One Man's Opinion

Trust Administration and The Trust Advisor

It is not surprising that individuals are reluctant to grant broad discretionary powers under a trust document to an institution like a bank or bank trust department. This is understandable but the alternative of naming certain individuals to act as trustee under today’s more complicated trust instruments, places undue burden upon that individual or individuals where more than two people are named. Typically, a relative or a good friend, often a successful professional, either in finance or law, will agree to serve not fully appreciating the fiduciary responsibility and liability they are undertaking. While it may seem the right thing to do at the time an estate plan is executed, with time, changing circumstance, and or the possibility of a need to address changes in tax or trust law provisions, an individual may not be able to serve the best interests of the surviving trustor or beneficiaries. On the other hand, what institution could be more impersonal than a big trust department of a bank or independent corporate trustee. How can this dilemma be solved? One effective way to deal with all of the above problems is to appoint a qualified corporate trustee to administer the trust, do the custody, maintain the portfolio management responsibility, prepare the tax returns, maintain normal oversight, etc., but then provide specific authority and duties for an individual trust advisor. This advisor may be given broad powers to direct the trustee regarding administrative or discretionary dispositive matters, potential investment management conflicts, or issues related to preparing the tax returns. They would also have the authority to replace the trustee where such is appropriate. In this way the benefits of having an individual who knows the family or in whom the settler has great confidence can be incorporated into the plan. It gives the trustors the best of both worlds. A list of individuals may be named as successor advisors and specific language in the trust may designate how they become appointed.

A trust instrument is an intimidating document for anyone, even those presenting themselves as experienced in the field of probate, estates & trusts. Understanding trust language and the meaning of dispositive provisions and powers granted to the trustee for investing the trust assets is essential in order to become comfortable with this controlling instrument. To achieve the best tax benefits, protection of the real value of the trust assets, and yet be able to have a genuine comfort with the process can create conflicting forces. It takes experienced professional administrators to serve the needs of the beneficiaries/descendants of large family trusts. But even then, there may occur a certain situation that is better served by an individual acting in their role as advisor to the trustee. By engaging both skills, the level of comfort with the whole administrative process is more likely to be realized.

Most estate plans, where the husband and/or wife are acting as trustee, name the surviving spouse, a son or a daughter as successor trustee to the first trustor to die. If that person is knowledgeable regarding taxes, trust law or investments, this can work out well. In those other cases, it is best to name a corporate trustee ( like a bank or an independent corporate fiduciary like Capital Guardian Trust) to act as trustee or successor trustee, especially if the successor trustee is expected to exercise discretion regarding distribution of income or principal. The corporate trustee normally has experienced administrative trust officers who are trained to exercise due diligence and serve the beneficiaries as was contemplated by the settlor relative to distributions of income and investing for long term growth of principal, and to do it with impartiality toward both the income as well as remainderman interests.