Episode 83: What You Need to Know About Corporate Trustees
Episode 83
Host: Jill Mastroianni
What You Need to Know About Corporate Trustees
Michael thought he had done everything right. He created a revocable trust, avoided probate, and named a neutral third party to serve as trustee after his death. But when the corporate trustee declined to serve, his family spent fourteen years trying to untangle the consequences. In this episode, Jill explains what corporate trustees do, why they sometimes say no, and how to make sure your estate plan works not just on paper, but in real life.
What You’ll Learn in This Episode
· Why avoiding probate shouldn't be the only goal of estate planning
· What a corporate trustee is and how it differs from an individual trustee
· Reasons a corporate trustee might decline to serve
· Why trust companies have minimum asset requirements and internal policies
· How certain assets, like closely held business interests and mineral rights, can complicate trust administration
· What silent trusts are and why some corporate trustees are hesitant to administer them
· Why some institutions decline to serve as trustee of an irrevocable life insurance trust (ILIT)
· How involving a corporate trustee during the planning process can help identify potential problems before they affect your family
· What happens when no trustee is available to serve after your death
· How state trust laws addresses vacancies in trusteeship
· The importance of naming backup trustees and creating contingency plans
Resources & Links
Watch this episode on YouTube: https://youtu.be/8yPS4NeTQng
Episode 19: Why You Need or Don’t Need a Trust: https://www.deathreadiness.com/podcast/episode-19-how-to-know-if-you-need-a-trust
Tennessee Estate Planning Solution: https://www.deathreadiness.com/estate-planning-solution
Connect with Jill:
· Website: DeathReadiness.com
· Email: jill@deathreadiness.com
· Learn more about Jill’s solutions
· Subscribe to the Death Readiness Dispatch!
· Ask a question for Tuesday Triage
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Michael thought he had done everything right. He created a trust, avoided probate, and chose a bank to serve as trustee and protect his family from conflict. But then the bank declined to serve.
Today, I’ll explain how a trust designed to avoid probate ended up delaying distributions for fourteen years because the corporate trustee declined to serve. We'll talk about what a corporate trustee is, what they do, why they sometimes refuse appointments, and the questions you should ask to make sure your estate plan actually works when your family needs it most.
Welcome to The Death Readiness Podcast. This is not your dad’s estate planning podcast. I’m Jill Mastroianni — estate planning attorney, death readiness guide, and your translator for wills, trusts, probate, and the conversations most families avoid. If you’ve been wondering things like, ‘Can a trust protect what I leave to my children?’ ‘What happens if I give someone power of attorney over me?’ and ‘How can I help my parents while respecting their independence?’ You’re in the right place.
Back when I was in elementary school, we had to do a science project every year. One year—I think I was in fourth grade—I decided to include my dog, Sandy, and my rabbit, Cornelia, in my experiment. I called it “Friends or Foes.” I was mostly proud of the alliteration.
My plan was simple: I would observe Sandy and Cornelia interacting in our family room and determine whether they were friends or enemies. Sandy was a small dog, probably under twenty pounds. Cornelia was a gray rabbit with a tendency to bite people.
The experiment itself was fairly informal. I put Sandy and Cornelia on the floor together and watched what happened. I took dozens of photographs—the kind you had to bring to the drugstore to be developed. And because my mom always ordered doubles, I had plenty to choose from when I assembled my tri-fold display board. After carefully reviewing the evidence, I concluded that Sandy and Cornelia were, in fact, friends.
What never occurred to me in my 10-year-old logic was that my plan, which I believed was perfectly reasonable and risk-free, actually wasn't. It never crossed my mind that Cornelia might have looked less like a friend and more like lunch to Sandy.
I didn't know enough to ask whether putting them together was safe in the first place. And I think that's true for a lot of people when it comes to estate planning. The greatest risks often aren't the ones we deliberately accept. They're the questions we never knew to ask. Fortunately, my lack of knowledge and insight turned out just fine that time.
When it comes to estate planning, though, luck isn't a strategy I’d recommend.
Sometimes people make decisions with the best of intentions, without realizing there's an important question they never thought to ask. Years later, the people they love are left dealing with the unintended consequences.
