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Individual v. Corporate Trustee: A New Paradigm in Modern Trust Law

For a myriad of historical reasons, including inherent conflicts of interest, loss of control, constant staff turnover, and unreasonably high trustee fees, large families have understandably turned to individual trustees over corporate trustees over the years.

Simply stated, it can be argued that the traditional trust industry (large bank-based trust departments) is “broken” in the U.S. and used primarily as a tool for banks to capture assets under management. However, because of the proliferation of powerful modern trust law in certain U.S. jurisdictions and in conjunction with the following reasons, there has been an appropriate and very strong resurgence of the corporate trustee in the planning process across the nation and around the globe. This undeniable and exciting “new paradigm” in the trust industry brings an unbundled, conflict free, and cost-efficient trust solution, while delivering far more direction and control than ever before.

Individual v. Corporate Trustee Distinctions

Importance of Trust Situs Selection

Unless an individual trustee resides in a top-tier trust jurisdiction, such as South Dakota, and properly establishes jurisdiction and applicability of state specific trust law, the trust will not be positioned to avail itself of compelling planning options and protection available in those states. Selecting a corporate trustee in a top-tier jurisdiction brings powerful modern trust law planning tools around asset protectionprivacy, and tax planning while delivering tremendous direction and control to settlors of trust, beneficiaries, and advisors through the use of directed trusts and trust protectors.

Trustee Duty to Use Top-Tier Trust Jurisdictions

Developing case law and other legal authority governing and guiding the fiduciary industry, including the Uniform Probate Code and the Restatement (Third) of Trusts, has clearly identified a duty to select proper trust jurisdiction in the planning process, particularly on the part of trustees. Even further, there is a continuing duty to ensure that jurisdiction is proper, with at least one state Supreme Court case suggesting that there is a duty to decant a trust, or otherwise move a trust to a more favorable trust jurisdiction to protect trust assets. This can’t be accomplished without engaging a corporate trustee in an appropriate top-tier jurisdiction, and an individual trustee could be in violation of their fiduciary duties by not doing so to best protect the trust.

Professionalism and Expertise

Corporate trustees are generally highly experienced professionals who have a deep understanding of the rules and regulations governing trusts. They are usually experts in fiduciary responsibility and compliance. As a result, they are better equipped to oversee the management of trust assets, maintain proper records, and ensure that all legal and regulatory requirements are met.

Knowledge of the Law

An individual often does not have sufficient knowledge of the law governing trust administration and taxation. A corporate trustee has deep institutional knowledge of income, gift, estate, and generation-skipping taxes, including capital gains taxes. A trustee must also understand accountings and prepare them when required, as well as be aware of changes in the law – all areas where individual trustees are often woefully deficient.

Objectivity and Impartiality

In many cases, an individual trustee may have a personal relationship with the beneficiaries, which can lead to conflicts of interest or bias. However, a corporate trustee is institutionally objective and impartial and has no personal relationship with the beneficiaries. This means they are better equipped to make decisions, usually made by a trust committee of three or more members, based solely on the interests of the beneficiaries, rather than their own personal interests or biases.

Continuity and Stability

Corporate trustees have a long history and well-established policies and procedures that ensure the continuity and stability of the trust’s management. Even if the individual who oversees the trust retires or leaves the company or the trust company is acquired, the trust will continue to be professionally managed without any disruptions.

While individual trustees may be suitable in very limited cases, the advantages of corporate trustees far exceed any perceived disadvantage, particularly in light of powerful modern trust law, the vital importance of jurisdiction selection, and potential liability facing trustees who don’t properly protect trust assets by moving trusts into top-tier jurisdictions.

To learn more about the importance of selecting proper jurisdiction while utilizing a professional corporate trustee, Bridgeford Trust Company encourages you to explore this detailed educational brochure that addresses important modern trust law concepts. As always, please contact Bridgeford Trust Company’s team at (605) 224-9189 or online with any questions you may have.

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McKonly & Asbury is able to offer an extension of trust and fiduciary services to our clients and friends of the firm through our partnership with Bridgeford Trust Company. As a fully independent trust company chartered in South Dakota, Bridgeford Trust Company provides conflict free and innovative fiduciary services and progressive U.S. modern trust law solutions around asset protection, privacy, and tax planning to domestic and international families across the country and around the world.

You can learn more about Bridgeford Trust Company and the South Dakota Advantage at www.bridgefordtrust.com.

About the Author

McKonly & Asbury

McKonly & Asbury is a Certified Public Accounting Firm serving companies across Pennsylvania including Camp Hill, Lancaster, Bloomsburg, and Philadelphia. We serve the needs of affordable housing, construction, family-owned businesses, healthcare, manufacturing and distribution, and nonprofit industries. We also assist service organizations with the full suite of SOC services (including SOC 2 reports), ERTC claims, internal audits, SOX compliance, and employee benefit plan audits.

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