Corporate Trustees: Pros, Cons, and Things to Think About
Sometimes, the hardest part of creating a trust isn’t deciding who the beneficiaries should be, how much money to leave them, or what the trust assets can be used for. Sometimes, the hardest thing about creating a trust is deciding who should be the trustee.
When asked about potential trustees, it’s not unusual for clients to first consider their friends and relatives. In many cases, friends and relatives are fine choices and can do a great job in the role of trustee, especially if they are willing to seek input from lawyers, financial advisors, accountants, and other professionals. But there may be times when, for a variety of reasons, no friend, relative, or other individual seems to fit the bill. In these times, corporate trustees – companies established to do the work of a trustee, or a department within a bank that exists for the same purpose – may be good alternatives to naming an individual as trustee.
Before naming a corporate trustee in a trust document, it is important to consider the pros and cons. While corporate trustees can offer solutions to a variety of estate planning problems, there may be downsides that cause them to be poor options in some situations. Below, I’ll discuss some of these ups and downs, and I’ll offer thoughts on when I think corporate trustees tend to make sense. If you are considering the creation of a trust and would like to discuss the office of trustee and other trust-related topics in even more depth, I hope you will consider getting in touch to schedule a free estate planning consultation.
Some Pros. Corporate trustees offer a few advantages that might not be found with individual trustees. The list below could certainly be longer, but consider just a few examples of the unique qualities that corporate trustees bring to the table:
Expertise. A reputable corporate trustee will have served as trustee of many, many trusts, and will be able to put that experience to work for any new client who comes along. Individuals, on the other hand, are unlikely to have ever served as a trustee before. While individual trustees are able to hire attorneys, accountants, and financial advisors to help them carry out their duties, the individual trustee will still face a steep learning curve and may never be quite as skilled in their role as a corporate trustee would be.
Longevity. Corporate trustees have one major advantage over individual trustees: they don’t die. Even if a trust has a phenomenal individual serving as trustee, the reality is that the individual trustee could pass away while the trust is still a going concern. The most reputable corporate trustees, on the other hand, have existed for dozens of years and will continue to exist well into the future.
Accountability. All trustees, whether corporate or individual, have fiduciary duties to uphold. Furthermore, all trustees must act in compliance with relevant law. Corporate trustees, though, come with yet another layer of accountability built in. Because they are essentially banks, they must abide by the state and federal regulatory frameworks that keep regular banks in line.
One Stop Shop. As mentioned above, individual trustees often hire attorneys, accountants, financial advisors, and other professionals to advise and assist in the management and administration of the trust. Corporate trustees typically have all of these professional services available in house. This means that the trust’s various advisors are all familiar with one another and are part of the same team. Furthermore, all of the various members of this team will have been vetted by the corporate trustee.
No Problems Saying No. A trustee shouldn’t be a “yes man.” The ability to say no when a beneficiary requests a distribution from the trust can be an important quality for a trustee to have. Individual trustees – especially those who have personal history with a beneficiary – may find it hard to stand firm against a beneficiary who desires a distribution but, for whatever reason, shouldn’t receive one. A corporate trustee, on the other hand, can consider such requests without emotions or personal relationships playing a role.
Some Cons. While corporate trustees have certain meaningful advantages over individual trustees, that doesn’t mean they aren’t without downsides. Before choosing a corporate trustee, estate planning clients should consider things such as:
Cost. There’s no sugar-coating it – corporate trustees are more expensive than their individual counterparts. Corporate trustees typically make money by charging annual fees based on a percentage of the assets under their management. These rates become more attractive when clients have more money to place under the corporate trustee’s control. For example, a corporate trustee’s fee schedule may state the they charge 1.5% per annum on the first $1MM under management, 1.1% per annum on the next $2MM under management, and 0.85% per annum on the next $2MM under management (these are actual figures taken from a well-known trust company’s 2026 fee schedule). Corporate trustees may charge additional fees on top of these annual fees, such as fees for each tax return prepared or fees for managing special categories of assets such as crypto currency or rental properties.
Unwillingness to Manage Certain Assets. Not all corporate trustees are willing to manage all kinds of assets. In general, corporate trustees are happy to invest trust assets in publicly traded stocks, bonds, and other such investments, but many are less willing to hold onto investments such as stock in a closely held business or a rental property. Instead, these corporate trustees may bring in a temporary CEO or property manager to maintain the value of these assets until they can be sold off. Therefore, clients who, for example, want their closely held business interests to be a continuing part of their family legacy may want to inquire specifically about how a particular corporate trustee would plan to handle such an asset.
