Bite-Sized Bits of Knowledge

Hi. Thanks for tuning in to another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. 

Today, we’re talking about corporate trustees or professional trustees. In my prior videos, we talked about fiduciaries, and we talked about trust administration. We talked about the issues or what can go wrong in a trust administration, and there’s some great information there. So be sure to watch those videos. 

In this video, we’re going to talk about, specifically, these types of trustees: corporate trustees and professional trustees. 

So we talked about all the things that a trustee has to do, and it’s a lot. And a lot of times people are like, “Okay, I want to appoint my brother as a trustee.” So we have to have a dialogue about that: “Tell me about your brother. What does he do? What’s his expertise? Is he responsible? Is he organized? Is he diligent? Is he trustworthy?” 

You have to have these conversations if you’re going to appoint somebody as a trustee of your trust. You don’t want to appoint somebody who really is not a good fit for this type of work because they will fail. 

And failing is bad for everybody. They get sued, money gets lost. People don’t have money they might need. This is a very real thing. It’s a very real conversation that needs to happen. 

So as an alternative to your family, who you love and all that, but maybe it’s not the right fit, consider a professional or corporate trustee. A professional trustee – I would say a corporate trustee is a professional trustee, but I also would say that professionals can be professional trustees. 

For example, in our firm, we do serve as trustee – we do not solicit it, but occasionally it’s requested of us – and we will, in some cases, accept accountants, lawyers – not all lawyers, I would say qualified lawyers. Estate planning attorneys, particularly CPAs, are good. But people who understand how this works are important. 

But I want to spend more time today talking about corporate trustees because it all loops, circles, groups together into one big thing. Corporate trustees. These are companies that all they do is serve as trustee.

Now, we happen to have the pleasure of working with a few of them. I can tell you from experience that this is often money well spent. Corporate trustees have an understanding of how it works. They have systems in place. They have people in the different positions that are needed. For example, trust administration versus asset management and they just get it. 

Now, there’s good and there’s bad. Corporate trustees are going to be really good about managing the money, making distributions, doing the accounting, doing the trust filings for tax purposes, and overall, adhering to the trust. That’s where they’re great. 

I think the downside of corporate trustees is sometimes that they’re rigidly interpreting the trust. So if you want to make sure that certain things are happening, you can’t leave it to ambiguity or interpretation because the corporate trustees are going to typically be conservatively interpreting and constructing the trust agreement to limit their liability exposure. 

Another thing that I would say is negative about corporate trustees – I would say neutral but kind of negative – is that they don’t manage exotic assets. If you have real estate, they’ll manage it by finding somebody to manage it, but they’re not going to buy. They sell it, it’s going to be cash, it’s going to remain that way. It’s going to go into a brokerage account. It’s going to be managed. They’re not going to swap or sell a property, or buy another one. Typically, they’re not going to do that. Some may, some may not. This is a dialogue that you have to have with the trust company. 

Businesses-wise, they’re not in a business of managing your business. So they’re going to either hire somebody or they’re going to try to liquidate it. So these are conversations you have to have if you have these types of assets. If it’s just a straight-up brokerage account, I’m sure they would love to manage that money, prudently, grow it while making distributions under whatever standard it is, which is probably going to be HEMs: Health, Education, Maintenance, and Support. 

I would say fee-wise, their fees are going to be higher than your brother, most likely, because these people know what they’re doing. They do it every day. They’re very diligent, they’re responsible, they’re organized professionals. So whenever looking at trustee compensation, it’s always helpful to look at what the costs are of a professional who does every day and use that as a ceiling in a way to see whether or not the trustee compensation that’s being sought is reasonable.

So to go back, professional trustees, corporate trustees, they’re people who know what they’re doing. They’re in the business of doing it. They charge more money, typically. Sometimes – I would say most often – it’s money well spent. They’re going to do a good job. 

On the negative side, I said they’re going to be more rigid, and they’re not going to manage exotic assets. You need to be mindful of that in your planning to make sure you have the necessary succession and transition in place. 

This is a great opportunity to say that sometimes corporate trustees are good as co-trustees with somebody else like your brother. Brother can manage this, and the corporate trustee manages that. So this is an important dialogue to have with your attorney as well as your corporate trustee if it’s something that you’re interested in. 

I think that’s all for now. Thank you for stopping by and stay tuned for more.