Many comprehensive estate plans include a trust. For various reasons, trusts are popular documents used to avoid probate, promote privacy, protect assets and more. A trust is a legal document where property, or assets, are held and managed by a trustee for the benefit of one or more beneficiaries. The person who creates the trust is referred to as the “grantor”. The person appointed to manage the assets in the trust is the “trustee”. The main duties of the trustee include protecting, investing and distributing trust assets in accordance with the terms set out in the trust. More specifically those duties may include:
- Protecting trust assets by keeping up-to-date insurance policies
- Investing assets to increase the value using a “Prudent Investor Standard”
- Communicating with beneficiaries and resolving conflicts when needed
- Making discretionary decisions in abidance with the trust’s terms
- Distributing funds as directed by the terms of the trust
- Keeping detailed records and accounting
- Preparing and paying trust taxes
As you can see, these duties require someone to be financially and legally savvy. A trustee needs enough financial acumen to grow the assets being managed. The trustee should be familiar with the state and federal laws that govern trusts.
In addition to knowledge and experience, a trustee must remain objective and make discretionary decisions that are wise and prudent. This can be difficult when beneficiaries make constant demands and have hard to manage personalities. Family members serving as trustee often find themselves in conflicts of interest. This can often be avoided by the use of a corporate trustee.
The multitude of advantages of hiring a corporate trustee include knowledge, experience, ability to grow the trust assets, avoidance of conflicts of interest and better management of beneficiary expectations. The main downside of hiring a corporate trustee is that a fee will be incurred. Trustees are entitled to commissions for their services in administering a trust. The fee is typically paid out of the trust; however, some corporate trustee fees can be rather large.
An example of how a corporate trustee fee structure may look:
Commissions may be income based and/or based on trust corpus. The income portion may decrease based on ranges. For example: from 6% on the first $20,000; 4% on the next $100,000 and 3% thereafter. Commissions on managing real estate rentals, mortgages or ground rents may be a flat percentage rate. Corpus commissions may also be graduated such as 0.5% on the first $250,000; 0.25% on the next $500,000; and .01% on the remaining. Each corporate trustee will set and determine its rates.
For more information on whether to choose a corporate trustee, discuss your situation with the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
