Client Login 401(K) Login

As director of Savant Private Trust, much of my day revolves around talking to families about their estate plans and how a corporate trustee could fit into them. I find it is a conversation that not enough estate planners are having with their clients. While every family has different dynamics, it is my opinion that almost all family estate plans could benefit from incorporating a corporate trustee.

Many of you have probably heard about utilizing trusts in your estate plan as a means to control where the assets you possess at your death will go. These trusts have the ability to completely distribute everything immediately, or you can set them up to hold your assets and only distribute them for specific reasons (e.g. for college expenses) or at specific moments (e.g. grandchild doesn’t have unfettered access until they turn 30). In either case, someone or something has to be in charge of the distribution. The person, or entity, charged with overseeing this process is called the trustee.

Naming a Trustee

When naming a trustee, families have essentially two options: they can name an individual, usually a family member, or they can name a third party professional (corporate trustee). Both have pluses and minuses, and who is best is typically specific to a family’s situation.

Let’s start with individuals, as they are typically who I see named in documents. The nice thing about naming an individual family member is that they typically have a deep relationship with yourself and the named beneficiaries within your trust document (typically your children). This allows them to have a fairly good idea of the types of distributions you would have deemed appropriate to make. While it is easy to draft a trust that allows for purchasing a car for a beneficiary, it is significantly harder to say if that car should be a used hatchback or a new luxury SUV.

These are the types of decisions that need to be made, and the trustee has potential legal liability if they do not act correctly. Another benefit is that typically the named individual does not charge the trust a fee to act as trustee, although they almost always have the ability to. However, even if an individual trustee does not take a fee, they will most likely still need to employ an investment manager, attorney, and accountant. So in reality, there is still going to be a cost associated with naming an individual trustee.

What are the drawbacks to Naming an Individual Trustee?

The largest drawback in my opinion to naming an individual as trustee is the strain that it puts on the family relationship. Typically what I see is that an aunt or uncle will act as the trustee over their niece or nephew’s trust account; this oftentimes leads to an awkward Thanksgiving dinner because nephew John is mad at Aunt Jane for not approving the purchase of a new Jeep for him.

What’s the Alternative?

You can name a professional trust company as trustee. As a corporate trustee, they may have attorneys, CPAs, certified trust officers, CFPs, and professional investment managers at their disposal. This means that oftentimes what the individual trustee needed to outsource, can be performed in-house. While there is an additional cost associated with naming a corporate trustee, it is usually an affordable alternative to the cost of an individual trustee outsourcing work to outside professionals. In addition, the cost associated with naming a corporate trustee does not actually begin until after they begin to act (e.g. after you have passed away). Naming a corporate trustee also allows the family to properly grieve the loss of their loved one because professionals are handling the administrative tasks that would have otherwise fallen on a family member. It also provides that buffer for family interactions in the future. Let the corporate trust officer tell your niece that she can’t have a BMW at sixteen. The two of you can continue to enjoy pie at Thanksgiving and complain about that “callous” trust officer

Having Your Pie and Eating It Too

What if I told you I think you can actually have the best of both worlds? That it is possible to have the deep relationship of a loved one, coupled with the expertise and non-family-conflict of a corporate trustee? Estate planning has come a long way in the past decades, and we are beginning to see new roles emerge for individuals within trust documents.

One of these roles is a trust supervisor or trust protector (they’re called several different names, but the role is fairly similar). This is a perfect position for a loved one. The trust supervisor has the ability to oversee the trustee, can even overrule the trustee, and — if it came down to it — remove and replace them. However, they are not in the day-to-day administration; the beneficiary still asks the corporate trustee for money when they need it.

This role allows the loved one to grieve along with the rest of the family without worrying about the work to be done and allows them to have some level of involvement in the decision-making process.

Thanksgiving is saved. The third party retains the honor of saying no to the BMW. I truly believe that this is how you can have your cake and eat it too…

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years with more than $7 billion in assets under management. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

Savant Wealth Management is a Registered Investment Advisor. Different types of investments involve varying degrees of risk. Savant’s marketing material and/or rankings should not be construed by a client or prospective client as a guarantee that they will experience a certain level of results if Savant Wealth Management is engaged, or continues to be engaged, to provide investment advisory services nor should it be construed as a current or past endorsement of Savant Wealth Management by any of its clients. Please see our Important Disclosures.