Advantages of Choosing a Corporate Trustee

Cannes. Hotel Barrière Le Majestic. Early morning.

I gently pushed, then shoved, my way through the paparazzi surrounding short-film maker, Cannon EVP and Director of Individual Solutions, Daniel Smith.   

“Daniel! Congratulations on winning the bronze palm for your short, “I Love You Stepmother, Meet My Attorney.”

Daniel shrugged. “A lot of great short films were entered. Luck played a role in my film winning an award,” he said modestly, “although not a lot.”         

“What is your next short film going to be about?”

“Advantages of Choosing a Corporate Trustee’ is the working title.”

“Cool. Sure to be a crowd pleaser. Can you give us a sneak peek?”

Daniel thinks for a moment. “Just a soupçon. I want to avoid overexposure.  Think about this startling fact: when someone creates a living trust, 75% of the grantors name their spouses as their successor trustees. Many persons of wealth are not aware of the advantages of choosing a corporate trustee instead of their spouses. So, I felt a short film on this would be timely.”

“Wow. Awesome. But what do you mean?”

Daniel leaned back in his chair, put his hands over his face for a beat, then sat forward.  “Assume you are a Financial Advisor and have a client whose inter vivos trust will become a multi-generational trust-under-will at the time of her death. As yourself, if she has named her spouse as successor trustee, who succeeds him as trustee at his death and who succeeds that person and so forth?”

This is a puzzle. What to do?  “I don’t know.”

“Exactly,” Daniel said, most people don’t think this through, but this is the type of situation in which corporate trustees have major advantages over individuals or professionals.” Unlike people, Daniel told me, corporations don’t die. They just keep going. Bank of New York/Mellon [1] traces its founding to 1784, JP Morgan Chase to 1799, and Citibank to 1812. [2]  There will always be a professional trustee in control of the assets held in trust with a corporate trustee.

“So, corporations can continue in perpetuity, but how long can a personal trust go on? Forever?”

“No,” Daniel said, “in English common law something known as the ‘Rule Against Perpetuities’ prohibits personal trusts from continuing indefinitely.”  Yet even under this rule, Daniel explained, a trust can continue for a long time. Generally, the law says that after the grantor dies, assets can remain in trust for the lifetime of the beneficiaries who are alive at the time of the grantor’s death.                                                                                                                                                                                                    

Daniel gave the following example. A Financial Advisor has a client who dies when she is ninety and leaves a trust for the benefit of her multi-generational extended family. At the time of her death, the youngest members of her family are five great-grandchildren, ranging in age from two years to eleven years old.

Odds are one of these great- grandchildren will be the last person standing. Under the law, this trust can continue as long as one of those great-grandchildren remains alive plus twenty-five years. At that time, the trust would dissolve, and the property would be distributed to the remaindermen.

If the great-grandchild who is two years old lives to age one hundred, then the life of the trust would be ninety-eight years plus twenty-five years for a total of one-hundred-twenty-three years.

“That’s a long time,” Daniel said. “Who can your client count on to be around that long? Only a corporate trustee.”

A second key point, Daniel told me, is corporate trustees are regulated by the government and under law must adhere to the highest fiduciary standards.

“No one knows what the world is going to be like in five years much less one-hundred-twenty-three years,” Daniel said. “Your client can take comfort that a corporate trustee will always be there, and the accounts held in trust will be audited on a regular basis by the government to ensure compliance with fiduciary standards. To me, all other issues pale next to these.”

“Thank you, Daniel! Can’t wait to see this at the box office!”

Resource(s):

[1] https://www.bnymellon.com/us/en/who-we-are/our-story.jsp

[2] http://www.businessnewsdaily.com/8122-oldest-companies-in-america.html

View our offerings: https://www.cannonfinancial.com/our-offerings#ind&

Copyright ©2019 Cannon Financial Institute - All Rights Reserved

Subscribe to Cannon Insights at http://www.cannonfinancial.com/newsletter/subscribe.

Contributing Writer: Subject Matter Expert Charles McCain