Feels Impersonal. When a person chooses a family member or friend as a trustee, the decision is often based on a years-long history between the two parties. The chosen friend/relative may also have a close relationship with the trust beneficiaries, having an intimate understand of their personal goals, needs, strengths, and weaknesses. This personal relationship between trustee and beneficiary may result in a freer flow of communication and a greater sense of trust between the parties, which is good for everyone involved. A relationship with a corporate trustee may feel transactional and impersonal by comparison. While the corporate trustee’s trust officers will make efforts to establish close working relationships with all of the relevant parties, these relationships will be unlikely to have that warm, personal quality that can sometimes be felt with an individual trustee.
Changes in Personnel. While a corporate trustee may exist indefinitely (see “Longevity” above), the people working for the corporate trustee can come and go. If a person’s satisfaction with a particular corporate trustee is based largely upon their relationship with a particular advisor or trust officer within the corporate trustee’s organization, it will be important for them to look realistically at the possibility that this trust company employee may not be in that role a few years from now.
When Corporate Trustees Tend to Make Sense. Corporate trustees can add value in a variety of situations. Here is a short list of common scenarios where corporate trustees are especially worthy of consideration:
Large Amounts of Money. Because of how they structure their costs (see above) corporate trustees tend to be most attractive when the trust in question will hold a sizeable amount of assets. Compared to smaller trusts, larger trusts will typically pay less in fees as a percentage of overall assets. Plus, a larger amount of assets may require more sophisticated management, which a corporate trustee can provide, justifying the higher cost.
Complex Trust Terms. If a trust has complex provisions or was created with complex tax-related goals in mind, it may be wise to put a corporate trustee in charge rather than an individual. A corporate trustee will have experience with these sorts of provisions and can carry them out as intended.
Trust with Long Time Horizons. Some trusts may not last very long – maybe just until a beneficiary reaches a designated age. Other trusts, however, may last longer, maybe even for multiple generations – much longer than any one individual trustee can be expected to live. Corporate trustees may be good fits for these trusts, as they make it possible for one trustee to remain at the helm for the entire life of the trust, providing continuity that would not otherwise be possible.
Avoidance of Conflict. Making one person the trustee of another’s trust can create an uncomfortable dynamic. For example, having one sibling be trustee for another can create resentment between them, or cause one to feel that mom and dad trusted or favored the other to a greater degree. A child as trustee for their step-parent might be another combination that creates or amplifies existing tension. Thankfully, in situations where no person seems to be a good fit for the job, corporate trustees can be appointed without bringing any baggage to the relationship.
Getting More Mileage Out of Corporate Trustees. If the decision has been made to appoint a corporate trustee, then some additional strategies may deserve some consideration. The inclusion of provisions such as those that follow may allow the trust and its beneficiaries to benefit even more from the corporate trustee’s appointment:
The Inclusion of a Removal and Replacement Power. As mentioned above, a particular corporate trustee may have a great team working for them today, but those people may not be there tomorrow. Or maybe a particular corporate trustee has the best fee structure today, but dramatically increases their fees sometime after they have been appointed. Thankfully, it is possible to give someone the power to fire the corporate trustee and replace it with another corporate trustee. Including this power (and giving it to the right person) can be a great way to make sure that a corporate trustee is always appointed without being locked into working with one specific corporate trustee.
The Appointment of an Individual Co-Trustee. In some cases, it may make sense to name a corporate trustee and an individual trustee as co-trustees. Sometimes, the individual trustee is the trust beneficiary him- or herself, and this arrangement allows for flexibility in making distributions while also providing certain tax and asset protection benefits. Other times, the individual trustee is not the trust beneficiary, but is an individual who has a personal relationship of some kind with the beneficiary. In this case, the individual trustee can keep in touch with the beneficiary and make decisions about distributions with an informed, personal perspective that the corporate trustee wouldn’t have (see “Feels Impersonal” above). Meanwhile, the corporate trustee can focus primarily on the investment of assets, preparation of tax returns, and other administrative tasks that may not fall within the individual trustee’s skill set.
Corporate trustees have a lot to offer, even if there are some drawbacks. While not the best option in every situation, under the right circumstances, corporate trustees can add value that may be hard for an individual trustee to deliver. If you would like to talk with an attorney about whether a corporate trustee might be a good fit for your estate plan, I invite you to call or email The Law Office of Ryan A. Layton, PLLC to schedule a free estate planning consultation.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.