And I think that's especially true when it comes to trusts. Most people spend a lot of time deciding who they want to name as trustee. Far fewer people stop to ask whether that person, or institution, would actually be actually willing and able to serve when the time comes.
One of the most valuable things an estate planning attorney can do is help you identify the risks you don't even know to ask about. If you're a Tennessee resident and you're ready to create or revisit your estate plan, I'd love to help you think through not just the documents themselves, but how they'll actually work when your family needs them most. Visit deathreadiness.com/solutions to learn more. That’s deathreadiness.com/solutions.
Now let’s get into today’s episode. We estate planning attorneys have done a really good job, as an industry, of talking about avoiding probate. But I don't think we've done a particularly good job of talking about how to implement an estate plan that avoids probate.
A beautiful estate plan on paper only works if there are actual human beings, or institutions, willing and able to carry out the plan.
Revocable trusts are often at the center of a probate avoidance estate plan. If you'd like to learn more about revocable trusts, I'll link to an earlier episode in the show notes.
I'm not saying revocable trusts are bad. They can be absolutely wonderful in the right circumstances. And I'm not saying that avoiding probate is bad either. What I am saying is that you have to think through the practical side of what you're doing. Sometimes documents that are intended to avoid a mess can create an even bigger mess than anyone anticipated.
One example of this involves choosing a corporate trustee who turns out to be unwilling to serve as trustee of your trust.
A corporate trustee is a bank or trust company that is appointed to manage a trust instead of an individual person. On a practical level, a corporate trustee does many of the same things an individual trustee would do. It invests trust assets, pays bills, files tax returns, keeps records, and makes distributions to beneficiaries according to the terms of the trust.
The difference is that you're relying on professionals who do this work every day, rather than a family member or friend who may have no idea what you've signed them up for.
And there are absolutely situations where naming a corporate trustee makes a lot of sense. They can provide expertise and neutrality in families where emotions are running high.
But naming a corporate trustee in your trust agreement isn’t the same thing as hiring one.
If your trust agreement says something like, “Upon my death or incapacity, I appoint X Bank to serve as trustee,” X Bank doesn't have to decide whether it wants that job until your death or incapacity. In fact, unless you’ve had a conversation with the bank in advance, the bank wouldn’t even know you've named it until that point.
The same would be true if you named me. You could absolutely write into your trust agreement, “Upon my death or incapacity, I appoint Jill Mastroianni to serve as trustee.” But because I don't serve as trustee for anyone outside my family, I'm going to decline. I’m going to say, “No, I don’t want to serve as trustee, and that’s the end of it for me.”
So just because you've named a bank or trust company, or anyone else, in your trust agreement doesn't mean they have agreed to accept the appointment. And if the institution you've chosen isn't willing or able to serve when the time comes, your carefully crafted estate plan can quickly become much more complicated than you intended.
Today, I want to talk about how that happens, and how you can avoid creating an unintended mess for the people you love.
Here’s how things played out for a current client's father, who we'll call Michael.
Michael met with an estate planning attorney and the attorney told him that he should avoid probate. So, Michael created a revocable trust to distribute his assets after his death.
And just as a reminder, a revocable trust is simply a trust you create during your lifetime that you can amend or revoke while you're alive.
Michael wanted both his second wife and his children from his first marriage to benefit from his trust. The problem was that they didn't always see eye to eye. So his attorney recommended appointing a neutral third party to serve as trustee of the revocable trust after Michael’s death. Michael would serve as trustee during his lifetime.
Michael didn't have a friend or family member who felt like a good fit for the role of trustee so the attorney suggested a corporate trustee.
Now, I want to explain more fully what the phrase corporate trustee actually means.
A corporate trustee is a bank or trust company that agrees to administer a trust. Instead of relying on one individual, you're relying on a team of professionals whose job is to invest assets, pay bills, file tax returns, keep records, and make distributions according to the terms of the trust.
Many banks have trust departments that provide these services. The employees who work with families are often called trust advisors. My law school roommate, Alex, is a trust advisor at Regions Bank. She works alongside other trust professionals and administrative staff to collectively carry out the responsibilities of Regions Bank when it serves as trustee.
There are also independent trust companies that aren't affiliated with banks. I worked at one briefly, and it gave me valuable insight into how corporate trustees evaluate whether a particular trust is a good fit for their company.
