Choosing a Trustee: Individual or Corporate?

If you have a trust, you need to appoint a trustee. But how do you choose the right one? A trustee has a lot of power and responsibility over your trust and its beneficiaries, so it’s a decision that requires careful consideration. Choosing the right trustee can significantly impact the success of your trust and meeting your intended goals. Here, Emily Blackburn, J.D., CPA, compares the two main types of trustees and discusses the factors to consider when choosing between them.

Types of Trustees

It’s common for a grantor (the person who creates the trust) to choose an individual trustee, such as a family member or friend. An individual trustee may have a personal relationship with the grantor and the beneficiaries and may share their values and goals. However, an individual trustee may also lack the professional expertise, or continuity that a trust may require.

A corporate trustee is an entity, such as a bank or trust company, providing professional trustee services. A corporate trustee will have the skills and experience to manage complex trust assets and legal requirements and can act impartially and consistently. However, a corporate trustee may also charge higher fees, have less personal connection with the family and the beneficiaries, and have less flexibility in dealing with changing circumstances.

Factors to Consider

Due to their differences as outlined above, there are several key factors to consider when appointing a trustee, such as:

1.  Professional experience: How complex are the trust assets and the legal requirements? Does the trustee have the necessary skills and experience to manage them effectively? A corporate trustee may have an advantage in this aspect, as they have the staff and resources to handle several types of assets and comply with trust administration laws and regulations. An individual trustee may need to hire professionals, such as lawyers, accountants, and investment advisors, to assist them, which may increase the cost and complexity of the trust. Generally, stocks have historically provided higher returns over the long term compared to bonds or cash equivalents. However, they also come with higher volatility and risk.

2.  Continuity and stability: How long will the trust last? Will the trustee be able to serve for the trust’s duration without being affected by life changes or unforeseen events? A corporate trustee may have an advantage in this aspect, as they can provide long-term and uninterrupted service and appoint successors or replacements if needed. An individual trustee may become unavailable, incapacitated, or deceased or resign or be removed, disrupting the trust administration or creating legal complications.

3.  Cost: How much will the trustee charge for their services? How will the fees affect the overall return on the trust assets? A corporate trustee typically charges much higher fees than an individual trustee and may have additional expenses. An individual trustee may charge lower fees or may waive them altogether.

4.  Personal relationship: How well does the trustee know the family and the beneficiaries? How important is having a close and personal connection with the trustee? An individual trustee may have a better understanding of the family dynamics, the personalities and preferences of the beneficiaries, and the values and goals of the grantor. Additionally, a corporate trustee may be more rigid in their decision-making and allowance of flexibility related to trust provisions.

5.  Legal and regulatory compliance: How familiar is the trustee with the trust administration laws and regulations? How likely is the trustee to avoid errors or violations that could have negative consequences? Corporate trustees may already have the requisite knowledge, but it’s also possible for individual trustees to hire professionals to close this knowledge gap.

Helping You Get There…

Choosing a trustee is a crucial decision that requires careful consideration of the pros and cons of each option. In certain situations, combining individual and corporate trustees as co-trustees may be a feasible solution. There is no one-size-fits-all solution. Contact a member of Boulay’s estate and trust team today to begin your journey into trust planning.