Tips for What to Look for in a Trust Company
Establishing a trust is an important way to build your legacy and preserve generational wealth. There are multiple ways to set up and fund a trust account, such as through a bank that offers trust management services or by going directly to a specific trust company. But not all trust offerings are the same. For example, it’s important to know if your trust manager is your fiduciary. If not, the manager likely has conflicts of interest with you, the client.
Following are our top tips to drive your search for the right trust company:
Separate trust administration and investment management. Separating trust administration duties from investment management under the oversight of your fiduciary helps to ensure that the trust continues to serve the needs of beneficiaries as intended by the grantor.
In the absence of this separation of authority, many families have found that legacy trusts have divided families or that the beneficiaries perceive that trustees are managing assets for their own benefit. If you are a trustee, you may face the risk of legal action by disgruntled beneficiaries simply based on their perceptions—even if unfounded.
Separating trust and investment functions also allows you to choose a trust company for what it does best and retain the flexibility to use a fiduciary investment manager who truly puts your interests first.
Large trust companies may also make money on the investment products they sell. Whenever your advisor’s company also creates products with a fee, there can be a conflict of interest between you and the company, as the trust company representative feels pressure to steer you toward trust company-sponsored funds and ETFs.
Fee transparency. Your trust company should be transparent about all fees, internal employee incentives, and investment approach limitations. This ties into the above caution about employees steering you toward company products or managers. In a “bundled” solution, where trust services and investment management constitute a single, combined fee, it can be hard to compare what you are paying for each with other available services. As most trusts have long lives, those fees can add up across time and must be carefully monitored.
A single point of contact. Call centers can be impersonal and frustrating. But if your trust falls below a certain dollar amount, that might be all you get with a large trust company. We think you deserve a single point of contact to quarterback all the minutiae of overseeing your trust.
The responsiveness of your contact is also crucial. You or your heirs should have the ability to pick up the phone and talk to a fiduciary who will interpret your concerns or wishes and determine the best course of action to take without undue delays.
Working with a financial advisor such as Alpha Fiduciary, who serves as your fiduciary and a liaison with the trust company, means you enjoy a relationship that is service-oriented, responsive, and personal. And if you are in the area, you can have face-to-face meetings in our office.
Accountability to your goals and preferences. You’ve worked hard to build your legacy; you want your trust company and advisor to respect that and align all that they do with your trust goals. A true fiduciary will prioritize your needs and preferences and provide useful guidance when you aren’t quite sure how to go about meeting them.
Not only should the company you hire put your trust’s goals first, but they should also have the capacity to provide that same level of service to your heirs after you are gone. By centering accountability on your single point of contact (see above tip), you can be sure that anyone providing services on behalf of your trust is doing so under the watchful eye of someone beholden to you and your heirs, not to the trust company and its bottom line.
An investment manager who is a true fiduciary. A fiduciary is legally required to put your interests ahead of his or her own. This means decisions will center on how to carry out the trust’s goals successfully rather than on the company’s bottom line. Registered Investment Advisors (RIAs) are fiduciary investment managers by definition, whereas brokers and trust company financial representatives often aren’t.
Ability to work seamlessly with your estate attorney. Your trust company won’t draft your trust or provide legal advice, but it can spot gaps and advise you when it’s time to update the trust so you can schedule a visit with your attorney. Our partner trust companies provide model language for your attorney to use when drafting or revising a trust so that they can administer it exactly as you expect. Your trust company should also serve as a sounding board for whether the trust language is written in a way that a non-attorney can read and understand it, as you won’t be around to explain your wishes after you are gone.
Experienced trustees. If you choose a family member or friend to serve as your trustee, you may be asking more than you realize. (Click here to read about the benefits of using a professional trustee.) We feel that many trusts, not just large or complex ones, can benefit from using a professional trustee. You will want to ensure that your trustee/trust company has many years of experience administering trusts impartially and that it has hired well-qualified people. Your trust is too important to leave to a junior employee or family member, as this could lead to costly financial mistakes.
A larger financial framework for your trust that considers future income needs. Income needs should be projected carefully so that income and remainder beneficiaries are both taken care of adequately. This requires an overall financial plan when you set up and fund the trust.
Your professional trust administrator, working together with your fiduciary advisor, will handle these needs. You should know there are numerous ways this can be done creatively so that the often-conflicting goals of current beneficiaries and future remaindermen are optimized for both parties.
In summary, when it comes to preserving your wealth and the financial security of your beneficiaries down the line, look for a trust company that puts your interests first (i.e., it serves as your legal fiduciary). You need trust services that place you and your interests at the center, with flexible investment options managed by professionals designed to achieve the trust’s goals while providing consistent high-levels of accountability and service.
Equally important, look for a trust company that will provide trust administration independently from investment management. Other qualities to consider include personalized client service as opposed to call center service, ease of access, firm reputation and experience, operational simplicity, and investment style.
Alpha Fiduciary is a qualified fiduciary, and we can help. Schedule a consultation with us today to discuss your particular situation or to review your current trust and investments.