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).
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.
Even if there are dozens of great local trust companies, certain factors may not make your state an ideal trust jurisdiction, such as:
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.
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.
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:
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.
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:
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.
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.)
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?
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?
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:
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.
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.
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.