By: Rocky Mountian Law

Why Should I Consider a Bank as Trustee of my Trust?

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If you have just begun researching why having a trust in place is a good idea, it can feel overwhelming to determine the ins and outs. A trust can provide peace of mind for you and your family during your lifetime and upon death. But what do you include in the trust? Who do you place in charge of these crucial decisions upon your death? Read below to learn more about some of the options available to you in Colorado.

What is a Trustee Responsible For?

In Colorado (and most states), a trustee has a duty of loyalty, a duty of care, a duty to maintain records, and more. It is a highly trusted responsibility, and with that comes a necessary knowledge of the trust laws.

The duty of loyalty requires that the trust be administered in a way solely in the beneficiaries’ best interest. A trustee’s personal opinions or their benefit must not be part of the equation.

A duty of care, generally speaking, requires the trustee to utilize their skills or hire experts (for example, a bank) to administer or aid in the administration of the trust. The trustee must invest and manage the investments in the best interest of the beneficiaries. In most cases this is done by working with appropriate advisors such as financial and investment professionals.

A duty to maintain records refers to ensuring the trustee keeps adequate and thorough records of transactions, distribution, investments, change of ownership, and more regarding trust management.

Several other requirements of a trustee are in place to protect the beneficiaries. Things like the trustee being required to provide specific information regarding the trust management to the beneficiaries and acting impartially when managing the assets are required. Also, acting in good faith that their decisions are what they truly believe is best for the trust and its beneficiaries are protected by law.

Why Do Some Families Choose a Bank as a Trustee?

There are several reasons why a corporate trustee, such as a bank, is an appealing option for families.

With a revocable living trust, people often act as their own trustee. However, if they become incapacitated, or the assets go to an irrevocable trust for their heir upon their death, or if they are just the beneficiary of an irrevocable trust, someone other than the beneficiary will need to be the trustee. This is where issues can arise.

Suppose there is general discord or strain between family members, for example. In that case, it can be difficult to choose someone in the family to be responsible for making impartial decisions without creating arguments between family members. A corporate trustee helps to avoid these concerns because they are a neutral party, vs. a family member catering to the needs of one beneficiary over another due to personal reasons.

Due to a trustee’s extensive responsibilities, it can feel overwhelming and cause tension between family members when putting a family member in that position regardless of how trustworthy they are.

Perhaps most of the family members reside in other states or countries rather than locally, making it harder for them to facilitate the needs of trust management. Or, perhaps there just is not anyone in the family who is appropriate for the role of Trustee.

Several complex assets may require specific skillsets or knowledge to handle them adequately, even with the help of financial and other advisors. This may be out of reach for some family members.

Does it Cost More to Have a Bank Act as Trustee?

It can feel counter-intuitive when preserving assets for beneficiaries to spend money on a corporate trustee. This isn’t always the case. Most families will need to seek the help of CPAs or attorneys to ensure their decisions are in the entire family’s (or beneficiaries’) best interest. Having an impartial third party as the Trustee overseeing everything can help avoid stress and create peace of mind that a neutral party is responsible for crucial trust management and other decisions. It can also save money by having the same knowledgeable individual or institution making all the decisions. This can include avoiding unnecessary tax consequences, avoiding duplicate fees for multiple advisors, or making decisions that aren’t following Colorado laws.

How are Corporate Trustees Governed?

Just as there are strict and thorough laws individuals who are trustees must comply with, the same laws apply to corporate trustees. If they breach their duties, the beneficiaries can pursue legal action to rectify the situation. 

For example, if it can be shown to a court that the bank trustee is in breach of their duties, the court may order the trustee be removed and replaced, order the trustee to take certain actions, or even hold the trustee or their institution financially responsible for the consequences of their decisions.  

If a breach is proven, damages may also be pursued in some cases. Damages can include interest, attorney’s fees, the amount equal to what is necessary to restore the trust before the breach, and more. While individual family members often do not have insurance to protect the beneficiaries, in most cases a Corporate or Bank acting as trustee will be required to have insurance either by the terms of the trust or state law..

Why Consult an Attorney?

However uncomfortable planning for our own incapacity or for those we leave behind after our death may be, it is necessary. There is an inherent need in most of us to protect both the people we love and what we have worked our entire lives for. We want to make sure our assets are dispersed as we wish long after we are gone so we can continue to provide for our families.

Putting together an effective estate plan typically includes a trust. Choosing a trustee may be one of the most challenging aspects due to the role’s immense responsibility. By working with a trusted attorney, you have an advocate who can help answer your questions and help ease your mind.

Effective trust planning in advance can reduce the likelihood of problems. But sometimes it is too late to make changes to the plan. In that caseyou or your family can consult an attorney should you feel that a breach of duty is occurring with a trustee. They can help you determine if a breach can be proven, devise a plan to remedy the situation, and further protect the trust and the assets associated with it.

We have several years of experience helping clients with their trust questions and how they can make the most of them. Contact our office today at (720) 420-1039 to learn more about how we can help you to provide for your family now and in the future.