Incorporated Trustee

What Is an Incorporated Trustee?

An incorporated trustee (also referred to as a "corporate trustee") is a corporation, usually a trust company, which is named as the trustee of an account such as a private trust or another fiduciary account.

Incorporated trustees stand in contrast to an individual person or "natural trustee," who may also be selected as the trustee of such an account. In both cases, the trustee's role is to execute the instructions of the trust's grantor as well as manage the assets of the trust.

Understanding Incorporated Trustee

There are several advantages to appointing an incorporated trustee. First, since corporations theoretically never die or become incapacitated, they will likely outlast individual trustees. Second, since professional trustees focus all their time on this role, they're typically more knowledgeable about the role, less likely to mismanage the trust, and could be more objective in making decisions.

Key Takeaways

  • An incorporated trust is a trust company or corporation that has been named as the trustee of a private trust or other fiduciary account.
  • Advantages of an incorporated trustee include the wealth of professional experience, networks available to an organization, and an objective outlook to managing finances as opposed to individual trustees with vested interests.
  • Disadvantages of an incorporated trustee are the costs and complexity of setting up a professional trust and record management.

Incorporated Trustee Characteristics

When employing an incorporated trustee, the company is a trustee and members of the trust are the directors. Such a structure makes it easier to remove or add directors. Some more advantages of using an incorporated trustee include:

  • Since the company is a separate legal entity, such an arrangement provides for limited liability.
  • The succession of directors is more streamlined, which means better control. This is especially true should a director die, as an incorporated trustee is not affected by the death of one of its directors.
  • Keeping trust assets and personal assets separate is easier since they are held under different names.
  • Incorporated trustees have easier access to legal and accounting expertise.

There are some downsides to employing an incorporated trustee. The primary disadvantages are the costs and complexity of setting up a professional trust management, as well as managing the records of the trustee entity. There is also the potential for a lack of understanding of the grantor's unexpressed wishes.

Incorporated Trustee vs. Individual Trustee

When choosing how to set up a trust, there is the choice between a corporate trustee and an individual trustee. There are advantages and disadvantages to both. For comparison, some of the advantages of an individual trustee include the following:

  • Individual trustees are less expensive, less complex, and require less paperwork.
  • An individual trustee is more likely to have personal knowledge of a grantor's desire and intents, especially if they are a close friend or family member.
  • An individual trustee may have a greater ability to guide and influence the individual or organizations that distributions are awarded to.
  • Individuals may have a better awareness of changes in circumstances, goals, or operations.

On the downside, an individual trustee may lack investment expertise, may need to employ expensive legal or accounting expertise, and can cause stress to family or friend relationships due to the burden of decision-making.

There can be complications when it comes to how to change or remove an individual or corporate trustee.

Example of Incorporated Trustee

Incorporated trusts are a favored organizational structure for non-profits and religious organizations. Church branches are often organized as separate incorporated trusts from the controlling organization.

Priests and other clergymen at the local branch are officers of the trust. This organization enables religious institutions to decentralize the organization while ensuring continuity and a funding provision for their parishes. Non-profits have adopted a similar approach because it enables tax deductions for their funds and allows a group of officers to exercise control over the organization.

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