Monthly Update for Administration of Trusts and Asset Management.

Kelli Bass |

It is our hope that our Monthly Update on various trust and financial issues will be helpful to you and your clients.

TRUSTING THE TRUSTEE

It is very common for parents to designate their adult children or close family members as the parents’ successor trustees of the parents’ trust(s).  For the vast majority of the time, designating individuals as the successor trustees does not result in any problems in following the parents’ instructions as contained in the trust.  

However, there are instances when parents may wish to consider nominating a corporate trustee to be the successor trustee of the parents’ trust, in lieu of individuals.

PARENTS’ ORIGINAL INTENT

Generally, people establish their trusts to avoid probate proceedings, guardianship proceedings, to save on estate taxes, and to keep their estate matters confidential and private, etc.  

In addition to this, many times those creating trusts include provisions to protect their beneficiaries.  Many times parents will include elaborate terms in their trusts with the hope of avoiding their children’s inheritance from being foolishly wasted, lost to creditors, becoming subject to a divorce proceeding, etc.

The intent and instructions of the parent in keeping the assets in trust after the parent’s death for the benefit of the parent’s child(ren) can be absolutely clear.  However, if the beneficiary is also the successor trustee, as a matter of practicality, there is nothing to stop the adult child/successor trustee from distributing to himself or herself his or her share of the trust assets, despite the deceased parent’s instructions to the contrary. Essentially, it is a “fox guarding the henhouse” problem. 

VALUE THAT A CORPORATE TRUSTEE BRINGS TO THE TABLE

Utilizing a corporate trustee, rather than an individual, will provide many benefits.  Some of those benefits include:

  • Ensuring that the parent’s/grantor’s instructions as contained in the trust agreement are followed.
  • Not being subject to pressure from the beneficiary who wants “HIS/HER MONEY NOW”, instead of in accordance with the trust terms.
  • Family members do not have to “take sides” when the trustee is requested to do something contrary to the trust instructions.  
  • Asking an individual to serve as trustee can be an unintended burden to that person.
  • Professional financial investment and management of the trust assets is provided, in lieu of utilizing an individual who may have little or no experience in either.
  • The possibility that the designated successor trustee might not still be living, capable and willing to administer the trust for its duration.
  • All licensed trust companies are under the supervision of a state and/or federal agency and have a substantial bond posted, thus eliminating the possibility of loss by the beneficiaries due to embezzlement or theft by the corporate trustee. Typically, individual trustees are not required to post a bond.

RECOMMENDATION

We recommend that you review the terms of your trust regarding how, when, and under what circumstances the trust assets are to be distributed to your beneficiaries.  While reviewing your trust, consider who you have appointed to be your successor trustee and whether or not the appointment of that person(s) is the best choice you can make for you and your family. 

WealthTrust Oklahoma is the Oklahoma Trust representative office of National Advisors Trust Company. We are independent and hold a federal charter.  In addition to trust administration services, we offer investment management services through our firm, WTO Advisors.

Alyssa Kaiser, CTFA, has over 30 years of experience in the trust, investment, and banking industries and is President of WealthTrust Oklahoma and WTO Advisors.  Alyssa may be contacted at: (405) 241-1600, or by email at Alyssa@WealthTrustOk.com.