A trust is an excellent way to bestow wealth, but disbursing money to your beneficiaries hinges on a crucial party: the trustee. Your trustee’s financial knowledge, discretion and accountability will influence how a trust impacts beneficiaries. These duties can be overwhelming for one person to manage, especially if they’re a family member. Fortunately, a trust can have an institutional trustee, such as a bank, that oversees the acts of a trustee on your trust.
For help with creating and managing a trust, consider working with a financial advisor.
What Is a Trustee?
A trustee is an entity that manages wealth, assets or property on behalf of the owner of the estate. The owner, also called the trustor, appoints a trustee to act in the trustor’s best interests. A trustee usually has fiduciary status, meaning the law requires them to administer the trust to the benefit of those named in the trust.
Responsibilities of a Trustee
Managing a trust or estate is a multifaceted task. As a result, trustees have the following responsibilities:
Accurate Documentation
Trustees must log the trust’s activity, including withdrawals, expenses and income. In addition, they must ensure the activity follows the trust’s dictates. For example, beneficiaries might only have access to the trust’s income and not the principal.
In addition, the trustee administers the assets according to state laws, which differ across the country. As a result, the trustee will likely have to be well-versed in trust regulations for multiple states.
Trustees also manage the filing of the trust’s tax returns. Specifically, the tax returns should be on time and owed taxes paid promptly. Remember, the IRS can audit a trust, so it’s up to the trustee to ensure the trust complies with tax laws.
Disbursements to Beneficiaries
Trustees field monetary requests from beneficiaries, meaning they decide how much money beneficiaries receive and when. These decisions involve weighing the needs of the present against future circumstances. Because trustees have the authority to withhold money from beneficiaries, their sense of fairness and practicality is crucial.
For example, say a trust has two sisters as beneficiaries. The older sister wants the trustee to sell some stock within the trust to fund her ambition to fund her startup. Meanwhile, the younger sister recently had a child and wants to ensure the trust will fund their education in the future. The trustee must make decisions in challenging situations, taking account of the trustor’s original wishes and the dynamics of the beneficiaries’ lives.
Investing
Trustees must make investment decisions in light of beneficiaries’ needs and lifespans. Therefore, trustees allocate investments based on when beneficiaries will withdraw money in the future, the amounts they request and retaining as much of the principal as possible to create future investments. Plus, trustees usually diversify investment portfolios to reduce risk.
Why it’s Important to Name the Right Trustee
Naming the right trustee is vital for the following reasons:
It requires in-depth knowledge of investing, personal finance and law.
The trustee will manage your assets in your place. As a result, you should trust your trustee’s decision-making as much as your own.
Your beneficiaries will rely on your trustee to grow the trust’s investments and disburse funds fairly.
Benefits of Naming a Bank as a Trustee
Naming a bank as a trustee brings numerous advantages for trustors and beneficiaries:
Attention and Expertise
Although naming a family member as a trustee might seem convenient, they might not have the time or skills to manage the trust adequately. On the other hand, banks focus on investing strategies, tax management and accounting, which is what a trust needs in large, steady quantities to run well. While banks charge for their professional services, finding an able and willing trustee who will work for free is rare.
Longevity
Trusts hold wealth for current and future generations. As a result, it’s advantageous to have a trustee that can serve them all. While a family member as a trustee will have a limited lifespan, a bank will carry on into the future as an institution. For example, if the trust were to last seventy-five years, the bank would have meticulous records from its past employees regarding the trust. If one of the trust managers at the bank passes away, the organization has the resources, personnel and familiarity with the trust to continue managing it effectively.
Impartiality
Even if you have a close-knit family, emotions can cloud the judgment of the family member acting as the trustee. In addition, navigating the competing desires among family while remaining neutral is challenging. A bank will act in the beneficiaries’ best interests without giving undue priority to emotional strain or differing opinions in the family.
Furthermore, naming a bank as a trustee can prevent uncomfortable family dynamics regarding the trust. For example, if your father and the bank are co-trustees, you won’t have to ask your father for money from the trust. Instead, requests can go to the bank, which will make an objective decision that won’t hurt family relationships.
