By Eunice Kim
BNY Mellon Wealth Management
As we have seen over decades, meaningful wealth creation and tax policies have heightened the interest individuals have in trust and estate planning. For example, imagine a modern family unit where wealth is earned by one or two parties, and there are children — perhaps from two different marriages — and maybe even grandchildren. The wealth owner’s priorities may include passing wealth to the next generation(s) and donating to a community foundation upon their death. Given the size of their estate and blended family situation, the wealth owner might establish trusts for the benefit of their shared children and the local community foundation.
After working closely with their trust and estate attorney and advisors, the wealth owner confirms that creating trusts is the right decision. To retain control during their lifetimes, they can assume the trustee role, and name themself as trustee and then decide to name either a family member, close friend or institution as successor trustee for their newly established trust.
What are the pros of naming a corporate trustee?
Role of the Trustee
A trustee, whether an individual or trust company, is responsible for the prudent administration and investment of the trust assets. The individual or trust company must provide the accounting of the trust as well as be responsible for impartial communication to the beneficiaries of the trust — in our example case, the children from their prior marriages.
Unless the close friend or family member is well-versed in trust administration and investments, it can be quite complicated. Duties of the trustee include the accounting of the assets, liabilities, receipts, distributions, records of trustee and trust actions, as well as monitoring and managing the income, gift and estate taxes. In many cases, this is the key advantage of a corporate trustee.
Benefits of a Corporate Trustee
By appointing a corporate trustee, wealth owners/grantors hire a team of dedicated, full-time trust professionals working to administer and invest the trust assets. The team will typically assign a primary contact to work with the wealth owners to understand the purpose and intention of the trust and dynamics of the family members.
The main differentiator between a corporate and an individual trustee is that this primary corporate contact will have the full backing of a team where they will divide and conquer trust duties. This structure adds tremendous benefit, as the trust assets may include liquid securities (such as equities and bonds) and could also include closely-held or illiquid assets (like a business interest or real estate properties). Furthermore, a corporate fiduciary typically has substantial experience managing unique items like fine art, coins and other types of collectibles. A corporate trustee can act as sole trustee or as co-trustee.
Staying current on tax law is also an important benefit of a corporate trustee, as this may affect estate planning and influence investment decisions.
Best Practices for Selecting a Corporate Trustee
Determining which corporate trustee best serves a family’s needs can be daunting as there are many banks and trust companies that serve in this capacity. Wealth owners should interview trust companies and select whichever one they feel most comfortable with. Some things to consider include:
- Employ full-time, trained trust professionals
- Have real estate and other trust specialists available in-house
- Offer services at one price
- Provide objectivity as a third party
- Have experience in investments and banking
- Be committed to educating and communicating regularly with beneficiaries
What we’ve learned in the past two years is that families are having more open conversations with their children about money and mortality.
If wealth owners decide to hire a corporate trustee, they should be sure the trustee is skilled and knowledgeable in trust structures. But a corporate trustee may not always be the right fit. At any point, an individual trustee may also turn to a corporate trustee for guidance.
The views expressed within this article are those of the author only and not those of BNY Mellon or any of its subsidiaries or affiliates. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
– Eunice H. Kim is the Market President for Bank of New York Mellon Wealth Management in Denver and oversees wealth management business matters.