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Consider naming a corporate trustee for your trust

It’s Your Money

Posted: August 6, 2008 8:21 p.m.
Updated: October 8, 2008 5:04 a.m.

The most important decision to make in establishing a trust may be the selection of the trustee. The trustee's role is to carry out the terms of the trust and fulfill its objectives. While there are several different types of trusts, this column will focus on the most common type, the revocable living trust, and the selection of a successor trustee.

In a typical revocable living trust, the successor trustee will take over the management and administration of the trust when the original trustee (or trustees in the case of a joint trust) is no longer able to act due to death or incapacity.

In previous columns, I have mentioned that avoiding probate and conservatorship proceedings are among the most common reasons that trusts are established. While the avoidance of these court procedures will usually result in tremendous savings of both time and money in administering an estate, it also means that there will be no court supervising the administration process. This is where the "trust" comes in. You are trusting that your successor trustee will actually carry out your wishes as expressed in the trust document when you are no longer able to act as trustee.

Common choices for successor trustee include family members, friends, the beneficiaries, business associates and professional advisors. Another possible choice is a "corporate" trustee. Corporate trustees include banks, brokerage firms or trust companies that will act as successor trustee. The major advantages of naming a corporate trustee include objectivity, management of multi-generation trusts, experience in investment, tax, retirement and estate planning issues, and access to attorneys and other qualified professionals if needed. I find that many noncorporate trustees lack the necessary investment, accounting and tax planning expertise and are unwilling to hire professionals with the required knowledge in these areas. A corporate trustee may also be named as a co-trustee or an agent to work with an individual trustee.

Corporate trustees fully understand the many specific duties that the trustee must fulfill. Some of the more important duties of the trustee are the duty of loyalty to the beneficiaries, the duty to keep accurate records, the duty of reasonable care in managing the trust assets and the duty to invest prudently.

If a trustee intentionally or negligently violates one or more of the trustee's duties or commits a breach of trust, the trustee may be held personally liable to the beneficiaries for any loss. There are certain disadvantages in naming corporate trustees. A corporate trustee generally does not have a prior personal relationship with the beneficiaries and may not be as sensitive to their changing needs. Most corporate trustees will refuse to manage real estate and other types of assets.

In addition, minimum asset requirements must be met before a corporate trustee will agree to act. While corporate trustees certainly are not for everyone, if you don't have complete trust or faith in someone's ability to administer your assets and carry out your wishes, you might want to consider naming a corporate trustee as successor trustee, or co-trustee, of your trust.

Randall D. Armour is an attorney and licensed real estate broker. "It's Your Money" appears Thursdays and rotates between a handful of the valley's financial professionals. His column represents his own views, and not necessarily those of The Signal.


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