The Role of the Trustee

Simply stated, a trustee is an individual or entity that holds legal title to some property (financial assets, business, real estate, etc) for the benefit of others. A trustee’s actions with respect to that property must be in the best interest of the beneficiaries.

Not so simply stated, the role of trustee carries with it a combination of legal responsibilities, fiduciary duties, accounting and administrative tasks, including:

• Asset management
• Fiduciary responsibilities
• Record keeping and reporting
• Tax administration and compliance
• Distribution responsibilities

In other words, the responsibilities of a trustee can be stressful, time-consuming and burdensome.  Individual trustees may need to seek assistance and advice from legal, financial and tax professionals to ensure they are managing the assets of the trust appropriately.

Choosing between an individual and a corporate trustee depends on the specific needs of the trust, the complexity of its assets, and the personal preferences of the grantor.

Oakworth Capital Bank specializes in combining the technical aspects of trust administration with the personal service expected by our clients.  Oakworth Wealth Advisors work with each party that has an interest in the trust not only on that particular trust but also on their entire financial plan.

Five Key Benefits of a Corporate Trustee

1. Professional Management and Experience
   Corporate trustees perform all the tasks required of a trustee on an ongoing daily basis. They have capability, know-how, professionalism and key processes in place to handle these tasks in the event a family member or individual trustee does not have the same abilities, comfort level or expertise. They are experienced in handling various asset types, ensuring that trust assets are invested wisely, managed effectively and in accordance with the trust’s objectives. This expertise is particularly valuable for complex portfolios, challenging family situations, or when managing a wide range of assets.

2. Enhanced Stability and Continuity
   Trusts offer a structured approach to planning for the future. Unlike individuals, who may face a variety of lifestyle factors that prevent them from performing the ongoing duties of a trustee, a corporate trustee can ensure that management of the trust remains uninterrupted and provide continuity and reliability over time. By choosing a corporate trustee, you can better ensure continuity for the full life of the trust.

3. More Robust Resources and Collective Thinking
   Corporate trustees have the benefit of group decision making. Informed opinions can be voiced, and decisions made by a team of knowledgeable professionals, rather than a single individual’s knowledge and judgement. This structure also provides a more robust framework for innovative strategies.

4. Consolidation
   There are two types of corporate trustees: those focusing on the administrative duties of a trust and those who manage the assets held inside the trust. When you choose Oakworth as your corporate trustee, you will have multiple fiduciaries working as a team on your behalf and your investment strategy and approach would not need change.  In short, Oakworth takes a comprehensive approach to the administration of the trust and management of the assets along with advising clients on their increasingly complex financial lives.

5. Regulatory Oversight and Compliance
   Corporate trustees must comply with strict legal and ethical standards, ensuring that the trust is administered properly and in compliance with all applicable laws and regulations. Regular audits and reviews also ensure that the trust isn’t being mismanaged. This provides peace of mind to beneficiaries and grantors that the trust is being managed responsibly, legally and with a high degree of professionalism.

Corporate Trustees vs. Individual Trustees

The difference between an individual trustee and a corporate trustee lies in who holds the responsibility for managing the trust and its assets. Here’s a closer look at each:

Individual Trustee 

Pros:

• Personal connection: They often have a personal relationship with the grantor and beneficiaries, which can lead to more personalized management and decision-making.
• Flexibility: Individual trustees might be more flexible in accommodating the unique needs and circumstances of the beneficiaries.
• Cost: Typically, there are fewer upfront costs associated with appointing an individual trustee compared to a corporate trustee.

Cons:

• Limited expertise: They may lack the legal, financial, and tax expertise required for complex trust management (including knowledge of trusts, record-keeping rules and trust laws), which could lead to mismanagement.
• Potential for bias: Personal relationships might result in biases in decision-making. Individuals may be influenced by others (spouses or beneficiaries) or become upset when one member is chosen over others to be trustee or guardian, resulting in family disputes.
• Availability and continuity: Individuals may not always be available due to personal commitments, health issues, or death, potentially.

Corporate Trustee

A corporate trustee is a company, such as a bank or trust company, legally authorized to act as trustee. These organizations have professionals skilled in law, finance, and tax management.

Pros:

• Expertise: Corporate trustees have or are closely tied to professionals with the legal, financial and tax expertise necessary to manage complex trusts (including record keeping requirements and trust laws) effectively.
• Impartiality: Being an organization, they can make decisions based on the trust’s terms and the best interests of the beneficiaries, without personal biases.
• Continuity: A corporate trustee provides ongoing management since they are not affected by individual circumstances such as health issues or death.
• Risk mitigation: Corporate trustees are regulated entities, subject to oversight and compliance standards that help mitigate risks related to mismanagement or fraud. Their structured processes and internal controls further safeguard the trust’s assets.
• Access to resources: Corporate trustees often have access to a broader range of investment products and can leverage in-house or affiliated services for investment management, legal counsel, and tax planning, potentially providing better outcomes for the trust.

Cons:

• Costs: They typically charge fees for their services, which can be a percentage of the trust’s assets, potentially making them more expensive than individual trustees.
• Less personalized: Their management may not feel as intimate since they sometimes are not as closely tied to the grantor or beneficiaries.
• Rigidity: Corporate trustees may be more rigid in their operations and decision-making processes due to internal policies and regulations.

Deciding between an individual and a corporate trustee is a critical consideration that hinges on the unique needs of the trust, its assets and the beneficiaries. While individual trustees offer personal connections and potential flexibility, they might lack the comprehensive expertise and resources required for effective trust management. On the other hand, corporate trustees, such as Oakworth, bring a wealth of experience, impartiality, and a robust framework for asset management and compliance, ensuring that the trust’s objectives are met with a high degree of professionalism and due diligence.

Watch our webinar below:

Under the current Tax Cuts and Job Act of 2017, individuals can transfer up to $13.61 million (per spouse, as of 2024) tax-free through their estate. But starting January 1, 2026, that exemption is expected to be cut in half, substantially affecting estate planning and tax liabilities. It’s not too early to start thinking and preparing for this change, now.

Featuring the following discussions:

Legal Ramifications for Families, Businesses & Beyond

Ronald P. Davis | Counsel, Estate, Trust & Business Planning | Maynard Nexsen PC, Mobile, AL

Your Business is Your Wealth: Preparing Your Company & Your Family

Rob Snowden, ASA. ABV | Founder & Managing Director | South Park Advisors, Charlotte, NC

What is the Estate Tax Sunset & Why Start Planning Now

Richard Littrell | Wealth Management Advisor | Oakworth Capital Bank, Central Alabama Market 

What is the Estate Tax Sunset & Why Start Planning Now

John Hensley, CFP® | Wealth Management Advisor | Oakworth Capital Bank, South Alabama Market 

Want to learn more? Read more from our Estate Tax Series.

This information is being provided for informational and educational purposes and is not meant to be taken as specific advice. All decisions regarding the legal implications of these strategies should be discussed with your advisors before being implemented.