Increased Accountability
A bank is subject to industry laws and has the money to repay a family in the case of misconduct regarding your trust. On the other hand, an individual trustee can obscure their activity and even steal from the trust. If they don’t have the money to repay the family, it might be impossible to make the trust whole again.
Drawbacks of Naming a Bank as a Trustee
Naming a bank as a trustee can bring about several pitfalls. For example, you might have difficulty getting in touch with a professional at the bank who can answer questions about the trust. In addition, the bank might have a minimum wealth requirement for the trusts they manage, meaning your trust might not be eligible if it’s not worth enough.
Lastly, and most prominently, naming a bank as a trustee places control of the trust outside your family. The bank might invest or distribute money in ways the beneficiaries don’t like. However, the trust can counteract this possibility by containing a clause stating the beneficiaries can name a new trustee if they find the present one unsatisfactory.
Should You Name a Bank as Trustee of Your Trust?
As with any momentous financial decision, it’s vital to weigh your circumstances and needs. Naming a bank as trustee might be right for you if the following conditions apply:
You find a bank that communicates its services and trustee fees
Your current trustee lacks the skills to administer the trust.
Your family needs an objective voice about distributions and investments.
You’re concerned about the welfare of future beneficiaries.
You have consulted an attorney about the trust.
On the other hand, naming a bank as a trustee might not fit your situation. For example, you and your sibling might be the beneficiaries of the estate your parents left. Your sibling is the trustee. The trust’s investments are performing well, and your sibling pays annually for a professional to file taxes for the trust. There is no friction between you and your sibling, and you both take equal distributions every year. In that case, naming a bank as a trustee is unnecessary.
The Bottom Line
Naming a bank as a trustee can benefit trustees by eliminating emotional decisions, providing financial expertise and delivering excellent service over the trust’s lifespan. However, understanding the bank’s fees is crucial, and it’s helpful if the beneficiaries have the right to name a new trustee in case the bank does a poor job. That said, a bank as trustee can take the stress off of family members acting as trustees and provide needed objectivity for the trust’s financial functions.
Tips for Naming a Bank as Trustee
A financial advisor can help with any issues around trusts. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Trusts aren’t a one-size-fits-all solution to passing on wealth to beneficiaries. Your circumstances are unique, and your trust should reflect this. Use this guide to different types of trusts to understand which suits you best.
Photo credit: ©iStock.com/pixelfit, ©iStock.com/VioletaStoimenova, ©iStock.com/AsiaVision
The post Should You Name a Bank as Trustee of Your Trust? appeared first on SmartAsset Blog.
Credit shelter trusts are created after the first spouse dies. Assets are passed tax-free to other beneficiaries after the second spouse dies.
A maintenance worker in Texas was checking for frozen pipes at an apartment complex on Christmas Eve when he was fatally shot by a resident, police said.
Greene reportedly said her constituents who subscribed to QAnon will be at the Jan 6 rally
And what it means for your ability to build wealth.
Yahoo Finance Live look to Tesla's recent stock actions following a newly announced tax credit for EV owners in 2023.
The penultimate trading day of 2022 brought a sigh of relief for investors in shares of Enovix (NASDAQ: ENVX), QuantumScape (NYSE: QS), and ChargePoint Holdings (NYSE: CHPT). As of 11:45 a.m. ET Thursday, while QuantumScape and ChargePoint stocks were trading 6.3% and 7.2% higher respectively, Enovix stock was up a solid 13.7%. This morning, the U.S. Department of Labor reported only a marginal increase in the filings for unemployment insurance for the week ending Dec. 24.
Former President Donald Trump and his wife, Melania, paid $0 in income taxes for 2020, according to a report released late Tuesday by the congressional Joint Committee on Taxation. This year, some 72.5 million U.S. households, or 40%, will pay no federal income tax, down from the pandemic high of 100 million households, or 60%, two years ago, according to estimates from the Tax Policy Center. In 2021, nearly 56% of households, or 99 million, paid no federal income tax, the nonpartisan think tank said in a report released earlier this year.
