This blog will help financial advisors and/or their clients decide what is the best trust company for their situation. And how to pick that type of trustee.
If you’re an advisor who wants to help your clients establish a trust, you may be asked to come up with a list of corporate trustees to consider. Or your clients may ask you to work with their estate attorney to come up with this list.
Your clients may already be inclined to choose one of the huge national trust companies. Or they may have been approached by the trust services division of their bank or brokerage company.
For some of your clients, these traditional bank trust companies may be a perfectly suitable option. However, they will replace you the nanosecond they take charge of the trust. They will invest the trust assets and you will be replaced (gulp!!).
On the other hand, only recommending trust companies that allow you to continue to manage those assets may appear as lopsided guidance (we don't think so).
The wrong way to search for America’s best trust companies for wealthy families
If you’re starting this process from scratch, it’s important to understand that search engines aren’t necessarily your friend.
Need convincing? Try entering terms such as “top trust companies” or “America’s top 25 trust companies” in Google. All that will produce is hundreds of pages of ad-filled results, most of them completely irrelevant.
In reality, no single indisputable list of the ‘best trust companies in America” exists. Why? Because the meaning of “best” is completely subjective.
Using “trust companies near me” isn’t useful, either
Even if there are dozens of great local trust companies, certain factors may not make your state an ideal trust jurisdiction, such as:
- Your state may have a high state income rate.
- You state may require trusts to be dissolved within a few generations.
- Your state may not offer robust protection for trust assets.
- Your state may make it difficult to move assets from an outdated trust into one that more accurately reflects the needs of beneficiaries.
- Your state may not allow anyone other than the corporate trustee to control how assets are managed or distribution requests are fulfilled.
Fortunately, one of the great things about trusts is that they can be established and administered in any state, even if you or your clients don’t live there.
Several forward-looking states—with South Dakota trust law at the head of this list—have taken advantage of this flexibility to modernize their trust laws, elevating them into the rarified company of America’s most trust-friendly states. Many of America’s best trust companies have made these states their home or at least established charters in these jurisdictions. More on this later.
How are top trust companies defined, anyway?
A critical question because what’s important for you—and your clients—isn’t necessarily a priority for others.
For example, you may want to continue managing the investments your client's transfer into a family trust. You—or clients’ estate attorneys-- may also want to serve as the intermediary between beneficiaries and the corporate trustee.
In these situations, you will want to limit their searches to advisor-friendly trust companies. that serve as trust administrators for directed vs delegated trusts.
In other situations, your clients may be better off with a traditional bank trust company that handles all aspects of trust administration, including investment management.
It’s not necessarily an “either/or” choice. You know your clients the best - legacy planning and family dynamics. Better than estate attornies or CPAs.
So, now that we’ve defined the two major categories of trust companies (independent vs traditional), let’s take a closer look at the criteria you should consider to help you build your own list of top-rated trust companies, starting with the trust law jurisdictions.
Best trust law states for the top trust companies in the US
There are plenty of great trust companies in every state. But not every state is an ideal place to establish a trust. So, keep in mind when you’re looking for companies that offer the best corporate trustee services that your clients will benefit most from having their trust established in states that offer the following trust-friendly provisions:
- No state income taxes. Avoiding state taxes keeps more trust income in the trust, instead of in state government coffers.
- Extended (or limitless) trust expiration dates. This is essential for grantors who want their trusts to last for many generations, or possibly forever.
- Allow for directed or delegated trusts. Delegated trusts allow advisors, estate attorneys, or other appointed professionals to exert greater control over distributions, outsourcing, and investment management. Directed trusts offer the same authority plus the legal ability to change trustees.
- Strong asset protection laws. Most states offer some degree of protection of trust assets against claims from creditors. But the most trust-friendly states offer additional protections; for example, from claims by ex-spouses or disinherited children.
- Flexible decanting rules. Decanting allows for an outdated trust to be dissolved and assets to be transferred into another trust with updated provisions. Trust-friendly states make this process relatively fast and painless.
- Privacy. State constitution-driven privacy laws that make any court changes sealed forever (only SD has this state constitutional provision).
The seven states that offer the best combination of these benefits are, in alphabetical order: Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming (comparison of best trust law states in America).
Limiting your choices to these states will make it easier for you to fine-tune your list of corporate trustees. And neither you nor your clients need to travel to these states to work with these companies.
So now that we’ve narrowed down the trust locations, lets explore the two options available for you and your clients.
Option 1: Partnering with America’s most advisor-friendly trust companies
As we mentioned, advisor-friendly trust companies focus mainly on trust administration. They don’t manage assets held in the trust, although as the corporate trustee, they have a fiduciary responsibility to make sure trust assets are managed and safeguarded prudently and responsibly (unless the trust is directed).
These types of trust companies treat financial advisors like celebrities.
And while these companies have the authority to evaluate, approve or reject distribution requests, they generally don’t deal directly with beneficiaries except to confirm distribution the actual request. These types of trust companies understand the collaborative process between the corporate trustee and financial advisors. The financial advisor, in 99% of the cases, typically serves as the intermediary between beneficiaries and the corporate trustee.
