Creating a personal trust is, almost by definition, a personal decision. Establishing the manner in which one’s personal wealth will be handled and then distributed sometime in the future requires some very intimate decisions about family members who are currently alive and family members that may not even yet be created.
The personal nature of the decisions made in establishing a personal trust is central to the decision most individuals make to handle the trust themselves and not turn it over to a corporate trustee.
For the majority of self-trustees, a corporate trustee was not a viable choice because of the difficulty of believing an institution making money off of a personal trust would act in the best interests of the beneficiaries, as well as concerns that a corporate trustee would not understand the complicated nature of the family decisions that need to be made in establishing and administering the trust.
There are 10 million Millionaires in the United States. There are more billionaires now than ever before. A trust, which allows the owner to state specifically how funds will be used and can protect those funds from tax liabilities, has long been thought of as an adequate way to handle great wealth.
But trust ownership in the United States is surprisingly low, with only 30 percent of affluent households who have established personal trust. Only 10 percent of affluent households have those funds handled by a corporate or institutional trustee; a majority choose instead to self-trustee (the grantor in the revocable trust acts as trustee), a far more personal approach to handling the trust.
Advisors who work with investors need to understand the dynamics that go into the choice to self-trustee over using a corporate trustee. Likewise, advisors who perform trustee services need to understand why investors shy away from using a corporate trustee.
In Spectrem’s qualitative report Choosing a Trustee, investors who set up trusts spoke candidly about their decision to handle the trust without the assistance of a corporate or institutional trustee.
“One reason would be just for the certainty as to what happens in the event that something happens to my wife and I,’’ said one trustee. “I feel that handling the trust ourselves allows for some certainty as to the distribution of assets and the most effective cash treatment.”
Simply put, investors trust themselves and their family more than they do an outsider. They are willing to forego whatever expertise an institutional trustee might have for the safety of knowing their own decisions about the trust will be faithfully carried out.
Advisors can provide examples of their own clients who chose to use a corporate trustee and were pleased with the results. An example of an investor who expressed doubts about a corporate trustee but agreed to turn over the duties to someone outside the family would be demonstrative.
Several investors reported to Spectrem that they talked to a corporate trustee initially, but felt that the conversations did not go the way they wanted them to in regards to the needs of the future generation of the family.
“That was done, and we eventually felt that you need to know how the person setting up the trust wants you to think about the children and what they need, and then go into how the assets should be distributed,’’ an investor said.
This is the benefit of an advisor getting to know the family of his clients. When it comes time for an investor to consider setting up a trust, an advisor with a relationship with the entire family may seem an easier choice to make as a trustee.
Some investors handle many of their own financial affairs, and there is a belief that even in the matter of establishing a trust, there is enough information on the Internet to teach a knowledgeable person how to handle the process to keep a stranger out of the mix.
“I feel like I have a fairly good understanding, and I am always engaged with my accounts,’’ said one investor. “That why I like (the decision to self-trustee). Sometimes, I think that when you turn things over to other people, they might not have the personal stake in it that you do.”
There is a difference between believing and knowing, however. Investors may think they have the financial wherewithal to handle serving as their own trustee, but advisors can provide information on the more complicated aspects of the process to, at the very least, make an investor more comfortable with his decision to self-trustee.
There are, however, those investors who chose to self-trustee on the belief that they could handle the process themselves and make the correct decisions themselves, then discovered that the process was a tad more complicated than first believed.
“If there was someone who came to me and said ‘I can do this and this for you, and this is what it will cost you’ and I thought it was reasonable, I probably would elect to have someone provide me the help that I probably need,’’ one investor admitted in the Spectrem report.
Top Takeaways for Advisors
Advisors who provide trustee services, including bank trust departments, must prove to an investor that the benefits of using a corporate trustee outweigh the costs, while demonstrating that the complete wishes of the grantor will be observed and followed.
Getting to know the family of the investor, including the non-adult children, can create a comfort level that could lead to an investor choosing the advisor as a corporate trustee.
If an investor asks for advice from an advisor about setting up a trust, the advisor must gauge the level of distrust the investor has over institutional financial services. Keep in mind that most investors today choose to self-trustee, but that over time investors may choose, and possibly should choose, to change their decision.