The corporate trustee world is undergoing a quiet transition away from the all-in-one financial institutions that bundle trust administration and investment towards smaller regional trust companies positioned to work in conjunction with investment management firms. This shift is a product of clients’ desire to retain control over who will perform what duties as it relates to trust administration and investment management now and in the future.

Traditionally, corporate trustees have been granted full authority over both trust administration and the investment management of trust assets. This arrangement resulted in a conflict of interest wherein these institutions had a financial incentive to use in-house—and often over-priced—proprietary products.

Fortunately, most states have adopted trust statutes that allow the grantor to direct a trust company to engage an outside investment management firm to make the investment decisions for trust assets. In practice, this results in trust companies serving in an administrative-only capacity with two primary areas of responsibility:

  • Non-discretionary: Income & principal payments to beneficiaries as laid out in the trust documents, recordkeeping, and trust accounting.
  • Discretionary: in areas where the trust document is unclear, silent, or calls on the trustee to make a decision based on information available to them, their discretion is bound by their fiduciary duties of loyalty and impartiality.

Including trust provisions to separate administrative and investment duties often stems from an existing relationship with a trusted investment management firm. From an investment management standpoint, the client relationship with their trusted advisor remains unchanged. Assets can remain on the advisor’s custodial platform, and the trustee is granted electronic access to trust accounts allowing for proper trust accounting.

It’s important to consider the fact that by separating trust administration from investment management, the fees will also be separate. Evidence suggests, however, that the combined fee for a bifurcated trust tends to be lower than what has been traditionally charged by the old-guard bank and trust companies.

Many large banks and trust companies are reluctant, or unwilling, to administer a trust when they are not also engaged to manage the investable assets of the trust.  As a new generation of wealthy investors with more complex needs and higher customer service expectations continue to demand this type of bifurcated trust, the old-guard will be forced to adapt or die on the vine.

We’re here to help with your trust support needs. Whether you are in the process of creating a new trust or considering the addition of provisions to bifurcate the management of an existing trust, we’re here to help! Sequoia’s Trustee Support Services are designed with the trust creator in mind. We welcome the opportunity to learn more about your situation and help you accomplish your estate planning goals on your terms!

 

 

Contact Michael Baker, CFP®, to learn more about this topic.
330.255.4326 | mbaker@sequoia-financial.com