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Do You Need a Co-Trustee?

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Family offices often rely on family members to serve as trustees for their trusts.

Jenn Semler, Managing Director of Northern Trust’s Global Family and Private Investment Offices (GFO) East Region, sat down with Jane Flanagan, Director of Family Office Advisory, to discuss the circumstances that trigger the need for a co-trustee and the benefits that accompany the decision to hire one.

Jane Flanagan: Jenn, we know from our benchmarking data that many of our GFO clients rely on family members to serve as trustees for their trusts, and we have been having numerous conversations around succession — in the family office, family business and with trustees. How often is succession a trigger for families to consider hiring a co-trustee?  

Jenn Semler: The most common trigger we see is succession planning. Often the individual trustee is a family friend or trusted advisor who has been in the role a long time and is ready to scale back. Another common trigger is a generational transition in the family. When the senior generation starts stepping back, the next generation may want a trustee who is a contemporary. Finally, when the family office CEO is trustee and decides to move on, we often receive calls because the successor wants our help as co-trustee to manage the administrative tasks.

JF: When does it make sense to hire a co-trustee, and what services can a co-trustee provide to save the family time?

JS: A co-trustee can provide peace of mind for any family member or individual serving as trustee, of course, but it’s especially helpful when there is a lot of complexity — in the nature of asset allocation and the type of investments or when a beneficiary has access to multiple trusts. Also, when there isn’t a long-standing, direct relationship between the beneficiaries and the individual trustee, there may be a greater risk of liability for that trustee. A co-trustee provides protection for all parties. A corporate co-trustee also offers stability in terms of the processes and recordkeeping, as well as consistent access. Some of the services that save the family and/or the family office time include:

  1. Recordkeeping
  2. Documentation of decisions
  3. Coordination of communication between the beneficiary, trustee,
    advisors and family office
  4. Structuring and facilitating meetings
  5. Streamlining processes and providing best practices for decision-making

“Make the transition while the individual trustee is still serving. That person typically has a long history with the beneficiary and has a wealth of knowledge about the family.”

JF: Some families worry that having a corporate co-trustee means giving up control. How does decision-making happen with your clients who use Northern Trust as co-trustee?

JS: It depends on the trust document. Some trust documents require unanimous decisions by the co-trustees; others mandate a majority decision. Our practice wants to support the co-trustees and the beneficiaries by being flexible and finding options while staying true to the document. With serving so many families, we have various examples of ways to be creative. It is never our desire to dictate. We prefer to collaborate, and we consider each relationship with a long-term, multigenerational perspective.

JF: What advice do you have for families who are asking the question, ‘Do we need a co-trustee?’

JS: If possible, my advice is to make the transition while the individual trustee is still serving. That person typically has a long history with the beneficiary and has a wealth of knowledge about the family, their decision-making and style of communication. It’s nice to have overlap so we can learn from that person and build a collaborative relationship. Also, having an individual trustee is just like having ‘key person risk’ in a business. Hiring a co-trustee mitigates this risk and provides stability and continuity for the family.

JF: Thank you, Jenn, for sharing your wisdom and experience.

 

 Individual TrusteeCorporate TrusteeIndividual & Corporate as Co-TrusteesCorporate Directed Trustee
Stewardship
  • Personal steward
  • Succession challenges
  • Held to fiduciary standard
  • Succession continuity
  • Corporate resources and continuity with individual perspective
  • Corporate resources and continuity with individual perspective
Beneficiary Communication
  • Personal knowledge
  • Must manage family dynamics
  • Objectivity to help navigate conflicts
  • Leverage corporate trustee for difficult conversations
  • Individual(s) controls; can rely on corporate trustee for support
Expertise
  • May lack tax and legal expertise to ensure compliance
  • Deep tax and legal expertise to ensure compliance
  • Leverage corporate trustee's internal resources and expertise
  • Leverage knowledge of individual(s) and deep expertise of corporate trustee
Administration
  • Requires time and expertise to manage accounting and reporting
  • Processes and capabilities to administer trust
  • Leverage corporate resources for trust administration
  • Leverage corporate resources for trust administration

To learn more about the fiduciary services Northern Trust’s Global Family and Private Investment Office offers to families and family offices,  please contact an advisor.

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Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel.  All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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