So, what else puts advisor friendly trust companies on lists of companies offering the best corporate trustee services? Generally, they all share these common characteristics:
- They were founded out of frustration with traditional trust companies wanting to control the entire client relationship.
- Their service teams are innovative and collaborative.
- They’re constantly looking for ways to leverage technology to optimize workflows, reduce paperwork and generally make life easier for advisors.
- They love helping advisors increase their AUM by showing prospects using the advisors and an independent trust company offers more value than big bank trust companies where advisors have no say over investment decisions.
- They’re committed to providing ongoing education and training to help traditional investment-only advisors become better trust advisors.
So how do you find trust companies that possess these qualities? Start by reviewing their websites. Learn about their history. Their founders and staff members. Their competitive differentiators. Beyond the pure marketing content, review their blogs, videos, and podcasts.
If their websites leave you wondering who they are, or they look like they haven’t been updated since the Y2K era, the firm is probably not going to go out of its way to cultivate new relationships with advisors.
Seems overwhelming? Start with this curated list of top-rated trust companies
If doing all this research on your own seems overwhelming, here’s another suggestion: View an online list of America’s Most Friendly Trust Companies prepared by The Wealth Advisor. This dashboard profiles 22 of the top advisor-friendly trust companies in America, nearly all of them chartered in one of the nation’s most trust-friendly states. (Full disclosure: Wealth Advisors Trust Company is proud to be on this list.)
Option 2: Recommending a traditional bank trust company
While we here at Wealth Advisors Trust Company are a bit biased toward advisor-friendly trust companies, we do realize there sometimes it may make more sense for advisors and estate attorneys to recommend that their clients establish a trust with a traditional bank trust company.
What are these situations?
- A client already has a longstanding personal or commercial banking relationship with a particular bank. Using that bank as a corporate trustee may give them better benefits, such as lower fees or loan rates.
- All assets in the trust are expected to be fully distributed to beneficiaries or charities within a relatively short timeframe, not making it worth your time to set up a directed or delegated trust.
- The trust will be funded primarily with “hard” assets such as residential or business properties, vehicles, fine art or collectibles that don’t require ongoing investment management.
- You plan on retiring or selling your practice within a few years, and don’t want to go through the process of recommending successor advisors to manage the trust assets.
There are literally hundreds of traditional bank trust companies, ranging from national companies with billions of dollars in assets to smaller local banks.
And while your clients may recognize some of the larger players, like Northern Trust, JP Morgan Chase and Wells Fargo, size and brand awareness alone don’t make them the right choice for your client.
So how do you narrow down a list of candidates?
Factors that should go into the decision
Since a bank may be managing every aspect of the trust, leaving you and your client’s estate attorney totally out of the picture, you’ll want to make sure that the firms you recommend align with the best interests of your clients and your practice. As part of your due diligence process, get answers to the following questions:
- Can the bank establish trusts in any of the most trust-friendly states? For clients to be able to take advantage of the benefits these states offer, banks generally must have a charter to do business in these jurisdictions.
- How will the trust account be serviced? Will there be a dedicated Trust Officer, or will trust servicing be handled by a general “trust desk”?
- How will assets in the trust be managed? Will the trust be assigned a dedicated investment adviser, or will the bank outsource investment management to a subadvisor or robo-advisor?
- Are the proposed trust administration and investment management fees the bank charges reasonable? Is there a discount if the client already has an existing relationship with the bank?
- Will the bank agree not to compete with you? Trustworthy banks should agree, in writing, not to try to sell retail investment advisory or financial planning services or products to your clients.
- What will the service model be like? How often will the trust officer meet with the grantor and beneficiaries to discuss performance, distributions, taxes and other issues?
Containing investment expenses
Most of the larger banks that offer trusts also own proprietary mutual funds. Left to their own devices, they’d most likely invest most of your clients’ trust assets in their own expensive, actively managed funds to maximize their fee revenue.
As your clients’ advocate, one of your criteria for recommending a bank trust company should be to see if you can add language to the agreement or investment policy that limits the percentage of assets the trustee can invest in its own products or specify that minimizing investment expenses should be a primary criterion for selecting investments. This only matters when clients do not want to use an independent trust company. It is likely advisors recommend this solution seldom.
One provision that needs to be included in every trust document
Regardless of whether you’re choosing an advisor-friendly trust company or a traditional bank trust company, you’ll want to make sure that the trust document includes the following language:
The trustee shall have the authority to change the governing law for situs jurisdictions and trust administration.
This language gives grantors or beneficiaries who are unhappy with their current corporate trustee the right to move their trust to another trust company or jurisdiction.
This is particularly crucial if you’re trying to convince prospects who have a trust established with a bank in a non-trust-friendly state to move those assets into a directed or delegated trust in a trust-friendly state.
In fact, whether the trust document contains this language is the first question you should ask before you attempt to win this business.
Remember -- your client's best interests always come first when choosing the best trust company
As an investment adviser, you fully understand your own fiduciary responsibility to always act in your clients’ best interests and avoid conflicts of interest.
Clients have used your services because of the full scope of wealth management and financial planning considerations going into your advise. A traditional trust company offers a limited number of choices and a large amount of controls which clients seldom want.
The best trust company choice rests on how your clients define the choice and control they want under trust services for multiple generations of their family.