There is a misconception that using a corporate trustee, such as a bank or trust company, is difficult and costly. However, this couldn’t be further from the truth. This misconception causes roughly 99% of estate planners to avoid using other states’ more favorable trust laws which therefore harms their clients and the families of their clients.
There are only a handful of first-tier trust jurisdictions. Trusts sitused in these jurisdictions can often avoid state income taxes on undistributed taxable income and are often better protected from creditors of the beneficiaries, including divorcing spouses.
In addition to these benefits, these trust jurisdictions often have very flexible “decanting” statutes that enable the trustee to make adjustments by distributing the trust assets into trusts that have enhancements and/or fix problems. These jurisdictions will also allow the trusts to avoid estate taxes for many more generations than the standard trust jurisdiction allows.
HOW EASY IS IT?
The first misconception is that it is difficult to use a corporate trustee in another jurisdiction. This couldn’t be any further from the truth.
How difficult is it to name a co-trustee in the opening paragraph of the trust agreement and add a signature block for the corporate co-trustee? The corporate trustee is generally given limited powers in the trust agreement to either be a jurisdictional-only trustee or a distribution trustee.
HOW COSTLY IS IT?
The second misconception is that it is costly to use a corporate trustee in another jurisdiction. This also couldn’t be any further from the truth.
It is only “costly” if the client wishes to name the corporate trustee as the sole trustee in which case the corporate trustee would be responsible for making investments which is the “costly” role. It is customary for a corporate trustee to charge a percentage of the assets, much like a financial advisor, where the corporate trustee is used in this sole trustee role. For many families, this is the chosen path and this article is not intended to dissuade any estate planning advisor or client from using a corporate trustee in this expanded role.
However, this article is focused on using a corporate trustee to obtain jurisdiction and the small cost involved in doing so. There are generally two different options in this regard.
The first of the two options is to simply name the corporate trustee as a jurisdictional trustee. This is generally done by giving the corporate trustee non-exclusive powers to do certain tasks, but in some cases, such as with an asset protection trust, it may require certain specific powers required by state law. With this type of trustee role, the corporate trustee does almost nothing…which is exactly what clients generally want. The clients generally want the corporate trustee to do just enough to obtain jurisdiction, but nothing more than that.
The second of the two options is to name the corporate trustee as the distribution trustee. This role will also provide jurisdiction and therefore no separate jurisdictional trustee is needed. For many of our clients’ trusts, there are no distributions or very limited distributions. Therefore, although this role is more expansive than the role of a jurisdictional trustee, it is generally still a very limited role and therefore carries a low trustee fee.
In either case, there are tons of corporate trustees that provide these services for a very small flat annual fee. The fee is fair to the client and fair to the corporate trustee which is why the sophisticated estate planner who understands the benefits of using an out-of-state trustee in a first-tier trust state can generally do so in mass.
There is a misconception that using a corporate trustee, such as a bank or trust company, is difficult and costly. Hopefully this article will clear up this misconception and inspire estate planners all over the country to think outside the box and change their approach with clients. If so, it will often save their clients a substantial amount of taxes and provide many of the other benefits noted in this article.
ABOUT THE AUTHOR
Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at firstname.lastname@example.org or at his firm’s website, www.oshins.com.