Trusts, similar to wills, are widely used documents that instruct distribution of property. But when it comes to who manages the trust, there is a significant decision to be made. According to John Handy of Commerce Trust Company, there are two types of trustees. “Individual trustees can be a son, daughter or any individual, and corporate trustees, which are usually banks or independent trust companies, serve in a fiduciary role to distribute, monitor and manage assets.”
Maurice Quiroga of PNC Wealth Management indicates that the role of a corporate trustee is to help families and individuals build, manage and protect their wealth once the assets are placed in the name of a trust. However, in recent years, he says the use of corporate trusts has declined.
“We’ve seen a tremendous amount of wealth evaporate during this great recession that we just went through,” Quiroga notes. “Much of this loss, in my opinion, could have been prevented had high-networth individuals and families placed their assets in trust with a corporate trustee. Corporate trustees have a very unique duty of loyalty to their beneficiaries and those who they serve, and some of the investment choices that individuals made during this great recession caused many people to lose wealth. Trust companies would not have made these similar investment decisions and would have helped preserve more wealth to high-net-worth families.”
Why not use a corporate trustee? Quiroga believes there are two reasons: “There’s the fear of loss of control—if they name an entity as trustee, they may not do things the way their family member(s) did. Also, people think trust companies are expensive, but when they analyze what a corporate trustee charges, it’s typically 10 basis points more expensive than the average investment manager. When you factor in everything corporate trustees do: the liability, safeguarding of assets, objectivity, the partnership, and the expertise that they bring, it is absolutely worth it.”
Handy notes that maintaining good family relationships can justify having a corporate trustee in place. “With a corporate trustee, you don’t typically pit family members against each other on some of these financial issues that can come up with distribution of property,” he says. “Basically, the corporate trustee works through the issues instead, and that helps with family harmony.” Handy adds that a corporate trustee has a level of impartiality and objectivity while administering the trust according to the provisions of the document. “Something we stress is having co-trustees, meaning that the bank is a co-trustee, along with an individual trustee—it’s really the best of both worlds with the individual perspective, as well as the expertise of a corporate trustee.”
Quiroga considers this year a unique situation for re-evaluating trusts and other types of bequests. “Here we are in May 2011 with less than 7 months to take advantage of the current tax laws that allow the transfer of wealth to our family members because the tax laws are going to change Dec. 31,” he explains. “If you take advantage of these laws and the ability to gift more than $5.1 million per individual, a corporate trustee can help oversee those assets. But on Jan. 1, 2013, we revert back to a $1 million redemption, which is where we were 14 years ago.” Quiroga’s advice? “Hire the most competent trust company adviser you can, learn what a corporate trustee does and maximize everything they can do for you.”