Naming a Corporate Trustee

Take-Away: The use of a corporate, or professional, trustee can go a long way to maneuver the minefield of family tension and dynamics on a family member’s death. A professional trustee is much better equipped to devote the time necessary to the time-intensive administrative, record-keeping, and investment tasks of trust administration than an individual family member, and objectively administer a complex trust.

Background: Anyone following the saga of the Lisa Marie Presley estate understands just how ugly probate litigation can be. Briefly, Elvis Presley’s only child, Lisa, died at age 54 due to cardiac arrest. Lisa was survived by her mother, Priscilla (Elvis’ widow) and Lisa’s daughter, Riley. Priscilla challenged an amendment to Lisa’s Trust that removed Priscilla and a former business manager as co-trustees, and replaced them with Riley as the sole trustee of Lisa’s Trust. Priscilla has alleged fraud against her granddaughter Riley, and apparently they no longer speak to each other. This Presley litigation is essentially the battle over who controls Elvis’ Graceland estate.

One wonders how things would have turned out if Lisa had named an independent, professional, trustee with the expertise in the administration of Lisa’s Trust, including Graceland, with the objective skills and experience to navigate volatile family dynamics, with the overriding goal to preserve family harmony. All too often we find that individual trustees will be overwhelmed with all of the responsibilities associated with the role of serving as trustee of an irrevocable trust. Nor will such individuals have a full understanding of all the obligations and potential responsibilities that come with the role of trustee. Moreover, an individual trustee will not be properly equipped to handle the variety of fiduciary tasks, not to mention that they will be placed in a very difficult position vis-à-vis the family when tough decisions have to be made that could jeopardize family harmony. In contrast to a family member serving as trustee, a corporate trustee can provide the resources, infrastructure and experience to deal with complex estates and the family dynamics that go along with estate administration.

Benefits of a Professional Trustee: While each trust and its assets is different, and thus each has its own unique needs and administrative challenges, a list of benefits that normally can be attained by naming a professional trustee follow:

1. Experience: A corporate trustee is highly trained, which has professional and institutional knowledge and expertise in the legal and administrative aspect of trust management. This is particularly the case when the trust holds a unique asset, e.g., Graceland, which is complex to manage. In addition, corporate trustees have the experience needed to maximize tax savings and deal with compliance issues normally not found in individual family members. A corporate trustee that has special skills or expertise is under a duty to use those skills. [MCL 700.7803.]
2. Time and Resources: A corporate trustee can devote full-time focus and staff on acting as a trustee, with enough personnel to professionally discharge that role and carry out its time consuming responsibilities. Individuals typically have other jobs and active lives that prohibit them from devoting full-time attention to their role as trustee. Priscilla Presley is something of a celebrity who has other demands on her time, which may become important if distribution decisions are required, which  means that the trustee needs to keep in regular contact with all trust beneficiaries to be aware of their situations. Did I mention that Priscilla and Riley are not speaking with each other?
3. Regulation: A corporate trustee is regulated and monitored by state or federal agencies, including internal and external audits. Consequently, a professional trustee is held to a higher standard of conduct than an individual trustee. Along these same lines, unhappy trust beneficiaries will often sue the trustee. A professional trustee will have an errors and omissions insurance policy, but individual trustees rarely do so since it will be difficult for them to obtain such a policy and the cost to obtain such a policy is usually prohibitive. Riley, or Priscilla, may be wealthy in their own right, but their exposure to claims of breach of fiduciary duty could exhaust their personal financial resources just to cover a resulting loss in probate litigation.
4. Governing Law: A corporate trustee can potentially take advantage of another state’s favorable laws. By way of example, if a Delaware corporate trustee is named the settlor may be able to create a trust that takes advantage of Delaware’s favorable trust law, even though neither the settlor nor any of the trust beneficiaries actually reside in Delaware. Examples of why a Delaware trust might be advantageous to Lisa’s Trust is state income tax savings, the ability to maintain a silent trust, the ability to create and maintain a perpetual trust, and liberal directed trust provisions, all of which might be beneficial of Graceland is to be held in trust in perpetuity as an income-producing asset.
5. Cost Savings: A corporate trustee might actually be cheaper in the long run when compared to using an individual trustee. The professional trustee charges a bundled fee for all services. An individual trustee will have to outsource many of the necessary services in the administration of the trust, including the hire other professionals to handle trust accountings, record-keeping, trust tax returns, and answer legal questions like business questions associated with Graceland. In addition, often the individual trustee will hire an ‘outside’ investment manager for trust investment services. All of these expenses  when added to the trustee’s fee that all states permit the individual trustee, like Riley,  to charge, can make for extraordinary costs to Lisa’s Trust. Lisa’s Trust might actually save costs by naming a professional trustee.
6. Continuity: A corporate trustee never gets sick, nor does it die, nor does it take extended vacations. As such, a  professional trustee provides stability and continuity, especially when a dynasty-type trust is involved, perhaps one that is designed to hold Graceland as an income-producing legacy type of asset in perpetuity. A professional trustee can always be removed in the future, either through court action, or by giving the power of removal and replacement to a trust director.
7. Internal Controls: A corporate trustee’s internal controls and procedures are intended to be reliable and consistent. They, in turn, provide continuity and stability in the trust’s administration and decision-making process, especially with respect to challenging decisions like whether or not to make a distribution, or managing unique trust assets, e.g., granting licensing rights to Elvis’ name, likeness, and image.
8. Preserve Family Harmony: A corporate trustee is often faced with making tough decisions, e.g., discretionary distributions; selling a legacy or heirloom asset. Family unity can be maintained by the professional trustee taking sole responsibility for these decisions that might otherwise polarize family members. Blaming the corporate trustee is one way to divert stressful decisions that only can add to existing family tensions.
9. Integrity: A corporate trustee must administer the trust in the best interests of the trust beneficiaries. [See MCL 700.7801; 7802(1).] This is part of a trustee’s duty of loyalty to trust beneficiaries, which means that the trustee cannot act in its own self-interest. Sadly individual trustees often become swayed by family disharmony, or their own hubris, which in turn impacts their objective decision-making with regard to the trust. Corporate trustees make decisions both professionally consistent with decision-making protocols, and dispassionately.

Conclusion: A corporate trustee must act impartially and objectively in the exercise of its responsibilities, including decisions made in distributions, or determining how to best leverage or invest trust assets by weighing the interests of all trust beneficiaries in an independent and unbiased manner. This often includes how the trustee interprets and applies complex trust language. As such, the professional trustee can act as an objective voice that can help to minimize conflict and help prevent family members ‘taking sides’ and dividing a family. Naming an individual to act as trustee may overwhelm them with the obligations, responsibilities, and reporting that comes with trust administration. Watching the Presley probate litigation unfold is just one more example of when naming a professional trustee might have minimized the family rancor.