And, unlike your sister-in-law who reluctantly agreed to serve as trustee because you asked nicely over Thanksgiving dinner, corporate trustees expect to be compensated for the work they do.
Typically, a corporate trustee charges an annual fee based on a percentage of the assets under management. The higher the value of the assets in the trust, the lower the percentage often becomes. Because those fees are paid from the trust assets themselves, the bank or trust company has to determine whether the anticipated compensation justifies the time, expertise, and potential liability involved in administering the trust.
And that's an important point: corporate trustees don't automatically accept every appointment.
Like any business, they have minimums and policies. A trust company may decide that a trust isn't large enough to justify the administrative work involved. For example, some institutions won't agree to serve as trustee unless the trust assets exceed a certain threshold—sometimes $1 million or more.
They may also decline if the trust owns assets that require specialized expertise or create additional liability. Closely held business interests are one example. If a bank or trust company doesn't feel equipped to manage a particular asset, or isn't comfortable assuming the risks associated with it, it may decide that the trusteeship simply isn't a good fit.
In other words, naming a corporate trustee in your estate planning documents is really more like extending an invitation than issuing a command. The corporate trustee still gets to decide whether it wants the job.
Now, there are other reasons a corporate trustee might say no.
Take silent trusts, for example. A silent trust limits the information a trustee may share with beneficiaries. Estate planning attorneys often market a silent trust as a way to keep young beneficiaries motivated or to avoid disclosing the existence of a future inheritance. And I understand the appeal.
But from a corporate trustee's perspective, silent trusts can create additional risk. Trustees generally prefer to notify beneficiaries about their role, provide accountings, and communicate about the actions they're taking. Those disclosures start the clock running on statutes of limitation for trustee liability. If a trustee isn't allowed to provide information to beneficiaries, they remain exposed to potential claims that, for example, they mismanaged the funds or acted inappropriately.
Similarly, many corporate trustees are hesitant to serve as trustee of an irrevocable life insurance trust, often called an ILIT. The administrative responsibilities can be significant, and the consequence of a mistake, like loss of life insurance coverage, is serious.
The good news is that these issues can often be addressed in advance.
I had a client a few years ago who wanted a well-known trust company to serve as trustee. Before he signed the trust agreement, I sent the draft to the trust company for review. In addition to other assets, the trust was going to own voting interests in a business, and the trust company wasn't comfortable taking on that responsibility.
So we drafted around it. We appointed an individual to vote the shares of the company, while the corporate trustee handled the rest of the trust administration.
Under Tennessee law, the corporate trustee became what's called an excluded fiduciary with respect to the voting rights in the business. In plain English, that means the corporate trustee wasn't responsible for making decisions about the company and wasn't liable for those decisions. Someone else had that job.
And that's one of the reasons it's so important to involve a corporate trustee early in the planning process. Sometimes the answer is, “No, we won't serve.” And sometimes the answer is, “We're happy to serve, but only if someone else handles that particular responsibility.”
The good news is that, with enough planning and open conversations, you may be able to structure things in a way that works for everyone involved.
The last thing you want is for your family to discover, after you've died, that the trustee you carefully selected has decided not to serve.
So let's get back to Michael and his family.
Michael died in 2012 with very little. In fact, the only asset in his revocable trust was mineral rights in South Dakota. Mineral rights are the legal rights to the resources beneath the ground, like oil or natural gas.
And mineral rights are generally treated as real estate. If you die owning real estate in another state in your individual name, your family has to open a separate probate, called an ancillary probate, in that state in addition to the probate proceeding where you lived.
So, in many ways, Michael's revocable trust accomplished exactly what it was supposed to accomplish. By transferring the mineral rights to the trust during his lifetime, he saved his family the time, expense, and hassle of an ancillary probate proceeding in South Dakota.
But it wasn't all smooth sailing. Michael had named a bank to serve as successor trustee after his death. And the bank declined to serve.
Michael wasn't being careless. He simply didn't know there was a question he should have been asked as part of the estate planning process: “Would this bank actually agree to serve?” He thought he had created a plan that would spare his family from conflict. Instead, he left them with a problem no one anticipated.
