It’s Time to Retire the Notion of a Cold, Rigid Corporate Trustee

When transferring wealth, few decisions matter more than selecting the right trustee once a trust has been established. For wealth creators and their families, the choice can shape their future and legacy—affecting everything from investment oversight to beneficiary outcomes.

Corporate trustees offer a compelling option, combining professional trust administration with sophisticated investment management and world-class financial services.

But despite established industry-wide service benchmarks, the image of a cold, rigid corporate trustee persists—partly because certain beneficiaries view institutional processes as prioritizing risk over flexibility.

Additionally, if interactions with the corporate trustee feel transactional, families managing complex wealth can feel like they’re navigating a system, not a relationship.

However, at its best, serving as trustee is deeply fulfilling. It’s about protecting family legacies, caring for beneficiaries, navigating sensitive transitions, and ensuring wealth serves a purpose across generations.

Trustees are entrusted with enormous responsibility, often stepping in during moments of loss, change, or conflict. Handled well, the role blends technical precision with human insight for the proper management of wealth.

Fiduciary Balancing Act

Beneficiaries enjoy the right to request distributions where trust terms permit and, absent contrary provisions, trustees have a duty of impartiality when considering such requests.

This aspect of trustee responsibility can induce angst for both sides and create conflict if not skillfully maneuvered. Most corporate trustees devise a review process that certain beneficiaries, who might view supporting documentation requests as intrusive and bureaucratic, may not appreciate.

For example, a beneficiary might request substantial annual distributions from a trust that sets standards for distributing funds as health, education, maintenance, and support in reasonable comfort.

The trust also allows, but doesn’t require, the trustee to consider the beneficiary’s other resources. In this scenario, a corporate trustee may ask the beneficiary to provide an income-and-expense analysis to confirm that the request falls within the standards.

Suppose the beneficiary resists the request for documentation and, while acknowledging that sufficient other resources exist, expresses a desire to deplete the trust’s assets because the beneficiaries who will receive the trust’s assets upon termination are estranged relatives.

While circumstance-specific exceptions may be made, corporate trustees seek consistency when applying due diligence. And when afforded discretion to consider other resources, they’re unlikely to bury their head in the sand.

Positive outcomes depend on a trust professional breaking down the process and communicating with sensitivity, all while helping the beneficiary structure the request and recommend alternative documents to satisfy the due diligence requirement. Examples include a well-crafted letter that conveys the beneficiary’s circumstances, lifestyle, and expenses necessary to maintain that lifestyle.

The goal is successful outcomes for beneficiaries. But when considering requests from present beneficiaries, a trustee must reasonably consider the fiduciary duty to balance the interests of both present and future beneficiaries.

Also, because impartial doesn’t mean equal, and beneficiaries don’t have to be destitute to receive distributions, trust professionals can help corporate trustees comply with and protect the integrity of the structure while insulating beneficiaries from perceived bureaucracy.

Managing Complex Assets

Trusts hold specialty assets such as closely held assets and real estate interests. Trustees require specialized expertise, infrastructure, time, and attention devoted to hands-on management of these complex assets. Corporate trustees with in-house expertise can advise and navigate complexities associated with specialty assets.

Managing closely held assets involves administration and oversight of the business and of control positions. This includes:

• Evaluating performance and financial information
• Recommending retention or sale
• Managing valuations
• Attending shareholder meetings
• Voting on shareholder matters

It also includes guidance on management succession plans, approving strategic transactions, analyzing entity conversions and/or corporate tax structure, and confirming tax and regulatory filings.

Other responsibilities include serving on the board of directors, working with management to develop and monitor the results of a strategic plan and operating budget, or evaluating and monitoring executive compensation.

A trustee also may need to serve as officer of the company if a backup is needed, or to fill management voids created by death or disability, or where ongoing business activity is limited.

If land is the trust’s sole asset, even with a lucrative ground master lease, the trustee should maintain sufficient reserves to facilitate payment of taxes and trust expenses while sustaining beneficiary distributions. The trustee also should position the trust to negotiate, enforce lease terms, and mitigate risks from default by a tenant.

Trust professionals can coordinate with beneficiaries to help the corporate trustee understand each beneficiary’s needs and ability to cope with decreased distributions if necessary to build reserves.

Holding a single asset is risky because it’s like putting all your eggs in one basket. That can create a tricky situation for trustees who are expected to diversify investments (an implied duty under the Prudent Investor Rule) to protect the trust.

But diversification efforts can be hindered when the asset has emotional value to the beneficiaries or if it generates needed income. A trust professional can help by offering objective guidance, framing decisions around the trustee’s legal duties, and facilitating conversations with beneficiaries to balance emotion with sound financial strategy.

Administrative Pitfalls

Even well-meaning trustees can stumble when dealing with the complex demands of trust administration. Three pitfalls can undermine a trustee’s effectiveness and erode beneficiary trust.

Lack of engagement. A disengaged trustee who communicates infrequently with beneficiaries or co-fiduciaries may fail to inform or seek beneficiary consensus or usurp a co-fiduciary’s authority when taking critical action.

Older generation gatekeeping. This includes parental requests to withhold account statements from, unauthorized influence over distributions to, and restricting trustee access to, adult children.

Inflexible implementation of policy and process. While corporate trustee processes are designed to comply with legal and regulatory requirements, a flexible implementation approach focused on substance over form, where feasible, conveys a helpful client experience.

Seasoned trust professionals are critical in helping corporate trustees navigate these challenges. Proactive communication, sensitive guidance and flexibility, enhances the quality of beneficiary outcomes, builds lasting trust with the family, and shifts the perception of a rigid corporate trustee.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Wing Wilson is the chief fiduciary officer for Northern Trust’s East Region, overseeing the fiduciary practice and providing fiduciary and advisory services to individuals, families, and foundations.

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