What is an Incorporated Trustee
An incorporated trustee is a corporation, usually a trust company, which is named as the trustee of a private trust or other 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. An incorporated trustee may also be referred to as a "corporate trustee."
Breaking Down 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 may be more objective in making decisions.
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 is 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;
- Succession of directors is more streamlined, which means better control. This is especially true should a director die, as an incorporated trustee is not effected 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 of both. For a 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 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.