When to Consider an Institutional Trustee

When to Consider an Institutional Trustee

When it comes to selecting a successor trustee, the common choice is a spouse, a family member, or a close friend. And for most trusts, this is the most rational choice you're looking for someone who is close to you, who knows your beneficiaries, and is loyal, trustworthy, and capable of managing your trust assets.

But what if your trust involves substantial assets or your successor trustee is likely to encounter unusual challenges in administering your trust? In this situation, you might want to consider choosing an institutional trustee to do the job. An institutional, or professional, trustee is an individual or company outside of your circle of family and friends that specializes in administering trusts. Examples of institutional trustees include:

The trust department of a bank

A trust company

An accountant

An attorney

Especially in a situation where your friends or family members might not have the knowledge or expertise to deal effectively with the challenges that can accompany the job of successor trustee, a professional trustee could be an appropriate choice. Banks and trust companies, for example, usually have a variety of experts on staff to handle both routine and unique matters as they arise, they can serve as objective decision-makers when a disagreement arises among beneficiaries, and they tend to have deep and wide-ranging knowledge of investment options.

However, professional trustees are not an appropriate choice for everyone, and they do come with drawbacks, including:

Cost. As with any other professional, engaging the services of an institutional trustee involves fees. Especially if your trust is small, these fees might be cost prohibitive.

Inflexibility. Because they are institutions, many professional trustees particularly banks and trust companies tend to be conservative in their investment styles. Larger institutions can also be slower and less flexible when it comes to decision-making than an individual trustee might be.

Changing Faces. Banks and trust companies in particular, like any other business, experience changes in employees on a somewhat regular basis. So, your beneficiaries may not deal with the same individual on a consistent basis.

Your estate planning attorney can help you weigh your options and decide whether an institutional trustee is appropriate for your trust.

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