Independent Thinking^®

Choosing a Corporate Trustee

Trusts are a central part of an overall estate plan for many families. One of the most important decisions is identifying someone to carry out this plan – to stand in your shoes when you are no longer able. Just as an estate plan is designed to take care of the family, so should be the choice of both a personal and a corporate fiduciary. It is not a decision that should be entered into lightly, but only after careful consideration of all the options.

Appointing a close friend, business associate or family member as a trustee is a natural inclination. After all, that person knows the family. But age and potential conflicts need to be considered. For how long will the friend be able to serve in the role? Will the appointment of a long-term attorney or accountant be worth having to replace them in their existing role? And who among the next generation is ready to take on the responsibility? It is rarely a good idea to appoint one child to serve as trustee for one or more siblings. That could cause lasting damage to their relationship and to the family, including subsequent generations. (There are cases, such as with special needs, in which a sibling trustee can make sense.)

In any case, it’s a big ask. A friend, associate or family member may be the best choice. But without the right support, it still may not work out as either the grantor or the individual trustee hopes.

Here are three reasons to additionally name a corporate fiduciary, to work alongside the personal individual trustee.

Supporting the personal trustee:

The personal trustee has agreed to take on a significant responsibility, and you’ll want to do what you can to ease that burden, including ensuring that it doesn’t extend beyond the individual trustee’s own professional or personal capacity. The personal trustee can count on the corporate trustee for expert guidance and important objectivity in meeting the family’s financial goals, and ensuring that all tax, administrative, and other reporting requirements are met and that the assets are prudently protected. A corporate trustee is held to a higher fiduciary standard than an individual in discharging these responsibilities.

Supporting the family:

A corporate trustee can help manage illiquid or unusual assets, like a family-owned business, shared real estate, or valuable collections. A corporate trustee can also act as an impartial mediator when there are conflicting goals among family members, making sure that the trust works for the benefit of all beneficiaries. Independence also allows a corporate trustee to have more flexibility and authority without adverse tax consequences.

This flexibility is especially important when a trust is expected to last multiple generations – it is impossible to plan for every eventuality in the trust instrument, so flexibility is key. On a related note, beneficiaries should have the ability to remove and replace the corporate trustee to meet their evolving needs.

Supporting the individual:

Naming a corporate co-trustee as successor trustee provides an additional layer of protection in the event that you become incapacitated or otherwise unable to manage your own affairs. A corporate trustee of a revocable trust can immediately step in to manage assets and make distributions for you or your family’s benefit. This can be particularly seamless if they are already serving as custodian or investment advisor. Having a successor trustee named and ready to act can also provide peace of mind that the plan will be carried out as intended. Corporate trustees are bound by fiduciary duty and subject to oversight by state and federal regulators. They are held to the highest fiduciary standard and have a duty to act in the sole interest of the beneficiaries while carrying out the intent of the benefactor.

In short, a flexible and empathetic corporate trustee can support the efforts of the personal trustee, working alongside family members and other advisors, providing both independent advice and collaborative decision-making. A well-drafted estate plan can ensure that nothing is set in stone by incorporating flexibility for the future, allowing beneficiaries or another power holder to remove and replace a corporate trustee at any time to meet the needs of the beneficiaries.

Alex Lyden is the Chief Fiduciary Officer of Evercore Trust Company. He can be contacted at [email protected].