fee to that advisor.

Our bank Trustee fee is approximately the same as a typical investment advisor’s fee, and you get all of the additional benefits of a corporate Trustee, such as:

• the expertise,
• the investment advisory services,
• the tax reporting and accountings of administration,
• a dedicated team of advisors who will know your beneficiaries and their needs from the trust extremely well, and
• you avoid putting pressure and liability on an individual family member.