An integral, essential part of any estate plan is the trust; a fiduciary agreement used to hold assets for one or more beneficiaries while also offering significant tax and other protective benefits. A trust enables the owner of an estate to put conditions on how and when assets are distributed after death, to reduce estate and gift taxes, and to distribute assets to heirs efficiently without the cost, delay, and publicity of probate court.
The conditions defined for this fiduciary agreement are described in a trust document, which is basically a contract between the estate owner (grantor), the heirs (beneficiaries) and a third party that plays an essential role in the management of the trust assets,known as the trustee.
Evolution of the Trustee Role
The role of trustee as an entity with fiduciary responsibilities over trust assets has existed and evolved over hundreds of years. In the late 1200’s, the concept of a living trust emerged as men leaving England to fight in the Crusades re-titled their property in “trust” managed by a reliable individual should they not return home.*
In more recent times,the trustee experience for baby boomers and earlier generations most likely involved working with a ‘trust officer’ at a local bank branch, where trustee services were offered to banking clients. In this traditional bank-trust company model, the banks controlled it all; they custodied assets, administer trusts, and managed distributions….and those generations willingly accepted it.
But as the modern era of financial services began in the 1970s, some U.S. states ushered in new trust laws that allow for non-corporate trustees to have fiduciary responsibility of investments and/or distributions, resulting in the emergence of custodian-neutral, independent trust companies that partner with financial advisors.** Flexibility, choice, and control is the mantra of today’s investors, and the new independent corporate trustee model helps satisfy those demands.
Despite the history and evolution, the basic tenets of the trustee role still boils down to the two key responsibilities of distributing and managing the trust assets as defined in the trust document. And the types of trustees a client can elect to fulfill those duties still generally come down to a reliable individual, a large bank trust,or an independent corporate trustee.
Which Type of Trustee should Advisors Trust?
So, what are the differences between these trustee types, and what are some advantages or disadvantages to giving the fiduciary responsibilities of trust assets to one type of trustee over the others?
- Individual trustees – Usually a family member or close friend, the biggest benefits are having the family’s trust and respect, and familiarity with family dynamics. Additionally, many serve for lower fees, or no fee at all. But there are major downsides as the individual has to balance work and personal commitments with the administrative burden of managing assets, filing taxes, keeping records, and distributing assets. Furthermore, family strife and emotional strain is quite common when dealing with beneficiaries who repeatedly demand funds.
- Bank trust companies – Large institutions,such as J.P. Morgan, Bank of America, PNC, or Wells Fargo, have the advantage of experience and expertise with applicable laws and tax requirements, along with the latest technology for managing and reporting on trust assets and transactions. But, as evidenced in the headlines, large corporations often suffer from conflicts of interest, and when they serve as both trustee and asset manager, objectivity in administering a trust can become clouded by corporate bottom-line motivations.
- Independent corporate trustees – These firms offer unbiased decision making that comes from not being a relative nor distracted by misaligned profit goals. Their continuity of service is not jeopardized by illness, vacation, or death. Like large banks, these firms are armed with legal and tax expertise, and they possess technology made for trust administration. Additionally, these advisor-friendly trustees allow investors to work with the asset manager of choice. Sure, they cost more than an individual trustee, but the fees may be worth it for peace-of-mind.
A Partner You Can Trust
Regardless of the type of trustee chosen to handle fiduciary responsibilities over trust assets in an estate plan, your clients are relying on you, their trusted financial advisor, for holistic financial planning advice that demonstrates you have the best interests of your clients and their family at heart.
To help you confidently nurture your client relationships, Trucendent is a technology solution and services partner that empowers you to manage the estate planning process and educate beneficiaries about a grantor’s wealth transfer requests.
And when you and your clients conclude that an independent corporate trustee is right for their estate plan needs, Trucendent helps you pair clients and beneficiaries with one of our professional corporate trustee partners that excel at trust administration and insist that you as the advisor are the best person to continue to manage the assets in the trust.
Cultivate relationships now using Trucendent. Grow your assets under management with an estate planning solution that helps you build trust with clients and maintain a relationship with the next generation.
*, ** An Advisor Road Map to the Corporate Trustee Industry–Past, Present, and Future, Investments & Wealth Institute, September 2018