A corporate trustee is a company legally appointed to hold and manage assets on behalf of beneficiaries or individuals. An individual custodian is appointed to manage assets and perform trustee services on behalf of beneficiaries. Here are the differences between corporate trustees and individual trustees:
Legal Structure
Corporate trustees are established as separate legal entities, and they might include banks or trust companies. This legal separation means the corporation holds the fiduciary responsible for managing trust assets. The concept provides a layer of protection for the individuals providing trustee services. Individual trustees assume the fiduciary duties of the trust, and this distinction presents personal liability for the trustee if issues arise within the trust.
Continuity
A corporate trustee offers consistent trust management indefinitely. These companies can appoint successors over time without disrupting the trust’s administration and management. With an individual trustee, the trustee’s services are terminated when the trustee passes away. Therefore, responsibilities must be transferred to another trustee to manage the trust.
Impartiality
Corporate trustees are typically impartial. They make decisions based on the trust’s terms and applicable laws, creating objectivity. Experienced trust officers understand trust provisions and beneficiary circumstances. Individual trustees can struggle with impartiality due to their connections with beneficiaries, leading to emotional ties that impact decision-making, favoritism, and beneficiary disputes.
Asset Protection
Corporate trustees offer better asset protection than individual trustees since they offer limited personal liability. This protects the personal assets of shareholders and directors from legal disputes involving trusts. With individual trustees, asset managers are personally liable for the trust’s debts. If the trust fails to cover liabilities, the trustee must use personal assets to cover issues. Separating trust and personal assets with a corporate trustee provides reliable protection, protecting the trust assets during cases like bankruptcy. Trust and personal assets are difficult for an individual trustee to differentiate, providing less protection to trust assets against creditors and legal claims.
Succession Planning
Corporate trustees offer a more straightforward approach to succession planning than individual trustees. A corporate trustee does not become incapacitated as an individual does, and changes in the corporate trustee’s administration do not impact trust management. Individual trustees do not have a deliberate succession plan. A trustee’s re-appointment can cause delays and complexities. Transition involves extensive documentation and legal navigation to facilitate a smooth handover.
Management Flexibility
Individual trustees have greater flexibility in making decisions within trusts. They can act quickly without the bureaucratic constraints in corporate structures, allowing them to respond promptly to changing circumstances affecting beneficiaries. A corporate trustee adheres to standardized policies and procedures, which may lack the same responsiveness as individual trustees. However, this provides a consistent approach to planning for the future of trust management and helps prevent specific risks due to following corporate structure.
Learn More About Trustee Services
Trustee services encompass asset management and administration by an appointed trustee regarding financial assets. The trustee holds the trust assets on behalf of the beneficiary under set conditions. To learn more about trustee services, contact a reputable fiduciary service company.