What Is Trust Administration by Finance Companies?
The purpose of trust administration by a financial company is to ensure that a decedent's wishes regarding the financial welfare of his family are carried out after his death. Although a relative, a trusted friend, or an attorney can perform trust administration, a qualified financial company offers numerous advantages for wealth management and financial planning.
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History
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Crusader Trusts and trust administration have a long and prestigious history. The Reference for Business website cites the concept of "trusts" as beginning around 4000 B.C. when ancient Egyptians conferred the legal authority on a third party to hold and manage their lands. According to TrustAbc.com, during the Crusades in the 12th and 13th centuries, as landowners left to join the crusades, they entrusted their lands to others with the understanding that the "trustee" would care for the land until the crusader returned. The Living Trust vs Will website maintains that the first trust in America was established in 1822, with Farmer's Fire Insurance and Loan Company of New York being named as the corporate fiduciary.
Terminology
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Definitions The terminology in trust administration is quite specific. In order to better understand trust administration by finance companies, you should have a basic knowledge of trust terms.
A trust is a legal entity created by the original owner of the assets, known as the trustor. One of the main advantages of the trust is that the trustor's assets are retitled in the name of the trust and thereby avoid probate court. The trustor employs an attorney to create the trust document, which names the trustee. The trustee, whether individual or corporate, is a third party entrusted with the safeguarding of, prudent investment of, and ultimate disposition of the assets owned by the trust.
The trustee administers the trust according to the terms specified by the trustor. The trustee also makes impartial decisions regarding the distribution of the trust assets to the trust beneficiaries, who may be individuals or charitable organizations.
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Duties
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Disbursements Trust administration encompasses a variety of duties. Those duties include interpreting the trust document, collecting the assets for re-registration into the trust name, investing the assets prudently to benefit both current and future beneficiaries, and making periodic accountings to the trustor and/or beneficiaries. Trust administration also includes preparing and filing trust tax returns, making income distributions in accordance with the terms of the trust, and making discretionary principal distributions in accordance with the terms of the trust.
Benefits
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Team of specialists Although an individual can handle trust administration, the benefits of corporate trust administration often outweigh the detriments. If you are a high-net-worth individual, a corporate trustee is more equipped to handle your trust. Finance is a corporate trustee's specialty, so it can better diversify your investments, avoid estate taxes, produce court accountings, and determine if requests from beneficiaries for trust distributions are allowed pursuant to the trust's terms. Relatives or friends are often ill-equipped to handle these complexities with the impartiality provided by corporate trust administration.
Misconceptions
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Expense One common misconception held about appointing a corporate trustee is that financial companies are expensive. According to Living Trust vs Will, corporate trustees often have published scheduled fees, typically charging one percent to four percent annually of the net estate while their services are used. Individual trustees are generally entitled to reasonable compensation and have little of the expertise offered by a corporate trustee's trust officers. Besides the years of experience, many corporate trust officers hold law degrees.
Warning
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Warning Trust assets are not insured by the Federal Deposit Insurance Corporation (FDIC) regardless of whether the trust administration is performed by an individual or a corporate trustee.
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References
Resources
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