Choosing Between a Corporate Trustee and Family Member in Greenville, SC

Creating a trust is one of the most thoughtful and impactful steps you can take in planning for your family’s future. It is an act of foresight, designed to protect your assets and provide for your loved ones long after you are gone. However, the document itself is only half of the equation. The person or entity you choose to carry out your wishes—the trustee—is just as important. For many families in Greenville, this decision boils down to a deeply personal choice: appointing a trusted family member or engaging the services of a professional corporate trustee.

This is not a simple decision, and there is no single correct answer. The right choice depends entirely on your family’s dynamics, the complexity of your assets, and the long-term goals of your trust.

What Exactly is the Role of a Trustee?

Before comparing candidates, it is vital to know what the job entails. A trustee is more than just a gatekeeper of funds. They are a fiduciary, which is a legal term for someone who must act in the best interests of another party—in this case, the trust’s beneficiaries. This is the highest standard of care recognized by law, and it comes with a significant list of responsibilities.

The primary duties of a trustee include:

• Loyalty and Impartiality: The trustee must administer the trust solely in the interest of the beneficiaries. If there are multiple beneficiaries, the trustee must act impartially, without favoring one over another.
• Prudent Asset Management: The trustee is responsible for managing, investing, and protecting the trust’s assets. This requires sound financial judgment and a strategy that balances growth with risk.
• Adherence to the Trust Document: The trustee’s primary instruction manual is the trust document you create. They must follow your instructions for how and when to distribute assets to beneficiaries.
• Detailed Record-Keeping: A trustee must maintain meticulous records of all transactions, including investments, distributions, and expenses. They are required to provide regular accountings to the beneficiaries.
• Tax Compliance: The trustee is responsible for filing the trust’s annual income tax returns and ensuring all tax obligations are met.
• Communication: A trustee must keep beneficiaries reasonably informed about the trust’s administration and promptly respond to requests for information.

This is a demanding, time-consuming, and legally significant role. A mistake, even an unintentional one, can lead to personal liability for the trustee.

The Case for Appointing a Family Member or Friend as Trustee

The impulse to name a spouse, adult child, sibling, or close friend as trustee is a natural one. This is the person who knows your family, understands your values, and has a personal connection to the beneficiaries. The arguments in favor of this approach are compelling and rooted in familiarity and trust.

Advantages of a family trustee often include:

• Personal Knowledge: A family member likely knows the beneficiaries personally. They may have a better grasp of a beneficiary’s character, needs, and life circumstances, which can be invaluable when making discretionary distributions.
• Cost Savings: While a family member is entitled to reasonable compensation for their services under South Carolina law, many choose to waive their fee. This can reduce the administrative costs of the trust, leaving more assets for the beneficiaries.
• Deep-Seated Trust: You are placing your legacy in the hands of someone you have known and trusted for years. This existing relationship can provide significant peace of mind.
• Potential for Flexibility: A family member may be more willing to work with a beneficiary on a unique request, whereas a corporate entity might be more bound by rigid policies.

For a straightforward trust with modest assets and cooperative beneficiaries, a responsible and financially savvy family member can be an excellent choice.

What Are the Potential Pitfalls of Choosing a Family Trustee?

While appointing a loved one feels right on an emotional level, it can introduce a host of practical and legal complications. The role of a trustee can place an immense burden on an individual and, in some cases, do irreparable harm to family relationships.

The potential disadvantages are significant:

• Lack of Knowledge: Does your brother, the skilled carpenter, or your daughter, the dedicated teacher, have the financial acumen to manage a diverse investment portfolio? Do they know how to prepare fiduciary tax returns or navigate the complexities of the South Carolina Trust Code? A lack of knowledge can lead to poor investment decisions or legal missteps, ultimately harming the trust.
• Emotional Conflicts of Interest: This is perhaps the greatest risk. Imagine one of your children, acting as trustee, must deny a distribution request from their sibling. This can create resentment and accusations of favoritism that can tear a family apart. A trustee must be able to say “no,” and that is exponentially harder when dealing with a family member in need.
• The Burden of the Job: Administering a trust is a lot of work. It requires time, organization, and attention to detail. Your chosen family member may have their own career, family, and responsibilities. They may simply not have the bandwidth to do the job properly, leading to missed deadlines and sloppy record-keeping.
• Personal Liability: A family trustee is held to the same high fiduciary standard as a professional. If they make a mistake that costs the trust money, the beneficiaries can sue them, and they could be held personally liable for the damages.
• Continuity Issues: What happens if the family member you choose becomes ill, moves away, or passes away? While you should always name successor trustees, an individual trustee introduces a potential point of failure that a corporate entity does not have.

The Alternative: What is a Corporate Trustee?

A corporate or professional trustee is an institution, such as a bank’s trust department or a dedicated trust company, that serves as a professional fiduciary. These institutions are in the business of managing trusts. They employ teams of professionals, including investment managers, tax accountants, and legal compliance officers, all dedicated to trust administration.

Engaging a corporate trustee means shifting the responsibility from a loved one to a regulated, professional entity whose sole purpose is to carry out the duties of a trustee competently and objectively.

