What Does a Trust Company Do?

Quick answer: A trust company is a professional fiduciary institution that may serve as trustee, co-trustee, or successor trustee and handle responsibilities such as managing trust assets, making distributions, keeping records, coordinating tax work, and carrying out the trust’s instructions.

For some families, naming a capable relative as trustee works very well.

For others, a professional trustee may provide more continuity, experience, and neutrality than any individual family member can reasonably offer.

What Is a Trust Company?

A trust company is an institution authorized to perform fiduciary and trust-related services. Texas law separately regulates state trust companies under the Finance Code.

Depending on the institution and appointment, services may include:

• serving as trustee or successor trustee;
• serving as co-trustee;
• managing investments;
• holding and safeguarding assets;
• making trust distributions;
• maintaining fiduciary records;
• coordinating tax and accounting work;
• communicating with beneficiaries;
• administering property over many years.

The Texas wealth-management and trust industry includes professional fiduciaries providing trust administration, investment management, income and principal distributions, custodial services, and estate-planning-related services.

What Does the Trustee Actually Have to Do?

People sometimes focus on the honor of being named trustee and underestimate the work.

A trustee may have to:

• understand the trust document;
• identify and take control of trust property;
• keep trust assets properly titled;
• manage or supervise investments;
• maintain accurate records;
• pay legitimate expenses;
• make discretionary or required distributions;
• communicate with beneficiaries;
• coordinate tax returns;
• deal with real estate;
• respond to beneficiary questions;
• document important decisions.

For a trust that lasts several years—or decades—that can become a significant responsibility.

A Professional Trustee Can Provide Continuity

An individual trustee can:

• become ill;
• die;
• move away;
• become overwhelmed;
• lose interest;
• develop family conflicts;
• become unable to manage increasingly complex assets.

A corporate trustee does not depend on one individual remaining available for the entire life of the trust.

Personnel may change, but the institution continues.

That continuity can matter when a trust is intended to last for:

• minor children;
• grandchildren;
• beneficiaries with disabilities;
• financially inexperienced beneficiaries;
• several generations.

Neutrality Can Matter in Families

Suppose three siblings are beneficiaries and one sibling is trustee.

Now imagine one beneficiary requests a large early distribution.

The trustee-sibling has to decide whether the request satisfies the trust terms.

Even if the trustee makes exactly the right decision, the beneficiary may hear:

“My brother refused to give me my money.”

When a professional trustee makes the same decision, it can feel less personal.

A trust company cannot eliminate family conflict.

But an independent fiduciary can remove one family member from the uncomfortable position of repeatedly having to say yes or no to another.

Professional Management Can Help with Complex Assets

A corporate trustee may be particularly useful when the trust owns or manages:

• substantial investment portfolios;
• multiple real-estate holdings;
• business interests;
• long-term trusts;
• assets requiring regular accounting;
• property benefiting several generations.

Professional administration does not guarantee better investment results.

Its value is often in having established systems for administration, recordkeeping, compliance, continuity, and fiduciary decision-making.

A Trust Company Must Follow the Trust

A professional trustee does not simply decide what seems fair.

The trustee must administer the trust according to the governing instrument and applicable fiduciary law.

That can include standards governing:

• distributions;
• investment decisions;
• impartial treatment of beneficiaries;
• accounting;
• recordkeeping;
• conflicts of interest.

The trust document still controls the plan.

The trustee’s job is to carry it out.

Professional Trustees Can Be Useful for Beneficiary Protection

A trust may be designed to protect or manage an inheritance for someone who:

• is young;
• has little financial experience;
• has creditor concerns;
• is going through divorce;
• struggles with addiction;
• has a disability;
• receives means-tested public benefits;
• is vulnerable to financial exploitation.

In those situations, the trustee may need to exercise judgment repeatedly over many years.

That role can be emotionally difficult for a sibling or close relative.

Special Needs Trusts Require Particular Care

A Special Needs Trust is a good example.

The trustee may need to understand how distributions interact with SSI, Medicaid, housing, medical needs, transportation, and other support.

A well-meaning relative may be able to learn those rules.

But some families prefer professional administration because the consequences of poor administration can be substantial.

Does a Trust Company Replace the Family?

No.

Using a professional trustee does not mean the family has to be removed from the beneficiary’s life.

A family member may still:

• advocate for the beneficiary;
• communicate needs to the trustee;
• provide practical support;
• serve as trust protector or adviser if the trust permits;
• participate in other roles established by the plan.

The financial-management role and the personal-support role do not have to belong to the same person.

What About Co-Trustees?

Some families consider combining family knowledge with professional administration.

For example, a trust might involve:

• a family member and professional co-trustee;
• a professional trustee with a family adviser;
• different trustees for different stages of the trust.

But co-trustee arrangements require careful drafting.

If two trustees must agree on every decision and they routinely disagree, the arrangement can make administration harder rather than easier.

The division of responsibility should be intentional.

When a Family Member May Be the Better Choice

Not every trust needs a corporate trustee.

A family member may be an excellent choice when that person is:

• trustworthy;
• financially capable;
• organized;
• available;
• willing to serve;
• able to treat beneficiaries fairly;
• comfortable dealing with advisers;
• likely to remain capable for the expected duration of the trust.

For a straightforward trust with cooperative beneficiaries, professional administration may add cost without adding enough benefit.

When a Professional Trustee Deserves Serious Consideration

A trust company or other qualified professional fiduciary may be worth considering when:

• no family member is an obvious choice;
• beneficiaries are likely to disagree;
• the trust will last many years;
• significant assets are involved;
• investments or real estate require ongoing management;
• a beneficiary needs financial protection;
• special-needs rules are involved;
• the family wants an independent decision-maker;
• parents do not want one child policing another child’s inheritance.

The issue is not prestige.

It is whether professional administration solves a practical problem.

What Do Trust Companies Charge?

Professional fiduciaries charge fees.

Fee structures vary by institution and may depend on:

• asset value;
• type of assets;
• complexity;
• investment services;
• real-estate involvement;
• tax work;
• special administration requirements.

So the comparison should not simply be:

“Family trustee is free; trust company costs money.”

An individual trustee may also be entitled to compensation, and poor administration can create costs of its own.

The better comparison is between the actual services required and the people or institutions capable of providing them well.

Questions to Ask a Potential Trust Company

Before naming a professional trustee, ask:

1. What types of trusts do you administer?
2. Do you have a minimum trust size?
3. What are your fees?
4. How are investment services handled?
5. Who makes distribution decisions?
6. How often do beneficiaries receive statements?
7. How do you handle real estate or closely held businesses?
8. Do you administer Special Needs Trusts?
9. Who will be the family’s primary contact?
10. What happens if the institution later decides it no longer wants to serve?

Those answers may be as important as the trust-company name.

Choosing a Trustee Is Part of Designing the Trust

One of the biggest mistakes in trust planning is treating the trustee designation as an afterthought.

A sophisticated trust administered poorly can fail the family.

A relatively straightforward trust administered competently can work very well.

So the better question is not:

“Should I name my oldest child?”

It is:

“Who is most likely to carry out this particular trust competently, fairly, consistently, and for as long as necessary?”

Sometimes that is a child.

Sometimes it is another individual.

And sometimes it is a professional fiduciary.

Ready to Review Your Trustee Options?

If you are considering a trust, trustee selection should be part of the planning discussion—not something filled in at the end.

You can schedule a private consultation to review the type of trust, the people involved, the expected duration, the assets, and whether an individual, professional, or combined arrangement makes sense.

If you would rather begin by organizing your estate-planning information, the Texas Probate Risk Workbook can help identify issues to review.