Should You Choose a Corporate Trustee or Appoint Someone You Know?
When a family establishes a revocable trust, the grantor is, in many cases, the trustee as well. However, a revocable trust requires that the grantor appoint a successor trustee. The successor trustee is on standby until the acting trustee dies or becomes mentally incapacitated and is unable to manage the trust.
You may think you know whom you would choose as a successor trustee, but it’s not as simple as appointing a family member and calling it a day. The successor trustee has many essential functions that take up a lot of time and resources. If your family appoints this person, you must consider how other family members will view it and ensure there are no conflicts of interest.
The other option is to appoint a third-party corporate trustee as the successor trustee. Is one option better than the other? The answer is both yes and no, depending on your situation. Let’s dive into both options.
Appointing a Family Member as Successor Trustee
In many cases, families appoint a surviving spouse, child, trusted advisor, or friend as successor trustee. While this solution seems cost-effective and straightforward, there are considerations to be made and questions to ask:
- Does the trustee have adequate time to devote to the trust?
- Will the trustee be able to separate personal feelings and exercise sound judgment toward beneficiaries?
- Will a surviving spouse be able to take on all trust management duties during the grieving process or while caring for an incapacitated spouse?
- Can the trustee understand and analyze investments within the trust or possible investment opportunities?
- Will there be tension or resentment among family members if this trustee is appointed?
Pros of Appointing a Family Member
- Family members or close friends may not charge an administration fee for their role as successor trustee.
- A family member understands the unique dynamics of the family, including long-standing feuds, substance abuse, etc.
- A member of the family may view this duty as less of a burden and therefore put more effort into settling or managing the trust than a family friend.
Cons of Appointing a Family Member
- It could create tension among siblings or other family members.
- If a family member has no trust experience, they may accidentally abuse the trust and be liable for damages.
- A family member may lack the time and knowledge necessary to execute the trust successfully.
Appointing a Corporate Trustee as Successor Trustee
A corporate trustee serving as successor trustee will undoubtedly charge a fee for their services; this alone can cause families to forgo that route. However, there are significant advantages to going the corporate trustee route that must be explored. Here are some questions to ask:
- How complex is the trust, and how many assets will the successor trustee be responsible for?
- Are there minor beneficiaries or other considerations that would cause the trust to continue after the death or incapacitation of the grantor?
- Is there significant family tension that could necessitate a third-party trustee?
Pros of Appointing a Corporate Trustee
- Avoid family tension that arises from choosing a family member as trustee.
- A corporate trustee will handle any filings, investments, distributions, tax considerations, and more.
- The corporate trustee handles all recordkeeping and preserves valuable assets to benefit future generations.
Cons of Appointing a Corporate Trustee
- The trustee may not understand your individual family dynamics.
- There are always fees associated with a corporate trustee.
- A corporate trustee may be stricter in making distribution decisions than you’d like.
Can You Appoint Co-Trustees?
Yes, it is possible to appoint both a family member and a corporate entity as co-trustees. This is not the right option for every family as you will incur both trust administration fees and may need to pay the family member too. The family member will also still have a great deal of responsibility. However, if a family still wants personal involvement, but with the added benefit of an impartial third-party and trust management benefits, this could be a great option.
Putting it All Together
Ultimately, you can structure your trust and trustee selection the way you envision. Your family dynamic and trust assets will have a lot to do with the final choices you make. Whether you choose a family member, a corporate trustee, or take a blended approach, your choice of successor trustee should serve to benefit your family members.
Alliance Trust Company of Nevada has years of experience as a corporate trustee and can answer any questions you have regarding the management of your trust.