5 Reasons to Hire a Family Office Corporate Trustee
5 Reasons to Hire a Family Office Corporate Trustee

5 Reasons to Hire a Family Office Corporate Trustee

 

By:

J. Reed Murphy
J. Reed Murphy
CIMA®

President
Chief Investment Officer

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5 Reasons to Hire a Family Office Corporate Trustee

What’s best for the family may mean outsourcing functions to an expert.

Recently a colleague shared a story of her husband’s heroic attempts to fix a plumbing problem in their house.

After three trips to the home improvement center, ripping out a wall, and living without water for a full day, he raised the white flag. Within 45 minutes, the plumber arrived, leaned into his expertise, and fixed the problem.

Maybe her husband could have muscled through and eventually fixed it. But should he have been the person to fix it?

It’s also the question families should ask when deciding whether to hire a corporate trustee or do it themselves. A lot of family members can do the work, but at what cost?

Without the right expertise, family-appointed trustees might not adequately invest, distribute and account for the money—all of which in many cases can lead to family feuds and even costly mistakes and legal battles.

When a family employs a qualified family office corporate trustee, they may enjoy more effective wealth and estate planning, more professional wealth and estate services, asset protection, lower costs and taxes, increased wealth and protection of the family unit.

 

Profile of a Trustee (Corporate or Individual)

A corporate trustee is an entity, such as a bank-owned or independent trust company. A trustee manages the assets, distributions and other obligations within a trust agreement. They adhere to laws and the preferences of the grantors of the trust. Many corporate trustees have other fiduciary services, such as serving as a guardian or executor.

Some individuals decide to be their own trustee or, when it’s necessary, choose another individual, such as a family member. Many family offices with complex needs sometimes also decide to “keep it in the family,” engaging family members to serve as trustees. Often, the reason is because the family knows each other and is thus best equipped to serve in that role. While this sentiment is understandable, it may not always ensure the best outcomes. One of the biggest reasons people don’t hire a family office corporate trustee, though, is the fear of losing control. And yet outsourcing the function to an expert may give families even more control. Here are five ways an outside corporate trustee helps high-net-worth families:

 

1. Coordination

A “trusted” advisor can serve as the coordinator of a person’s or family’s financial wellbeing. Using a baseball metaphor, they are like a good general manager.

A family office corporate trustee is uniquely positioned to understand a wide range of issues, including estate planning, taxes, laws, investments, while also administering the legal intentions of trust documents. While trust companies can’t draft legal documents, they can work with the family and other professionals (attorneys, accountants, etc.) by coordinating and providing perspective on the real issues families face.

 

2. Accounting

An often-overlooked benefit of a family office corporate trustee is their use of complex trust accounting systems. These systems are important for the proper accounting of principal and income across multiple beneficiaries. Many family offices overlook this facet and inadvertently create accounting nightmares that are often hard to unwind.

Recordkeeping alone can save families valuable time and money, as well as reduce family stress.

 

3. Accountability

Family office corporate trustees are not only accountable to beneficiaries, they also have another layer of accountability. Trust companies must be approved and are overseen by federal or state regulatory bodies and undergo routine audits and/or exams. Trust companies also have legal requirements for capital, bonding and insurance.

Family members may not always be up on the latest laws or follow legal documents as written.

 

4. Continuity

While some like the idea of family members as trustees, people age, become distracted or are simply incapable of serving as a trustee. They may also develop differences in opinions. In those situations, a good corporate trustee can serve in an objective, consistent manner for generations and minimize rifts within the family.

 

5. Emotional Neutrality

Whether the loss of a loved one or a family member that no longer has the health to manage his or her financial affairs, a family office corporate trustee can relieve those burdens. This is particularly comforting when emotions run high and intended or unintended differences among family members present problems and tough decisions.

In such situations, a third-party decision maker can protect family balance, maintaining neutrality in highly emotional situations. An outside family office corporate trustee may help family leaders stay focused on the values of the family.

 

There are many issues to consider before hiring a family office corporate trustee, such as expertise, chemistry and costs. The worries of losing control are real. But through proper trust language and the use of a corporate trustee in various roles with different levels of authority, such as sole trustee, co-trustee, successor trustee, agent for trustee or investment agent, individuals and family offices can mitigate their fears.

 

Tags:  Appointing a Trustee, Avoiding Family Conflict over Money, Corporate Trustee, Estate Planning, Family and Money, Family Money and Conflict, Family Office Corporate Trustee, Financial Planning, Passing on Your Wealth, T&E Services, Trust Services

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.