What Are the Advantages of Using a Corporate Trustee?

For trusts with significant or complex assets, or families with a history of conflict, a corporate trustee offers a level of professionalism and objectivity that an individual simply cannot match.

The primary benefits of a corporate trustee include:

• Knowledge and Experience: These institutions have deep knowledge in asset management, tax law, and trust administration. They handle these matters every day and have established processes to ensure everything is done correctly and in compliance with the law.
• Unbiased Objectivity: A corporate trustee has no emotional connection to the beneficiaries. Their decisions are based solely on the terms of the trust document and their fiduciary duty. They can make difficult decisions, like denying an imprudent distribution request, without creating family drama. This impartiality is invaluable in preserving family harmony.
• Regulatory Oversight: Corporate trustees are highly regulated by both state and federal agencies. This oversight provides an added layer of protection for the trust assets and ensures that the institution adheres to strict operational standards.
• Permanence and Continuity: A corporate trustee does not get sick, take a vacation, or pass away. The institution provides uninterrupted management for the life of the trust, ensuring a seamless transition between individual trust officers if one leaves the company.
• Resources and Infrastructure: Professional trustees have sophisticated systems for accounting, record-keeping, investment management, and tax reporting. This ensures accuracy and efficiency in the administration of the trust.

Are There Downsides to a Corporate Trustee?

Of course, the professional option is not without its own set of considerations. For some families, the perceived drawbacks are enough to steer them toward an individual trustee.

Common concerns about corporate trustees are:

• Fees: Professional management comes at a cost. Corporate trustees charge an annual fee, which is typically a percentage of the assets they manage. These fees are a direct expense to the trust and should be weighed against the value of the services provided.
• Bureaucracy and Rigidity: Because they are large, regulated institutions, corporate trustees can sometimes feel impersonal or inflexible. A beneficiary may need to go through several layers of approval for a request that a family member might grant instantly.
• Staff Changes: While the institution is permanent, the individual trust officer assigned to your family’s account can change over time due to promotions or employee turnover. This can disrupt the personal relationship that may have developed.
• Investment Philosophy: A corporate trustee will have its own investment models and strategies. These may be more conservative than you or your beneficiaries might prefer.
• Asset Minimums: Many banks and trust companies will only agree to manage trusts that meet a certain asset threshold, which can be a barrier for smaller estates.

A Hybrid Approach: Naming a Co-Trustee

For many Greenville families, the optimal solution is not an either/or choice. It is possible to appoint a family member and a corporate trustee to serve together as co-trustees. This hybrid approach can offer the best of both worlds.

In a co-trustee arrangement:

• The family member provides the personal touch. They understand the family history and the unique needs of the beneficiaries.
• The corporate trustee handles the heavy lifting of the day-to-day administration, including investments, accounting, and tax filings.

This structure allows the family to maintain a personal connection to the trust’s administration while benefiting from the knowledge, resources, and objectivity of a professional. The trust document can even specify how responsibilities are to be divided between the co-trustees.

How Do South Carolina Laws Impact Trustee Selection?

Regardless of who you choose, your trustee will be bound by the South Carolina Trust Code. This body of law outlines the specific duties and powers of a trustee in our state. It establishes the “prudent investor rule,” which requires a trustee to manage trust assets as a prudent person would, considering the purposes, terms, and other circumstances of the trust.

Choosing a trustee who is unfamiliar with these legal obligations is risky. Should a dispute arise, it would likely be heard in the Greenville County Probate Court. A well-drafted trust administered by a competent trustee is the best defense against costly and painful family litigation. An experienced local attorney can help ensure your chosen trustee is prepared to comply with all relevant state laws.

Key Questions to Ask When Making Your Decision

As you weigh your options, consider these questions in the context of your own family and financial situation:

• How complex are the trust assets? Does the trust hold a family business, commercial real estate, or other hard-to-manage assets?
• What are the specific needs of the beneficiaries? Does a beneficiary have special needs, a history of financial irresponsibility, or a difficult relationship with other family members?
• What is the potential for conflict within the family? Would appointing one child as trustee create jealousy or resentment among their siblings?
• Does your preferred family member truly have the time, skills, and emotional temperament to handle the job?
• Are you and your beneficiaries comfortable with the fee structure and institutional nature of a corporate trustee?
• Could a co-trustee arrangement provide the right balance of personal insight and professional management?

Making the Final Choice for Your Greenville Estate Plan

The decision of who will steward your legacy is one of the most important you will make. Choosing a family member offers a personal connection and potential cost savings, but it comes with the risk of inexperience and family conflict. A corporate trustee provides professional, objective management but at a financial cost and with a more formal approach.

At the DeBruin Law Firm, we are dedicated to helping individuals and families in Greenville and throughout South Carolina navigate these important estate planning decisions with confidence. We can help you analyze your situation and structure a trust that not only reflects your wishes but is also set up for successful administration. If you are ready to explore your options or have questions about how to best protect your family’s legacy, please reach out to us.

To discuss your estate planning needs, contact us today at (864) 982-5930 or send a message online to schedule a consultation.