When selecting a trustee of an irrevocable trust, the threshold question is generally whether the trustee should be an individual trustee or a corporate trustee.
Advantages of a Corporate Trustee
The advantages of having a corporate trustee are generally the following:
(1) Management Expertise. The administrative responsibilities of a trustee can be substantial. The trustee must (a) make timely distributions to the beneficiaries, (b) keep accurate books and records of all income, expenses and distributions, (c) file federal and state fiduciary income tax returns annually, and (d) provide periodic reports to the beneficiaries. In many cases, these responsibilities are too substantial to be entrusted to an individual, whereas corporate trustees are experienced at providing these services.
(2) Investment Expertise. Most individual trustees lack sufficient training to properly manage a trust’s investments, even if they have substantial experience managing their own financial affairs. Individual trustees must, therefore, hire outside investment advisors, which generates additional fees that the trust must pay. Corporate trustees, on the other hand, are professional money managers.
(3) Stability of Management. Individual trustees grow old, become incapacitated, die and need to be replaced. A corporate trustee offers stable administration over the length of the trust.
For a list of corporate trustees operating in Utah, go to the Address Book on this site and click on the “Corporate Trustees” bookmark on the left.
Advantages of an Individual Trustee
The advantages of having an individual trustee are generally the following:
(1) Familiarity with the Family. An individual trustee will often be a trusted family friend or advisor who knows the personalities in the family. He or she thus brings to the office of trustee insight that a corporate trustee lacks.
(2) Lower Cost. A family member or family friend who serves as trustee of an irrevocable trust will often serve for little or no compensation. Even if the trustee does charge for his or her services, the compensation will generally be lower than that charged by a corporate trustee to reflect the individual trustee’s lower level of expertise. However, an individual trustee must hire outside bookkeepers, investment counselors and other advisors at the trust’s expense to perform services that a corporate trustee can perform in-house at no extra charge. For a detailed examination of trustee fees in practice in Utah, see Utah Trustee Fee Survey Results on this website.
Alternative: The Private Professional Trustee
A private professional trustee is an individual who serves as a fiduciary for third parties on a professional basis. In a sense, a private professional trustee combines the advantages of a corporate trustee with the advantages of an individual trustee. Private professional trustees are often retired corporate trust officers, accountants or estate planning attorneys. As such, they provide the expertise of a corporate trustee at a somewhat lower cost, and offer a level of personal service that corporate trustees may be unable to provide. On the other hand, it can be argued that private professional trustees combine the disadvantages of corporate trustees with the disadvantages of family member trustees. A private professional trustee will charge more than a family member or close family advisor might charge, will need to hire outside advisors at the trust’s expense, and may still fail to provide the level of expertise and stability of management that a corporate trustee would offer.
For a partial list of private professional trustees operating in Utah, go to the Address Book on this site and click on the “Private Professional Trustees” bookmark on the left.
Ultimately, the decision of whether to name a corporate trustee, an individual trustee or a private professional trustee is a subjective one, and must be addressed on a case-by-case basis.
Rust Tippett is the author of this blog post.
Copyright 2012 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, P.C. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.