Business magnate Warren Buffett is widely regarded as one of the greatest investors of the modern-day world. His seemingly unmatched and consistent value-investing strategies have earned him the title of Oracle of Omaha. Many of his investing strategies are known, but there is one that is often overlooked yet incredibly important. It’s a lot more prevalent in the startup investing world — one customer can mean all the difference for a startup but not necessarily for public companies. What happen
All's well that ends well in the stock market — and as trading winds down in what has been a miserable year for semiconductor investors, shareholders of Taiwan Semiconductor Manufacturing (NYSE: TSM), Intel (NASDAQ: INTC), and Qualcomm (NASDAQ: QCOM) are getting a reprieve of sorts. Qualcomm is gaining 2.9%, and Intel is up 2.2%.
All three of these high-yield dividend stocks have a long history of annual payout raises and an ability to raise their distributions without breaking their balance sheets. Shares of AbbVie (NYSE: ABBV) have risen more than 50% from a low point in October. Right now, AbbVie's dividend doesn't offer much more than a savings account.
Investors in Canoo (NASDAQ: GOEV) have had a rough year in 2022 with the stock plunging by 85%. After popping 8.4% early Thursday, Canoo stock was holding on to a gain of 6.5% as of 12:30 p.m. ET. One bit of news that might have investors more positive on the stock is a new report from EV sector site Electrek.
Yahoo Finance Live anchors discuss the decline in stock for Cal-Maine Foods despite topping revenue expectations.
There’s been a lot of talk about the downward economic pressures that have pummeled the markets in 2022 – maybe too much such talk. Yes, the S&P 500 is down almost 21%, and the NASDAQ is down 35%, but investors can still find sound opportunities. J.P. Morgan analyst Ryan Brinkman has been sorting through the automotive industry stocks, and he’s found several that are worth a closer look. So let’s do just that. We know that the auto industry has its own particular headwinds, including the ongoing
In this article, we will take a look at the 12 best 52-week high stocks to buy now. If you want to see more stocks in this selection, go to the 5 Best 52-Week High Stocks To Buy Now. The equity markets have been taking a beating this year as the Dow Jones Industrial Average […]
Shares of several popular fintech stocks rode the wave upward with the broader market Thursday after new data from the Labor Department indicated that the red-hot U.S. job market may be cooling a bit. As of 12:30 p.m. ET, shares of one-stop-shop financial services company SoFi (NASDAQ: SOFI) were trading nearly 4% higher, artificial intelligence-assisted lender Upstart (NASDAQ: UPST) was up by more than 4%, and insurtech company Lemonade (NYSE: LMND) was up by more than 5.5%. Investors rejoiced after new unemployment claims came in at 225,000 for the week that ended Dec. 24 — 9,000 higher than the prior week and slightly above the consensus estimate.
U.S. stock indexes finish sharply higher on Thursday, the second-to-last trading session of the year, with the Nasdaq Composite jumping 2.6%, erasing losses from earlier in the week.
The recent volatility that has plagued the major stock market indexes continued this week. After several days of declines, Wall Street was finally able to mount a rally Thursday as investors digested the latest unemployment report, which brought some (potentially) good news. The Federal Reserve Bank's campaign of rising interest rates may finally be cooling the overheated economy — at least if the job numbers are any indication.
The Federal Reserve gave the stock market a shock recently as the central bank raised interest rates once again, taking its benchmark rate to its highest level in 15 years. The Fed also suggested that it would keep raising rates in 2023 to bring down inflation. The Fed's hawkish stance sent equities tumbling, as it was expected that the central bank would dial down rate increases in 2023 thanks to signs of cooling inflation.
Wednesday, the FDA approved TG Therapeutics Inc's (NASDAQ: TGTX) Briumvi (ublituximab-xiiy) for relapsing forms of multiple sclerosis (RMS). Briumvi is the first and only anti-CD20 monoclonal antibody approved for RMS that can be administered in a one-hour infusion following the starting dose. TG expects to launch Briumvi in the U.S. in 1Q23 commercially. HC Wainwright reiterates a Buy rating for the stock with a price target of $24, up from $19. The analyst writes that a faster infusion time co
Yahoo Finance Live anchors discuss AMC Entertainment stock falling to a 52-week low amid debt reduction plans.
