The Benefits of a Trust Company as Trustee: A Comparison with Individual Trustees
When creating a trust, the role of the trustee is crucial. The trustee is responsible for managing the trust's assets, ensuring proper distribution of funds, and overseeing the trust according to the terms laid out in the trust document. Often, individuals consider appointing one of their children as trustee, but the advantages of using a trust company as trustee are numerous. This article explores these benefits and compares them with the advantages and disadvantages of individual trustees.
Introduction to Trusts and Trustees
A trust is a legal arrangement in which property is held by one party (the trustee) for the benefit of another (the beneficiary). The settlor, the person who creates the trust, provides the instructions for how the trust will be managed and distributed. Trustees play a vital role in ensuring that the trust's provisions are met, but the choice of trustee can impact the efficiency and effectiveness of the trust administration.
The Advantages of a Trust Company as Trustee
Professional Trust Management
A trust company, also known as a professional trustee, brings specialized knowledge and experience to the role. These companies are dedicated to the management of trusts and have a wealth of experience in handling complex financial situations. They often have expertise in tax law, estate planning, and investment management, which can significantly benefit the trust and its beneficiaries.
Conflicts of Interest
When a family member serves as trustee, there is always the risk of conflicts of interest arising. Family members may have different interpretations of the trust instructions, leading to disputes and potentially harming the trust's administration. A trust company, on the other hand, operates independently and is not subject to the same emotional or personal biases that may affect an individual trustee.
Objectivity and Impartiality
Trust companies can act as impartial third parties, ensuring that the trust is managed fairly and without favoritism. This is crucial in cases where the beneficiaries include multiple parties with varying needs and interests. An impartial trustee can help mitigate tensions and ensure that the trust is administered in accordance with the settlor's wishes, even when those wishes conflict.
Avoidance of Family Fights
On a related note, appointing a trust company as trustee can help avoid family conflicts. When family members are appointed as trustees, there is a risk that disagreements can arise, leading to unnecessary arguments and even legal disputes. A trust company can provide a neutral and objective approach to trust administration, alleviating these issues and ensuring a smoother process for all parties involved.
The Disadvantages of Individual Trustees
Emotional Bias
While individual trustees may have a personal connection to the trust and its beneficiaries, this can also lead to emotional bias. Trusts often involve complex legal and financial matters, and emotional bias can cloud judgment and lead to poor decision-making. For instance, a trustee might be inclined to distribute assets to a child they favor, rather than those who may need them more.
Liability and Risk
Individual trustees face greater liability for any mistakes or oversights, as they are personally responsible for the trust's administration. Trust companies, being professionally managed and regulated, are held to higher standards and can sometimes shift some of the risk away from the individual trustees. This can provide peace of mind and protection for the beneficiaries.
Costs and Resources
While some argue that appointing a trust company as trustee imposes an expense that may not be necessary if the assets are divided prior to death, the additional costs can be justified by the benefits they bring. Trust companies offer specialized services such as investment management, tax planning, and legal advice, which can be more affordable when administered by a professional firm than when handling them individually.
Implications for Trusteeship
The roles of a trust company and individual trustees are distinct, each offering unique advantages. An individual trustee's personal connection and understanding of the beneficiaries' needs can be invaluable, but the advantages of a trust company's professional management and impartiality cannot be overlooked.
Conclusion
Ultimately, the decision to have a trust company as trustee versus an individual trustee depends on the specific circumstances of the trust and the goals of the settlor. While individual trustees may offer a more personal touch, trust companies provide professional management and impartiality, which can be crucial in ensuring the effective and fair administration of a trust.