Unless you’re a budding professional in the financial sector, chances are you’re not an expert on wealth planning. Saying that the financial industry is complex is something like pizza is “just okay,” mostly because it’s a total understatement. So, when it comes time to do wealth planning, and to a trust, in particular, choosing between an individual and a corporate trustee requires adequate research, advanced planning, and some truly careful consideration. Here’s how to determine which is best for your trust.
The ins and outs of individual trustees
More often than not, people tend to choose individuals as trustees for their trust. In some cases, you may act as the individual trustee during your lifetime. In others, it could be a family member or even a close personal friend. However, personal accountants and even lawyers often qualify as individual trustees. When it comes to your finances, it might seem like the simple choice if you’re deciding between someone you know and trust versus a faceless corporation.
Individual trustees do indeed have advantages. These include personal knowledge of the trust and your financial situation, particularly if you choose a family member or close friend. Plus, you may consider the individual more reliable. Even with lawyers and personal accountants, you can run a free government background check to verify their reputation and trustworthiness. Individual trustees, on the whole, also tend to be less expensive.
Individual trustees also come with a handful of disadvantages, too. They make lack proper investment experience to make educated financial decisions on your behalf. This may even apply to you so if you doubt your financial know-how, you may want to consider going corporate. There’s also the potential strain on your relationships with friends and family because money has a distinct way of complicating things that you might not even foresee. Lastly, going the individual route can often mean that you’re going to be wanting for outside expertise. This means, of course, that you’ll be facing down added expenses to hire on an external financial advisor, attorney, or accountant. So, if not an individual trustee, what about a corporate one?
Pros and cons of corporate trustees
Choosing a corporate trustee means that you need to carefully way all of the factors of your unique financial situation. This is especially important if you’re setting up a trust that will only take effect after your passing. Too often, the beneficiaries are the only ones adequately monitoring the trust which can lead to conflicts of interest. With a Corporate Trustee, you’re not relying on one individual to handle all of the moving parts of trust but rather a team of financial and legal experts that can handle the execution of the trust when the time comes.
There are plenty of reasons to choose a corporate trustee over an individual, including the aforementioned subject matter expertise. Corporate trustees are well-versed in tax, law, and even investing so they understand how to maintain and execute the trust correctly. Plus, whereas individual trustees can cause familial and friendship strains, corporate trustees are known for their general fairness, lack of bias, and informed decision-making. They also have the resources to maintain compliance and address any complex issues that may arise.
Of course, corporate trustees also have drawbacks, too. For many, these issues boil down to one underlying theme: A distaste for corporations and their access to personal finances. While this shouldn’t be the sole deciding factor, it’s understandable given the number of entities, even outside the financial sector, that have experienced scandals involving information and data breaches, financial security crises, and compromised consumer privacy.
Regardless of which option you choose, it’s important to do your due diligence before signing any legal documents or making any agreements. A trust can have an immense impact on both you and the beneficiaries and it isn’t a decision to be taken lightly.
