A Corporate Trustee Can Provide Peace of Mind in Estate Planning
When Gayle and John Hinchman set up a trust a few years ago, they could have gone the common route of asking a friend or relative to help oversee it. But because of the many duties involved in administering a trust, the couple decided not to designate an individual. Instead, they named a corporate trustee — in this case, Capital Group Private Client Services — given their long-standing relationship with Investment Counselor Eric Heer.
John, a retired investment banker, and Gayle, a human resources consultant, wanted to feel comfortable that the trust would be in good hands. The couple (pictured above) discussed their options and decided that having Capital as a co-trustee would allow Eric and his team to provide vital ongoing guidance and logistical support to the surviving spouse.
“Compared with naming your best friend as trustee, you’ve got a historical record and consistency with a corporate trustee,” John says. “Plus, what happens when that person becomes ill or dies or doesn’t want to do it anymore?”
People setting up trusts often tap loved ones to serve as trustees, on the assumption that family and friends are best positioned to carry out their long-term wishes. But there can be disadvantages to this approach. The most obvious are the time and knowledge required, which can be substantial. There is also the sometimes overlooked emotional component, as family members can be influenced by interpersonal dynamics that cloud their decision-making.
Corporate trustees perform a variety of tasks.
To avoid such pitfalls, some people opt to hire professionals. Among the most obvious advantages of this approach are expertise and experience. Corporate trustees have deep knowledge of the complexities of trust administration, as well as the ability to handle the numerous obligations that come with it. Depending on the specifics of each situation, these include recordkeeping, safeguarding of assets, selection and oversight of investment management, preparation and filing of tax documents, and the doling out of distributions to beneficiaries. In many cases, individuals would have to hire outside specialists to fulfill each of these duties.
Corporate trustees also keep abreast of changes in tax and estate planning laws, including those of multiple states, and have the ability to establish trusts in different locations. For instance, we often administer trusts through our Reno office because Nevada offers flexibility, favorable tax treatment and strong financial protections.
Some families, like the Hinchmans, name a corporate trustee to serve alongside a spouse or child. That provides the individual with professional assistance while allowing the immediate family to retain control over how the trust is executed.
“There’s a lot that has to be dealt with, and unless the individual has experience in everything — legal forms, tax forms, tax questions, investment questions — my impression is it would be quite a burden,” John says.
Professionals bring an objective perspective.
Beyond administrative considerations, corporate trustees can help to defuse contentious family situations. People are often in different phases of their lives, with some being more personally mature or financially responsible, and it’s not uncommon for beneficiaries to have disagreements or competing interests among themselves. Of course, individual and professional trustees both have a duty to fulfill the wishes of the grantor and to act in the best interests of all beneficiaries. But individuals can be susceptible to factors that sway their decision-making, such as pressure from family members or financial conflicts of interest.
Corporate trustees, by contrast, are free of such emotional baggage — and this can be essential when handling delicate matters. For example, trustees often have discretion to deny distribution requests that conflict with the vision of the grantor or specific provisions of the trust. In other words, they can prevent beneficiaries from taking premature distributions that whittle their inheritances or excessive withdrawals that eat away at the amounts owed to others. A professional’s ability to be impartial in such situations can be critical. In fact, parents sometimes voluntarily cede decision-making responsibilities to professionals to avoid clashes with their heirs.
Seek trustees that will treat beneficiaries like family.
Of course, the ultimate goal of any trust is to ensure that your loved ones have a solid financial foundation after you pass away. Having a trust in place can help to alleviate angst if the unexpected happens. That was the case for Michael D’Elia, whose father died of a heart attack several months before he was born.
Prior to his death, his dad established trusts at Capital Group Private Client Services for Michael and his siblings. This eased some of the pressure on Michael’s mother during a trying time. Doug Turley, who has long served as D’Elia’s personal Investment Counselor at the firm, provided financial guidance as Michael grew up. Turley also acted as a general sounding board for Michael during his teens and early 20s, providing occasional advice on topics such as choosing a college and pursuing a career.
Income from the trust was instrumental in helping Michael pay for college, and allowed the now-28-year-old to buy a house when he was young. It gave Michael a sense of assurance to know that he would be able to pay for school without taking on student debt.
“I was able to go to college and focus 100% on my studies,” Michael says. “I live the same life that most people do, but it is nice to know that, thanks to the trust, I have a fallback plan in case something goes wrong.” Plus, Michael has Doug and the rest of his Capital team to call on at any time!
The above article originally appeared in the Summer 2018 issue of Quarterly Insights magazine.