Descriptions of the Bank Trust Departments
Bank trust departments are among the oldest and most established parts of the banking industry. They help people of all walks of life establish trusts to carry out their final desires.
Whom Are They Serving?
A bank’s trust department will assist you in setting up a trust for a fee if you have the funds necessary to do so and a person or persons (or other entity) to whom you wish to leave them. There is a wide variety of people that would be interested in this service. People in this category could include the local rich small company owner who wishes to save for their grandchildren’s college tuition, the child of a deceased parent who has gotten a sizeable life insurance payout, or the adult who has won a financial settlement in a personal injury case.
Just what do their services entail?
The creation, maintenance, and distribution of trusts are all handled by bank trust departments, which play a variety of responsibilities. Let’s say your great-great-uncle purchased a large block of Johnson & Johnson stock, and the shares will be held in trust until some unspecified future period. While never permitting the grantees to sell or borrow against the shares, the bank trustee can ensure that the stock is still paying dividends. Or, they may take steps to ensure that a second spouse is allowed to live in the home after the death of the first, but that the property passes to the children upon the death of the second wife, regardless of whether the couple remarries. These are two complicated cases, yet they do occur.
The trust services provided by most banks can be broken down into two categories: trust administration and investment management.
Trust Management and Administration
Each situation is unique because the grantor or trust specifies the terms of the contract between the bank and the client. The trust administrator is responsible for collecting dividends, distributing them to the correct beneficiaries, and filing tax reports for the trust. Taking on this duty does not necessitate an agent with specialized knowledge or access, as there are few if any options for allocating capital. An administrator will do.
Trustee duty:
One common task they take on is acting as a trustee on their own or alongside a close friend or relative. This implies they have a hand in implementing the trust’s decisions and ensuring that it abides by its regulations. This high-stakes position typically comes with a hefty annual charge of several thousand dollars, which can be a flat rate or a percentage of the trust’s total value.1
Disperse
Checks and assets are distributed in accordance with the trust’s conditions by trust administration departments. All recipients must receive the grantor’s intended distribution of assets. The grantor of a trust is under no obligation to restrict the trust beneficiary’s use of the funds. However, it is normal practice for them to specify how they want the funds allocated. This could be anything from settling personal payments to transferring money between bank accounts to buying a home or paying for school.
Accept Responsibilities
Securities custody and reporting are also handled by bank trust administrators. In such a trust arrangement, the trustee is responsible for delivering stock certificates, title deeds, bonds, and other assets to the bank for safekeeping. When acting as trustee, a bank might extend its own insurance to protect trust assets and submit state and federal taxes on the trust’s behalf.
Note
You should investigate trust taxation before establishing one. The Internal Revenue Service applies different rules to the many trust structures out there. Some people would delay paying taxes until later, while others would have to pay much more.
Trusts with a Focus
If the assets you intend to leave behind are unusual or if you intend for them to be kept in their current state, it may be prudent to hire a bank to manage your trust. Quincy, Florida, is one such example. Since the small town once had more Coke millionaires per capita than anywhere else in the world, the trust assets of the local bank are nearly 50% invested in shares of Coca-Cola.2
A trust can be established to manage the revenue from intellectual property, such as a patent for a gadget or the rights to a song, whether you acquired such rights through copyright law or a gift. A bank trustee could be appointed to collect royalties and distribute them to you in accordance with your established guidelines. That way, potential heirs to the inheritance can’t give the rights away, gamble them away, or lose them in a lottery.
Management of Financial Assets
Trust fund administration services may not be adequate in all circumstances. The trust’s bank might also be asked to make investments. If you hire a bank to handle your trust’s investments and distributions, the bank will adhere to the terms you set forth in the trust document.
Note
Most bank trust departments, when playing the function of investment management, will only deal with conventional asset types such equities, bonds, real estate, cash, and privately held companies.
If you wanted to leave $500,000 to your children in trust and see their wealth rise steadily over time, the investment agent may spread the money out across various assets such as gilt-edged bonds, blue chip stocks, real estate investment trusts, and Treasury bills.
Managing Unique Property
Some bank trust departments specialize in particular assets or boast expert knowledge in specific fields. Cattle and oil rights, to give two examples, are common assets in Texas trusts. The bank in Iowa would manage the contracts for the sharecroppers to ensure they made the most money possible while the farm was in trust for the minor.
Treatment Guidelines
Bank trust departments’ investment management services are often more cautious than those of a regular brokerage account because the advisors are acting as fiduciaries. They must act in accordance with the “Prudent Person Rule,” which states that they must handle the money as if it were their own. The 1830 case Harvard College v. Armory established the trustee’s duty of care. According to the judgement, trustees must:
“...observe how men of prudence, discretion, and intelligence manage their own affairs, not with regard to speculation, but with regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.“3
Because of the high bar they must clear, few trustees are ready to take substantial risks with trust funds. The risk of financial failure is too great. A judge is less likely to side with a trustee who put the trust’s assets at undue risk if the beneficiaries of a losing trust decide to sue the trustee.
Bank Trust Personnel Selection Guidance
Determine what services you need and how much you’re willing to spend before looking into a bank’s trust department. Some questions to ponder are included below; nevertheless, this is only the beginning.
Can you choose your own trustee, or does the bank require you to employ one?
Do you want assistance writing regulations?
Do you prefer to invest your money or keep it in the bank?
Do you have commonplace or specialized assets?
Do you have complicated wishes that could lead to conflict in the future?
The next step is to make contact with your preferred financial institution. Describe the help you need and inquire about pricing. Many of these are now available online. You can use it to estimate the minimum trust amount required by a specific bank to be considered a good value.
