When it comes to choosing fiduciaries for estate planning purposes, many people find it difficult to choose among their children or other people such as siblings and friends. Still others don’t believe that any of their family members or friends are capable of serving, or their children are still minors and legally can’t serve. In these situations, a corporate fiduciary, such as a bank that offers trust administration services or an independent trust company, may be the best choice. Below is a list of the pros and cons associated with choosing a corporate Trustee or other fiduciary.
PROS:
Expert management — Corporate fiduciaries are pros at what they do. They’ll have multiple staff members with many years of experience in dealing with the probate of estates and the administration of trusts and guardianship accounts as well as portfolio managers to prudently invest the trust funds. This, in turn, will lead to expert management and investment services.
Neutrality — A corporate fiduciary will have no immediate ties to your beneficiaries, which will remove all of the emotional stress and strain that a family member or friend could be subjected to when serving as your fiduciary. Aside from this, a corporate fiduciary won’t be biased by a beneficiary’s past choices or present lifestyle and will simply administer the estate, trust, or guardianship as provided by the explicit terms of your Last Will and Testament or Revocable Living Trust and applicable state law.
One stop shop — A corporate fiduciary will have all of the resources available to manage, invest, account for, and spend the beneficiary’s estate, trust, or guardianship assets under one roof. This will include investment services, brokerage services, estate or trust accounting services. and business and real estate management services. On the other hand, individual fiduciaries will be required to hire multiple professionals to oversee all aspects of the administration of the estate, trust, or guardianship. For example, if you name your estate planning attorney as the fiduciary, then he or she will still need to hire a financial advisor to invest the assets, a property manager to handle real estate, and an accountant to prepare the fiduciary income tax returns (IRS Form 1041 as well as applicable state income tax returns).
High standard of care — Because corporate fiduciaries are just that, corporations, they’re required to be licensed, bonded and insured and are subject to strict state and federal regulations. This, in turn, means that they’ll be held to a very high standard of care, above and beyond what the average person would be held to, when managing an estate, trust or guardianship. Therefore, if a corporate fiduciary does make a mistake, then a judge will be more likely to rule against the institution and, in turn, the institution will have the appropriate funds to pay for its mistakes. This generally won’t be the case with an individual fiduciary who has little or no experience with managing an estate, trust or guardianship and will only be held liable for acts or omissions that amount to gross negligence.
CONS:
Rigid — Corporate fiduciaries can be extremely rigid and set in their ways when it comes to investing, managing, and spending the assets of an estate, trust, or guardianship. This can lead to unhappy beneficiaries who will be forced to go to court to resolve disputes between them and the institution. One way to avoid this problem is to put very specific instructions in your Last Will and Testament or Revocable Living Trust agreement so that the institution will have strict guidelines to follow when administering the estate, trust or guardianship.
Expensive — In order to provide all of its professional services, a corporate fiduciary will generally cost more than an individual fiduciary. As mentioned above, however, an individual will most likely need to hire a slew of professionals to assist with administering the estate, trust or guardianship. These fees can certainly add up and may cost just as much as, or even more than, an institution’s fees.
Committee approach — Corporate fiduciaries use committees to make many of their decisions. This, in turn, can lead to long delays in actions to be taken on behalf of an estate, trust, or guardianship, as well as slow responses to a beneficiary’s questions or concerns. A committee approach can also mean lost opportunities in investments that require quick responses as well as prolonged probate administration. On the other hand, a committee will bring years of experience and knowledge to the table and make the decision process a collaborative effort instead of biased or one dimensional.
Bureaucracy — Corporate fiduciaries are just that, corporations, and, in reality, are made up of multiple departments and offices located in different buildings and even various cities. Cutting through the red tape to find someone who can help in a pinch can be daunting, and speaking to the right person at the right time is often impossible. On top of this, their employees are frequently promoted to new positions within the institution or leave for better opportunities at other institutions. All of this can make dealing with a corporate fiduciary, particularly one that’s located in another city or state, downright frustrating. Instead of a big box fiduciary, consider appointing a smaller, local bank or trust company — these types of corporate fiduciaries are usually very hands on with their clients and will generally work with estates, trusts or guardianships with a lower net value than larger, big box corporate fiduciaries.
What Should You Do?
Corporate fiduciaries aren’t the right choice for everyone, but then again Uncle Bob or another family member may not be the right choice either. If you’re concerned about the ability of family members or friends to manage your estate, trust or guardianship, then talk to several banks or trust companies to learn more about their employees, services and fees. In addition, if you’ve chosen discretionary lifetime trusts or dynasty trusts for your beneficiaries, then a corporate fiduciary will insure that your hard earned money will stay in your blood lines and will only get distributed in accordance with your explicit instructions as listed in your will or trust.
