Choosing a Corporate Trustee: Pros and Cons

A corporate trustee is a bank or trust company appointed to administer a trust.

Advantages

 

• Perpetual Existence: Corporations do not face illness, death, or personal incapacity, ensuring administrative continuity.
• Expertise: Professional trust officers possess deep knowledge of trust accounting, fiduciary tax compliance, and asset management.
• Impartiality: Corporate trustees operate dispassionately, eliminating family conflicts and sibling rivalries over distribution requests.

Disadvantages

 

• High Cost: Fees are typically billed as an annual percentage of assets under management (0.5% to 2.0%), sometimes with minimum annual fees (e.g., $5,000 to $15,000).
• Rigidity: A corporate trustee may interpret discretionary standards (such as HEMS) strictly, frustrating beneficiaries.
• Custody Requirements: Many corporate trustees require that the trust’s liquid assets be held in their proprietary investment accounts, limiting third-party management options.

To balance these factors, grantors often establish a co-trustee arrangement, pairing a family member (for personal context) with a corporate trustee (for administrative compliance). The trust agreement should always grant an independent party (such as a trust protector or a majority of adult beneficiaries) the power to remove and replace the corporate trustee without cause. This ensures flexibility if fees rise, investment performance lags, or personnel changes disrupt the relationship.