An expert third party can help create efficiency and avoid conflict.
For many families, it makes sense to consider a corporate trustee, which is a company that acts as the trustee of a trust (rather than a family member or friend). I was a practicing estate planning attorney for 15 years before moving into the family office space. At the time, my bias was not to recommend a corporate trustee. I thought in most cases it was an unnecessary expense for a family. But over the years in practice, I witnessed enough conflict within personal relationships related to trusts to change my tune. In most cases now, I truly believe a corporate trustee is a preferred choice to a family member.
To begin with, a corporate trustee does not age out or lose capacity. I had a situation last year where a family member trustee called me to request a distribution, and of course, I took direction from her and made the distribution. Two days later, the same family trustee called again and asked me to make the same distribution. I scratched my head, thinking maybe our conversation slipped her mind and told her we had already taken care of this. She insisted we had not, and I came to realize she did not remember our call from two days before.
It’s a tough situation when a trustee starts to lose capacity. Most trusts include provisions for the appointment of a successor trustee, but going through the process of determining whether a trustee has reached the threshold for incapacity can be challenging. And who is the right person to initiate and see through this process? This alone can lead to tension between the trustee and the family member who is trying to make the determination. Even with the best of intentions, a matriarch/patriarch trustee can end up feeling hurt and offended.
Another factor to consider is undue influence on a trustee. I am dealing with a situation now where the family matriarch (mom) passed away, so the patriarch (dad) is serving as the sole trustee. Dad’s health is declining, so his children hired round-the-clock help for him in his home. I received a panicked call from one of the children telling me that one of the caregivers had moved in with Dad, changed the locks, and told the kids they were no longer welcome to visit. Soon after, the family patriarch funded an education trust for the caregiver’s grandchildren. Is the caregiver unduly influencing Dad by keeping his children away and isolating him, while he is in declining health and completely reliant on her help for his basic needs? Or is this his choice?
This leads to the main reason for appointing a corporate trustee: to preserve healthy family relationships. Any of the scenarios I just mentioned could put incredible strain on a family. A corporate trustee does not have an emotional attachment that can compromise decision-making. I have a situation now where parents have passed away and left their estate to three adult children. One of the assets of the estate is a strip mall in Los Angeles that was purchased by the grandparents. The property is a disaster with multiple issues. It would require a massive influx of capital to fix the property. It is clearly in the kids’ best interest to sell the property, and a potential buyer has made a good offer. However, one of the kids feels that this property connects her to the grandparents and does not want to sell. She has an emotional connection that her siblings do not share, and she has the power to deny the sale as successor trustee of her parents’ trust. It is creating conflict between her and her siblings at a time when all three are grieving the loss of their parents. If this situation were managed by a corporate trustee, a decision would have been made taking into account all the stakeholders, and any anger about such a decision would not be directed toward a family member.
Probably the main factor that makes a corporate trustee a good choice is that trustees carry liability-and who wants to saddle a family member with that? A trustee is liable to current beneficiaries as well as to all remainder beneficiaries. Even with the best of intentions, most lay people serving as trustees do not know the laws pertaining to a trustee’s obligations, duties to beneficiaries, tax filings, notices, accounting, interpreting discretionary provisions, and other complicated matters. I had a client who was the trustee of a family trust, and his children sued him for making a discretionary principal distribution that they argued prioritized the current beneficiary over the remainder beneficiaries. They ended up settling and appointing a corporate trustee, but the damage to the family was done.
Every situation is different and every family dynamic is different. But having done this work long enough, I know that the financial cost of a corporate trustee is negligent compared to the possible loss of family harmony.
To learn more about corporate trustees or Whittier Trust’s estate planning and trust services, we invite you to speak with one of our wealth management advisors by visiting our contact page.
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Written by Sharon R. Perlin, JD, Senior Vice President, Client Advisor at Whittier Trust. For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.
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