Saturday, October 28, 2006

Corporate Trustees

In some circumstances, you might consider appointing a corporate trustee as the executor of your will, or trustee of a trust you create. For examples,
  1. You don't have relatives or friends whom you consider suitable for the job.
  2. Your estate is complex, and you wish to have a trustee with special expertise in financial matters.
  3. You are concerned about conflicts of interests or disputes between the beneficiaries of your estate.
  4. You have created trusts that may last for decades, and want to have a trustee that can administer the trusts until they terminate.
  5. You simply do not want to burden your family with the responsibility.

I have discussed choosing an executor in more detail in a previous post here.

Not all corporations are allowed to act as trustees. In British Columbia, Part 3, Division 3, of the Financial Institutions Act, RSBC 1996, c. 141, permits "a trust company, an extraprovincial trust corporation or a credit union that has a business authorization to carry on trust business", a law corporation, and a licensed trustee in bankruptcy to engage in a trust business. Other corporations are prohibited from engaging in a trust business.

Trust business is defined in s. 1 as "the business of providing or offering to provide services to the public as
(a) trustee, executor or administrator,
(b) guardian of a minor's estate,
(c) committee of the estate of a person with a mental disorder, or
(d) representative under the Representation Agreement Act...."

In my experience trust companies are the most common corporate trustees. I have not come across credit unions acting as executors or as trustees of personal trusts. (I would be interesting in hearing about any credit unions in B.C. that do trust work in the comments.)

I have found that trust companies generally do have expertise in administering estates, manage investments conservatively, and keep excellent records and accounts.

The two criticisms I hear about trust companies is that they are costly and impersonal.

In some cases, I think that the costs are warranted. I prefer a competent trustee who charges, to an incompetent one who works for free. Worst, there are cases in which family or friends acting as trustees do a poor job, and then claim excessive fees.

But, some trust companies charge minimum fees, irrespective of the size of the estate, which can make it uneconomical to select a trust company to act as an executor and trustee in a small estate or moderate sized estate.

With respect to the second criticism, a trust company is not going to have the same degree of knowledge about your family as a relative or close friend. But, I have dealt with trust officers who are very personable, and conscientious about getting to know the beneficiaries' circumstances. In some cases, especially if there is family conflict, it may be helpful to have someone who is somewhat detached as a trustee. You can also appoint a relative to act as a co-trustee with a trust company.

The biggest problem I have with the large trust companies is that over the last ten years--a time when Kelowna has experienced tremendous growth in wealth and population--the large trust companies have reduced their local trust services here. In many cases, the administration of trusts is handled entirely in Vancouver, or even outside of British Columbia, and the trust company does not have enough personal contact with the beneficiaries in Kelowna. I suspect this may be less of a problem in larger cities, but I am concerned that some trust companies are more focused on other aspects of their business than on administering personal trusts.

In addition to the large trust companies, there are some smaller trust companies whose business is restricted to providing trust services. They do not have deposit accounts or lend money. For example, Community Western Trust Corporation, which is based here in Kelowna, is licensed to provide trust services only.

The B.C. Financial Institutions Commission has a listing of trust companies licensed in British Columbia on their website here. The list indicates if the company is licensed for trust business, deposit business or both.

I have not had as much experience dealing with small trust companies restricted to providing trust services as with the larger trust companies, but I hope that some of the smaller ones will fill a need for professional trust services for relatively small and moderate sized estates and trusts, as well as offer more services in smaller communities.

If you are considering appointing a corporate trustee, I suggest you talk to two or three trust companies. You probably already either deal with a trust company for investments or loans, or you deal with a bank that has a trust company affiliated with it. This may be a good starting point, but you might consider talking to a smaller trust company as well. In any case, ask questions about their fees, but also ask about their services. Do they have trust officers available to meet with the beneficiaries? How often do they provide statements of accounts to the beneficiaries? Who makes decisions in respect of the trust? If you name the trust company as your executor or alternate executor, will the trust company accept the appointment when the time comes?

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