Banks As Trust Companies
There are many benefits to using a bank with a trust company. Trust grantors like to use individuals as trustees for a trust since they know the person, but having an individual as trustee is problematic in that the person may not have the necessary expertise, may get sick or die, or simply not have the time to administer the trust. A bank trust company removes all of these problems.
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Institutional Failure
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A common misconception is that if a trust is with a bank trust company and the bank fails as many have recently, then the trust is affected. This is not true, since trust assets cannot co-mingle with bank assets. Trust assets are not core deposits of the bank and as such, are not subject to bank creditors in the event of bank institutional failure. If a bank fails, the Federal Deposit Insurance Corporation steps in and the trust is still intact the next day -- there is simply different management administering the trust. Bank trust companies do not have FDIC insurance on trust accounts for this reason, since they are not subject to bank institutional failure.
Continuity of Administration
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A bank trust company cannot die or get sick, which means that the trust will not have a breakdown in trusteeship. Since a bank trust company is not personally involved in the trust, it remains objective and impartial in the administration of the trust. This is particularly important with trusts that have family disagreements or assets that are difficult to manage.
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Expertise
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Bank trust companies have a higher standard of expertise, and have a fiduciary duty to ensure that the trust administration is proper in accordance with the trust terms, state and federal law. Bank trust companies have routine audits for compliance by either the Federal Deposit Insurance Corporation or the Office of the Comptroller of the Currency.
Fees and Disadvantages
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Bank trust companies do charge fees for their services, but full disclosure of the fees occurs on the bank trust company published fee schedule. The main disadvantage of a bank trust company is there is a minimum size of account that the company will accept. Smaller bank trust companies will typically not accept accounts under $500,000 and larger bank trust companies may go has high as $1,000,000 for their minimum account size. Fees vary by institution, but can go as high as 1.75 percent of the market value of the trust.
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