Choosing Between an Individual or Corporate Trustee

Whether creating a trust through lifetime gifting or as part of your legacy after passing, one of the most important decisions is choosing the trustee. As context for that decision, let’s first lay the foundation of the fundamental role of the trustee:

The trustee is the overall administrator of the trust with the requirement to act as a fiduciary (do what is in the best interest of the beneficiaries) by following the guidelines set forth in the trust to ultimately achieve its intended purpose.

There is almost no limit on who can be listed to fill this position with further potential for multiple trustees acting simultaneously as co-trustees, but the choice can be narrowed into two very distinct categories: an individual who is a natural person, or a corporate trustee, typically a business specializing in trustee services.

In this article, we will address 4 key areas to consider when deciding between the two options:

Costs – While the language of most trusts provides for reasonable compensation for a trustee’s time and effort in the role, it is far less likely that an individual trustee will take payment and it is almost assuredly that a corporate trustee will. Individual trustees earn the role by being a trusted friend or family member who often view the assignment as an honor rather than a job. In contrast, it is all business for corporate trustees. Fees are usually applied based on a percentage of the assets within the trust but may also be a fixed amount that factors in the extent of the services provided.

Succession– One of the more challenging aspects of estate planning in general is putting together a framework that will weather the passage of time, and the choice of trustee is no different. A trust that is part of an estate may not come into existence for many years and may be expected to be of benefit to multiple generations of descendants thereafter. If opting for individual trustees, this often translates to a need to identify multiple people for the trustee role and a mechanism for selecting new ones in the future. For the corporate trustee, while the underlying people providing the service may change over time, there is usually better continuity than individual trustee transitions.

Personal Touch – A primary goal of a trust, whether created by gift or estate, is to extend the intended uses of its creator’s assets after control of those assets is relinquished. This is accomplished by setting forth instructions within the trust provisions. Unfortunately, it is impossible to directly address every possibility, so the language needs to be directional in nature instead of scenario specific. This leaves things up for interpretation by the trustee. An individual will have the benefit of a personal relationship with the grantor, beneficiary, or likely both. This allows them to apply that history for additional flexibility when considering distributions or other decisions. A corporate fiduciary will be strict interpreters of the trust document and err on the side of caution when ambiguity arises. They will usually request to see the document ahead of time and possibly require edits to the language before accepting the future role of trustee.

Experience – Trusts can be complicated instruments with an ongoing need for things like tax filing, recordkeeping, and application of trust law. For an individual, this may be the first and only time they have ever been asked to act as trustee. They may be unsure of the expectations, when or even if they should deny/approve of distribution requests, and how to effectively administer the trust. For a corporate trustee, these things are part of their daily lives. Additionally, they may be able to apply prior solutions from another trust to scenarios that arise.

There is no “one-size-fits-all” approach in choosing a trustee. Depending on how you weigh these criteria to align with your goals and preferences, you can determine which choice is right for your situation. At JMG, we address these considerations and others with our clients to help them make the most informed decisions when choosing trustees for their trusts. In addition, we work in tandem with both individual and corporate trustees to assist in their roles. We invite you to share this article with others who may also find it insightful.

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