When planning your estate, one of the tools that you might consider is some form of trust. This might be a revocable trust that you create during your lifetime (the so-called "living trust") or an irrevocable trust that you create during your lifetime, or a testamentary trust, which is one that is set forth in your Will and takes effect upon your death. In any of these instances, you must consider whom to name as trustee or co-trustees of the trust. The trustee can be one individual, multiple individuals, a corporate fiduciary such as Pinnacle or a combination of Pinnacle and one or more individuals.
One of the major reasons people are often reluctant to use a corporate fiduciary as trustee is their concern of paying fees. People often act under the misconception that only corporate fiduciaries charge fees and, if they name an individual as trustee, that individual will not take any fees for his or her services. This may or may not be the case. Experience demonstrates that, except where a spouse or a child acts as trustee, other individuals do take fees for services; however, even children are eligible to take fees as well. A "reasonable" fee for an individual trustee is often no different than a "reasonable" fee for a corporate fiduciary. Therefore, an attempt to save the trust from paying fees to the trustee in general is often a poor reason for rejecting the use of a corporate fiduciary as a trustee.
What advantages might there be from having Pinnacle trust serve as your trustee?
- Professional Management - actions - investments - record-keeping - tax returns
- Objective Exercise of Discretion
- Avoiding Conflicts of Interest
- Insulation for the Individual Trustees
- Protection Against Misappropriation of Funds
Professional Management - When Pinnacle Trust serves as trustee, our fiduciary specialists manage the trust. Management of the trust is the full-time job of our staff members who perform these services. Unlike it is to a family member or to friend, these activities are not something they do when not working at their real, full-time jobs; it is not something forced onto them by circumstances or reluctantly done from a sense of moral obligation. Our trust officers are professional trustees, experienced in the requirements and appropriate procedures for administering trusts. An individual trustee, no matter how knowledgeable, is generally an "amateur" trustee. Pinnacle brings experience and knowledge, not only in investments in general, but also appropriate trust investments in particular. Will the individual trustee know which investments are appropriate for a trust? Will the individual trustee understand the distinction between income for tax purposes and income for trust purposes? Will the individual trustee keep current on investments, taxes, the law of trusts, etc.? Will the individual trustee know how to keep appropriate records for the trust? Our trust professional at Pinnacle will be aware of all these items and will act accordingly.
Continuity - Will the individual trustee that you select be available to serve at the appropriate time and will he or she continue to be available during the entire term of the trust? If the trust is for the benefit of your young children and is to last for many years, will your contemporaries be too old to serve as trustees? Do you have enough individuals in whom you have confidence to name alternate trustees in addition to the original trustees? If you name Pinnacle as trustee, although a particular individual trust officer may change from time to time, the "trustee" will always be Pinnacle Trust Company.
Objective Exercise of Discretion - It is often difficult to be objective, particularly where different beneficiaries have opposing and/or competing interests or when emotions are involved. Your trust might be structured to provide income to your spouse for life with the remainder to pass to your children. Your spouse might want the principal invested to maximize income - for example, exclusively in tax-free municipal bonds, while your children might want the principal invested to maximize growth - for example, exclusively in equity securities. This might be an even more contentious issue where there is a second marriage and there are adult children from the first marriage. Despite the circumstances, your trustee must exercise discretion to reach a fair balance between the interests of all beneficiaries. Will your individual trustee be up to this task? What if your trustee feels closer to your children than your spouse - will your spouse be treated equitably or will an emotional relationship result in an unfair and subjective exercise of the trustee's discretion? Pinnacle deals with these types of conflicts every day. These decisions can still be difficult and unpleasant, but Pinnacle is well-equipped to handle them. In some cases where the income and principal have differing objectives, it might be appropriate under certain circumstances to seek to convert the trust to a unitrust to eliminate this conflict. Will your individual trustee be aware of this or other possible alternatives or know how to evaluate such a decision or how to bring it about? Rest assured that our staff of trust professionals are sensitive to these issues.
Avoiding Conflicts of Interest - An individual trustee might have an inherent conflict of interest if he or she is also a potential beneficiary. Consider the following situation, for example. Assume that you name your brother, George, as the trustee for your child. Also assume that the trust provides that if your child does not survive the term of the trust, then George's children become the beneficiaries. Thus, the more trust funds that George spends on your child, the less that might be left for his own children if your child dies. This is a classic conflict of interest. George might be inclined to be frugal when using trust funds for your child, although contrary to your intentions, because he is favoring the interests of his own children. Pinnacle would have no such conflict.
Insulation for the Individual Trustees - Sometimes an individual trustee is placed in the difficult position of having to turn down the request of a beneficiary. This can be even more awkward when the trustee is also acting as the guardian of a minor beneficiary of the trust. For example, assume that you name your sister Mary both as the guardian of your minor children and as the trustee of his or her trust, and assume further that one of your children makes a request for money from the trust for a purpose that your sister deems inappropriate. It might be easier on your sister if she can respond by pointing out to the child that the trust officer at Pinnacle must also approve the request. In this case, having Pinnacle serving as co-trustee, can take some of the "heat" off the individual trustee.
Protection Against Loss or Misappropriation of Funds – What if despite your best efforts to select an honest and reliable individual trustee, he or she relies on the advice of an unscrupulous advisor and loses trust assets, or, worse yet, he or she steals money from the trust? Will the beneficiaries, your children, be able to recover the lost or stolen funds? If the trustee has spent all the money and does not have funds of his or her own to replace the missing funds, your children might never see the money. Selecting a close relative is no guarantee of honesty or reliability. There are numerous examples of individual trustees who have stolen money or have had trust assets stolen from them. Pinnacle maintains a system of internal and external checks and balances to guard against such occurrences in the administration of the trust. In addition, Pinnacle maintains a bond on all employees to protect clients and beneficiaries against theft or misappropriation of trust assets.
In summary, not every trust is a good candidate to have a bank serve as trustee. Nevertheless, a person considering using a trust as part of her or his estate plan should not simply dismiss the notion of naming a bank as trustee or co-trustee. There are often many good reasons to name a bank as trustee. A careful consideration of both the advantages and disadvantages should be made before any decision is made. When discussing the use of a trust with your lawyer, you should also discuss these advantages and disadvantages before making a final decision.
Note - This article is only meant to provide general information about the use of a corporate trustee. It is not an attempt to answer all the questions that may arise about trustees or using a corporation such as Pinnacle as a trustee, nor is it intended as legal advice. You should consult an attorney with your specific questions about the advisability of designating a corporate fiduciary as a trustee for your own situation.
Pat Kingsmill serves as Sr. Vice President and Director of Fiduciary Services & Trust Counsel at Pinnacle Trust. You can reach him by emailing firstname.lastname@example.org or by calling the office at 601-957-0323.