Let me first take a moment to make a confession – I like professional trust companies. I like working with them. When it comes to trust administration, they make my job as a lawyer a lot easier. I find that things typically run a lot smoother and more efficient when a trust company is in the picture.
Now, I am not saying that trust companies are needed in every situation and for every family. That is not the case. For example, respected member(s) of the family, a trusted accountant, or some other valued individual might be more than qualified to act as a trustee of your trust. Also, if your family dynamic is relatively stable and your investments are straightforward, then a professional trust company might not be needed.
However, there are other times when a trust company is not only needed, but they are a blessing for the entire family- and can be the difference between a family who is torn apart by a poisonous inheritance, and a family who survives intact.
For example, take a look at this scenario:
You are blessed with two great kids. One thing that clearly divides them is their spending habits. One of your children is a spendthrift (“spendthrift”) and dollars just slip through his fingers like water. Your other child is a saver and an investor (“saver”), who still has the first dollar that she ever made. Now, logically, you might think that it is more appropriate to appoint your “saver” child as your trustee, so the saver can manage the trust.
O.K., so what happens when saver starts to serve as trustee, including administrating spendthrift’s trust. All is good, right?
Well, it just so happens that spendthrift’s trust provides that spendthrift can receive discretionary trust distributions from the trustee for his maintenance and support.
So, spendthrift sees a shiny sports car and decides that this new car is necessary for his “maintenance.” Spendthrift calls up his sister, saver, and requests that as trustee, saver, should make a distribution to spendthrift from his trust to buy the new car. Saver, who knows that spendthrift’s old car works fine, adamantly disagrees that a new car is necessary as a discretionary “maintenance” payment, and denies the request.
O.k., now what do you think spendthrift does? And when answering that question, remember… inheritance is poison. What happens next is that spendthrift gets agitated with the amount of power and control that saver now has as the trustee over spendthrift’s trust. So, to “even the odds”, spendthrift hires a trust litigator to advocate for spendthrift’s rights against saver’s “oppressive and tyrannical” attitude as his trustee…. Saver gets insulted by her brother’s actions, and goes out and hires her own lawyer. Well at that point we know the rest of the story- another family is seized by the fangs of a poisonous inheritance.
Scenarios like this one are reasons why I like professional trustees.
If a trust company is doing its job, then it is acting both as a neutral and as a fiduciary. That means they are likely taking positions and making decisions without the emotion and angst that a family member might feel when acting in a similar capacity. Also, when they say “no” to a beneficiary’s request they can do so not wondering whether or not they they will be dis-invited to Thanksgiving at that beneficiary’s house this year, as a result of the “no”.
Also, it is likely a lot easier for a beneficiary to “stomach” having his or her distribution being rejected by a professional trust company, than it would be if that same rejection was made by a family member.
More good reasons to explore using trust companies as trustees are: institutional record keeping, experience in handling a wide range of matters, and investment services.
When people balk at the idea of using a trust company it is usually because they feel that trust companies are expensive, and because they feel that it is cold and impersonal to have a trust company make decisions for the benefit of their families, and prefer if those decisions are made by family members who would, “know what I would have wanted to do”.
In response to the first argument, I always tell people that, in my opinion, the cost of saving a family from blowing themselves up over poisonous inheritances is priceless. Therefore, if a family’s situation calls for the appointment of a neutral trust company to help preserve family harmony, then the decision may come down to more than “dollars and cents”.
Along these same lines, you might think that you are saving money by appointing your brother “the stock wiz” to serve as trustee. However, this conclusion might need a harder look. Even if your brother agrees to forgo charging a fee for his trustee services, he might decide to use trust assets to hire a lawyer to assist his administration. At the end of the day, the lawyer’s fees might equal or come close to what a trust company would have charged for similar services (at least for the period of the representation). Additionally, your brother might be more comfortable hiring an investment adviser, whose services might duplicate those that a trust company would have performed as part of their standard services.
Regarding the second “impersonal” argument, it is true that a trust company does not know you as well as your brother knows you. However, that does not mean that the trust company needs to be in the dark when it comes to your intentions. You have plenty of opportunities to memorialize your intentions in the trust document, itself, as well as to provide direction and guidance to your trustee. Also, you can always consider appointing the trust company to serve as a co-trustee along with your brother. This way there could be a balance of professional management and more direct and personal knowledge of your intentions.
The bottom line is that a professional trustee is often a great neutral referee that can save families from terrible infighting, and provide good steady management at the same time. These things are important to consider, because remember… inheritance is poison.