Choosing a Trustee: Advantages & Disadvantages of an Individual Trustee vs. a Bank or Corporate Trustee

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning

With trusts being the preferred estate planning tool for many of our Wake County area clients, we are frequently asked whether it’s smart to name an individual as trustee, such as a family member or close friend, or if it would be more prudent to name a professional trustee such as a bank or corporate trust department.

Fiduciary Duties of a Trustee

The amount of a responsibility that a trustee has should not be taken lightly. A Trustee has a variety of responsibilities such as:

  • Prudently investing and managing the trust’s assets;
  • Properly paying and filing any applicable local, North Carolina, and Federal taxes;
  • Correctly interpreting and following the terms of the trust;
  • Properly distributing assets to or for the benefit of the beneficiaries of the trust in accordance with trust law and the terms of the trust document.

These are fiduciary responsibilities—meaning that if a trustee makes a mistake, it’s up to them to fix that mistake—out of their own pocket, which makes the selection of trustee critical to the success of your estate plan.

Advantages & Disadvantages of Selecting an Individual to Serve as Trustee

For clarity, when we say “selecting an individual” we’re referring to naming one or more family members or friends as Trustee or Co-Trustees. Here are some of the potential advantages and disadvantages:

Individual Trustee: Advantages

Individual Trustee: Disadvantages

Possibly less expensive

Many assume that a family member or friend will serve without compensation, but this may not be true. Plus, they may need to spend trust funds to hire a professional to help them, such as legal advice to interpret the document and provide guidance, an accountant to help with proper tax filings, and a financial advisor for investment management.

More intimate knowledge of you, any wishes you may have shared with them, and the needs of your beneficiaries

May lack the required knowledge of trusts, trust record-keeping rules, and trust laws

Care for your beneficiary’s well-being

Inexperienced in making investment and distribution decisions

No vetting process needed before selecting the Trustee.

Can be subject to the influence of others such as their spouse, the beneficiary, or other family members which could result in family disputes

 

Can cause family tension due to the change in family dynamic where one family member is now responsible for distributing money to another family member

 

In certain instances, being a related-party trustee may be inappropriate for tax-planning purposes due to IRS restrictions

 

Advantages & Disadvantages of Selecting a Corporate Trustee

A Corporate Trustee is generally a Bank, Trust Company, or Professional.

Corporate Trustee: Advantages

Corporate Trustee: Disadvantages

Experience and expertise with trusts, trust record-keeping requirements, and trust law

May be more expensive than an Individual Trustee

Experience and expertise with investment management

Not available nights and weekends

Employs trained professionals and carries appropriate liability insurance

Less intimate knowledge of you and your wishes (though you may be able to overcome this with a letter to the Trustee)

Unbiased

Less intimate knowledge of your beneficiary (though you may be able to overcome this with a letter to the Trustee)

 

Potentially more time and energy required on your part to vet and select a Corporate Trustee

 

Let Us Help You Make the Right Choice

During the Design phase of your planning, our legal team can help guide you through the Trustee selection process, including recommendations for potential Corporate Trustees if you feel that may be a better option for your family. Call us at 919-443-3035 to get started.