What is a Trustee?
The trustee of a trust is the person, people or companies named in the trust agreement as the owner and administrator of all assets held in the trust. The trustee has total control of all trust assets limited only by the terms of the trust agreement. The trustee has legal title to trust assets. Trustees are obligated to follow the instructions contained in the trust agreement and are liable to the beneficiaries if they do not.
Co-trustees
A trust agreement may provide for more than one trustee. When a trust has more than one trustee they are called co-trustees. The trust agreement may or may not have restrictions on the ability of one co-trustee to take action without the consent of the other co-trustee(s). Most of the time when I create a joint trust for a married couple both spouses are co-trustees of the trust and one spouse may serve as the sole trustee after the death or incapacity of the other spouse.
Initial Trustee or Co-trustees
When the trustmaker signs and creates the trust he or she names a single trustee or one or more co-trustees as the initial trustee(s) of the trust. Trustees must accept the job of being a trustee by signing the trust agreement. The initial trustee(s) may serve for a period of time specified in the trust agreement, until the trustee resigns or is unable to serve or until replaced as provided in the trust agreement.
Successor Trustees
Your trust agreement should name one or more successor trustees who can serve as trustee in the order named if all the initial trustees no longer serve as trustees. If a sole trustee becomes incompetent or dies the successor trustee you name in the trust agreement becomes the trustee. You can and should name more than one successor trustee in case somebody you name dies before you or will not or cannot serve as trustee.
Trustee Compensation
The trust agreement may provide that trustees be compensated for services. The revocable trust you and your spouse or significant other create will normally not provide that you, your spouse or significant other be compensated. After the death of a single trustmaker or two trustmakers, it is common to allow trustees to be compensated for services rendered on behalf of beneficiaries other than the trustee.
Trustee Liability
Trustees owe fiduciary duties to the beneficiaries. A trustee who breaches a fiduciary duty or who violates the terms of the trust agreement can be sued by the beneficiaries for damages. One of the duties imposed on an Arizona trustee is that the trustee must protect the assets held in trust. A trustee whose action causes the value of trust assets to decrease can be liable for the loss in value. One reason to refrain from naming a loved one as the trustee of a trust for a beneficiary other than that loved one is that the trustee could be sued by that other beneficiary.
Importance of Choosing Your Trustee
Who you name as a successor trustee is a very important decision because the nominee who actually becomes a successor trustee will have total control of the assets held in trust. A trustee could steal the assets or make bad investments or bad decisions that decrease the value of trust assets. Even though that trustee would be liable to the beneficiary or beneficiaries the misconduct a lawsuit could be very expensive and a judgment against the trustee for damages may not be collectible.
Institutional Trustees
Trusts that have assets of more than $500,000 have an option to name a bank as an initial or successor trustee. I am a big fan of the institutional trustee as a successor trustee after the death or incapacity of the trustmaker(s) for the following reasons:
- Banks have years of experience acting as trustees and it is unlikely that anybody in your family has any trustee experience.
- Banks assign a professional trust officer to interface and interact with the beneficiaries. Trust officers have years of experience dealing with beneficiaries. They know how to deal with beneficiaries and evaluate their needs. One potential problem for a family member who is the trustee of a trust for another family member is that requests for money and denials can create friction between the trustee and the beneficiary family member.
- Banks have professional money managers whose job is to invest trust assets in investments that increase in value. Most people are not good at managing their own money much less other people’s money. Banks typically charge an annual trustee fee of 1.5% of the assets under management.
- Banks have deep pockets and are able to pay damages suffered by a beneficiary due to the bank’s breach of a fiduciary duty or failure to follow instructions in the trust agreement.
Arizona Corporate Trustees
Below is a list of Arizona banks that have trust departments and that offer institutional trustees. If you are considering naming a bank as a trustee of your trust I recommend that you first make an appointment with one of the bank’s trust officers and interview the trust officer for the job. Make a list of questions. Ask about fees and how the bank determines how much and when to make distributions to a beneficiary when the trustee has the sole discretion to determine the amount and timing of distributions.
- Trust Bank (no minimum amount of assets – trusts accepted on a case by case basis). This is our first choice.
2375 E. Camelback Road, Suite 155
Phoenix, AZ 85016
Phone: (602) 957-2006 or (800) 766-345
Trust Officer: Philip Hotchkiss
Mobile: 602-703-8201
www.trustbank.net
- First International Bank & Trust
2231 East Camelback Road, Suite 107
Phoenix, AZ 85016
Trust Officer: Anna Popova
Phone: 602-396-1176
www.fibt.com
- Arizona Bank & Trust (minimum $500,000 of assets)
2036 East Camelback Road
Phoenix, AZ 85016
Phone: (602) 381-2090
www.arizbank.com
- Northern Trust (minimum $2 million of assets)
2398 East Camelback Road, Suite 400
Phoenix,, Arizona 85016
Phone: (602) 468-1650
Trust Officer: Stephen Barber
Phone: 602-468-2553
www.northerntrust.com