OK, let’s say your Aunt Tillie died and left a bunch of money for her niece and named you a co-trustee along with a corporate co-trustee which you can choose. (Though this approach is quite common, it’s not the only approach to running a trust.)
The pot of money Aunt Tillie left could be hundreds of thousands of dollars; it could even be millions. Whatever the amount, as a co-trustee, you’re largely in charge of deciding how and when the niece gets the money. When you make those decisions, though, you must always be mindful of carrying out what Aunt Tillie said in her documents, such as a will or trust. That also applies to choosing the institution which will invest Tillie’s cash. Reread Tillie’s documents for guidance in making your choice.
Here’s the problem: Unless you’re an investment wizard, you will need help managing Tillie’s legacy so the money will be there when the niece needs it. To make the financial piece of your niece’s trust work as Tillie intended, you’ll need a corporate co-trustee who’s investment-savvy and can make sure that the money’s there when it’s needed. Usually you’ll have two choices:
- a trust department that’s part of a bank
- a trust company, which is a standalone institution that manages trusts.
If you’re the co-trustee, then you often get to make the call as to which institution will watch over the money with you. But wait. Picking a trust department or trust company isn’t as simple as pulling a name out of a hat. There are many elements you have to balance.
To help you make the right choice for your situation, here are four questions to which you need the answers:
- What is the average size portfolio?
You don’t want to be the smallest frog in the pond. The world of trusts is a place where things you thought you knew about money get turned upside down. What may seem like a lot of money to you may be pocket change to the trust department or company. If the trust you’re supervising is worth $100,000, then many places will give you a frosty but polite “No, thanks.” In fact, at least one trust company I know of requires a trust worth $10 million just to let you in the door for a conversation.
Yes, you read correctly: $10 million.
Here’s the odd part. If your trust is worth only $10 million, then that particular trust company is not the place for you. Why? Because $10 million is scraping the bottom of their barrel. Your trust won’t command nearly as much respect there as it will almost anywhere else, where the minimums are usually much lower.
Here’s the rule: Find a place where the average portfolio is about equal to, or even smaller than, yours. That way your trust is one of the bigger frogs. And, as in most things, bigger frogs get better treatment.
2. To what extent will the investment strategies for my trust be custom-fitted to the particular needs and requirements of that trust?
Portfolios have different purposes, different goals, and different situations and need to be treated individually. If the investment strategies for portfolios in a trust department or trust company are each more or less canned into three or four readymade recipes, then your trust won’t be given the respect and care it deserves. Trust departments using mostly canned strategies are lazy. They’ll be happy to take your trust, of course. That’s the easy part. But they’re not willing to sweat very much to tailor the mix of investments to the specific purposes and situations Aunt Tillie had in mind.
3. How long have both the person in charge of the administrative details and the investment officer been employed at the institution? How long did the people who held those jobs before them stay in those positions?
A staff constantly playing musical chairs is a waving big red flag. As in other fields, high turnover is a sign of trouble. If the department or trust company can’t hold on to its employees, you don’t want to find out the hard way what the problems are
4. Are you the person who will be in charge of the account?
Quite often, the person who’s trying to land your trust portfolio is not the person you’ll be working with. They’re salespeople, and they’re experts at winning your confidence and warming your heart. Frequently, though, they disappear after the sale is made. Ask to meet the trust administrator and the investment officer who actually will be assigned to the account. They’re the ones you’d be working with. You need to put them under a microscope to decide how much you’d actually want to work with them. Don’t worry about the salespersons too much. They’ll usually vanish as soon as the deal is closed.
So, take your time. Ask a lot of questions. Read and reread Aunt Tillie’s documents. Make your choice carefully. You want to be working with the institution and people you choose for a long, long time to come. You really, really don’t want to have to go through this process of picking a place to put Aunt Tillie’s trust very often, do you?
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David Kohn is a veteran journalist and investigative reporter recognized as Your Straight-From-the-Shoulder Consumer Advocate. He specializes in helping people make decisions about high-ticket items and services. For more in-depth information about choosing the right Financial Advisor visit: www.pickingyourfinancialplanner.com.
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