The trust assets didn't meet the bank’s minimum requirements. And because mineral rights aren't liquid assets, there wasn’t an obvious source of cash to pay the trustee’s fees. The bank simply decided that this wasn’t a trusteeship it wanted to accept.
So who was next in line? No one. Michael hadn’t named an individual successor trustee if the bank couldn't serve.
The trust agreement did provide that a majority of the beneficiaries could appoint another corporate trustee. The problem was that the same factors that caused the first bank to decline were still present.
The trust assets didn't meet many institutions' minimum requirements, and the mineral rights weren't liquid enough to provide an obvious source of cash to pay trustee’s fees. As a result, no corporate trustee was willing to take the job.
And remember, Michael's beneficiaries didn't always see eye to eye.
So what happens if there isn't a trustee who can serve under the terms of the trust agreement?
You look to state law.
Now, the specifics vary from state to state, but many states have adopted some version of the Uniform Trust Code. Michael lived in Tennessee, so Tennessee law controlled.
Under the Tennessee Trust Code, if there is no trustee able to serve, the beneficiaries can unanimously agree on someone to appoint as trustee.
But remember what Michael was trying to avoid in the first place: conflict between his second wife and his children from his first marriage.
If the beneficiaries can't agree, someone has to petition the court to appoint a trustee.
And if one of the reasons for creating a revocable trust was to avoid court involvement, it’s hard to get excited about hiring an attorney and going to court to solve a problem the trust was supposed to prevent.
So everyone waited.
Without a trustee, no one had authority to distribute the mineral rights from the trust to the beneficiaries.
They waited from 2012, when Michael died, until 2026—fourteen years—before the beneficiaries were finally able to reach an agreement about who could serve as trustee and distribute the assets.
For fourteen years, no one could touch the mineral rights in the trust.
Now, looking back, would it have been better for Michael to name an individual successor trustee instead of relying exclusively on a corporate trustee? Yes, if that individual would actually serve as trustee.
Michael wanted neutrality and professionalism. And he wanted to avoid probate. What he didn't know was that the corporate trustee had the ability to say no. And that's really the point of this episode.
This isn't a knock on corporate trustees. They can be an excellent choice in the right circumstances. But you want to go into that decision with your eyes wide open.
If you’re considering naming a corporate trustee, talk with the institution ahead of time. Ask about their minimum asset requirements, the types of trusts they are willing to administer, and their fees. Make sure your trust, and your family’s situation, is actually a good fit.
As I think back to that “friends or foes” science experiment in elementary school, I now realize that the biggest issue was that I didn't even know enough to ask whether putting them together was safe in the first place. Sometimes the greatest risks aren't the ones we weigh and accept, but the ones we don't realize exist at all.
And I think that's true for a lot of people when it comes to estate planning.
Michael wasn't trying to create a fourteen-year delay for his family or make things harder for his second wife or his children. He was trying to avoid probate and have the trust administered in a way that would avoid conflict. He thought he had done everything right.
That's why death readiness isn't just about signing documents. It's about understanding how those documents work in real life. It's about asking uncomfortable questions. What if my first choice can't serve? What's Plan B? And Plan C? Who actually has to carry this out after I'm gone? And are they willing and able to do so?
The people you love shouldn't have to conduct their own experiment after you're gone, trying to figure out whether the plan you left behind is friend or foe.
If you’re in Tennessee and you've been meaning to get your estate plan done, or update the one you already have, don't leave your family sorting through unanswered questions and unintended consequences. Estate planning isn't just about putting names into documents. It's about making sure your plan works in the real world. If you'd like help creating a plan that does exactly that, visit deathreadiness.com/solutions to learn more about my Tennessee estate planning services. That’s deathreadiness.com/solutions.
Thanks for listening today.
This is Death Readiness, real, messy and yours to own. I’m Jill Mastroianni and I’m here to help you sort through it, especially when you don’t know where to start.
Hi, I'm April, Jill's daughter. Thanks for listening to The Death Readiness Podcast. While my mom is an attorney, she’s not your attorney. The Death Readiness Podcast is for educational and entertainment purposes only. It does not provide legal advice. For legal guidance tailored to your unique situation, consult with a licensed attorney in your state. To learn more about the services my mom offers, visit DeathReadiness.com.
