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When Are Two Trustees Better Than One?

As part of your estate plan, you may have established one or more trusts to transfer assets to your loved ones. A well-structured trust can minimize potential estate taxes, protect wealth from creditors, and help control spendthrift heirs, just to name a few potential benefits. 
 
After you choose a trust’s beneficiaries—likely your spouse, children, or grandchildren—you must anoint a trustee to handle its investments and administration. Though that could be a friend or relative, it’s often advisable to involve an experienced financial professional who can manage investments in a way that supports the trust’s objectives.
 
But a trustee’s duties are wide-ranging, and also include a variety of administrative responsibilities. Increasingly, some “grantors” who set up trusts for their families are choosing to separate those aspects of the job by bringing in a second, administrative trustee to deal with fiduciary duties. One advantage of such an arrangement with an established firm is to ensure continuity in operating the trust for the benefit of beneficiaries who, in the case of a so-called dynasty trust, may not come into their wealth for decades. A trust document can establish that one advisor or firm will serve as the investment manager while leaving the details of the trust to the administrative trustee.
 
To qualify for the benefits of using a corporate administrative trustee, the trust must be formed in a jurisdiction such as Delaware whose laws permit such arrangements. For example, a trust formed under Delaware law may provide these benefits.

Investment flexibility
. The state’s statutory framework permits a “separation of powers” between an investment advisor and the administrative trustee. Furthermore, under Delaware's “prudent investor rule,” trust assets may be invested using a total return approach that gives the investment advisor greater control and could result in increased distributions to beneficiaries receiving current income from the trust.

Confidentiality
. No public filings or annual accountings of trust activities are required. What happens in Delaware stays in Delaware.

Tax advantages
. Delaware doesn’t impose a state tax on trust income or capital gains accumulated for non-resident beneficiaries. Nor does it have a tax on income distributions to non-resident beneficiaries, and Delaware has no sales, gift, or inheritance taxes.

Continuity
. The state allows grantors to create dynasty trusts that can continue indefinitely, providing benefits to many generations of beneficiaries. (Rules in other states limit the term of dynasty trusts.)
 
Some of the major financial players, including Charles Schwab Bank and Fidelity, now offer administrative trustee services, and more are sure to follow.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.




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