Thinking of setting up a trust for your heirs? You will need to decide whether you’d like a corporate or individual trustee handling things for you. A lot of folks who set up trusts will avoid using Corporate Trustees because they don’t want a corporation making rigid decisions for their trusts based on overly objective instructions. Whether it’s the beneficiaries finding the trustee to be uncooperative with distribution requests, or the trustor wanting the assets to be managed more subjectively, there are a lot of reasons why people look to individuals to be trustees instead of corporations.

There are reasons why you’d decide on a corporate trustee, though . . .

Reasons You’d Choose a Corporate Trustee

Think about multi-generational or Dynasty Trusts that could go on in perpetuity. Whoever you pick now will be long gone by the time the trusts run out of money. It is easy to decide who you want as the trustee now, but what about the successor trustee? What about the successor to the successor? And it goes on and on. That’s when a Corporate Trustee comes in handy.

Using a Corporate Trustee helps ensure that generations of beneficiaries benefit from the same continuity, judiciousness, and expertise that a large organization can provide. By choosing a Corporate Trustee, you are helping to ensure the same continuity for the entire term of the trust (assuming the Corporate Trustee stays in business).

So how do we deal with the potential problems mentioned above regarding Corporate Trustees? We make the Corporate Trustee the Administrative Trustee, and have Investment Adviser and Distribution Adviser roles added to the trust instrument.

Administrative Trustee

The Administrative Trustee, when combined with carved out Investment Adviser and Distribution Adviser roles, can have quite a limited role as defined by the terms of the trust. In this scenario, the Administrative Trustee typically provides recordkeeping and trust reporting, as well as overseeing the tax compliance.

Investment Adviser

The Investment Adviser has the power under the trust instrument to buy and sell assets. The Investment Adviser must follow the prudent man rule, that is, to act as a prudent person would in managing their own affairs. Specific directions in the trust instrument as well as state laws governing the trust must also be observed.

Distribution Adviser

The Distribution Adviser is an unbiased and independent adviser who serves to approve and authorize distributions. The Distribution Adviser responds to requests from beneficiaries for distributions from the trust. The Distribution Adviser makes the determination if the request is valid or not, and informs the Administrative Trustee of the decision, allowing the Administrative Trustee to make the distribution.

Having both an Investment Adviser and a Distribution Adviser will take a lot of the burden off of the Administrative Trustee when it comes to making financial decisions regarding the trust’s assets and beneficiaries. By dividing duties among all parts of the trust instrument, the corporate trustee model handles trusts more effectively and efficiently in many cases.

For more information about corporate trustees or how to make the change from an individual trustee to a corporate trustee, contact Dave Desmarais or any member of the KLR Private Client Services Group (PCS).