If a client is considering using a corporate trustee as a sole trustee, co-trustee or successor trustee, he'll probably want to interview several institutions and his estate-planning lawyer should be intimately involved in this process. While these interviews traditionally have not been the province of estate-planning lawyers, they can contribute a great deal. To help advisors get on the right track,
If a client is considering using a corporate trustee as a sole trustee, co-trustee or successor trustee, he'll probably want to interview several institutions — and his estate-planning lawyer should be intimately involved in this process. While these interviews traditionally have not been the province of estate-planning lawyers, they can contribute a great deal.
To help advisors get on the right track, therefore, here are 10 questions and 10 explanations of the answers trustees are likely to give. First, though, a few comments about this process:
Who should do the interview(s)? It's best to involve not only the client and her estate-planning lawyer, but also possibly the client's accountant, and, if practicable, additional family members or even the client's close friend. Consult with the client on these possibilities. Clearly, a corporate trustee is an important addition to a family's wealth management, and this relationship might last for many generations. It's worthwhile to have as many people involved in the interview as you possibly — and sensibly — can.
Who should represent the corporate trustee in the interview(s)? Ask to meet with the actual account officer who'd be assigned to the family on a daily basis. Welcome any other relationship manager or management person the corporate trustee would like to include.
When should you conduct the interview(s)? It's important to meet with candidates well ahead of the time that a client actually needs a trustee. Especially for successor trustees, it seems that very few clients interview candidates. But it's especially important to interview potential successor trustees, because, by definition, these trustees come on the scene during a difficult family transition time. For this reason, it's also even more important to include additional family members in the interview(s) of successor trustees.
What information should you give potential corporate trustees? Before the interview, provide them with a copy of the trust document, a list of the trust assets (by type) and a family tree.
Do some due diligence. Have the client ask friends about their experiences with various corporate trustees. The lawyer should research whether the trustee's institution has been sued, particularly in connection with trusts. Be sure to evaluate the nature of any complaints filed against the institution.
Expect to conduct more than one interview and spend a few hours at each meeting. Help the client to be forthcoming about asking to meet again with candidates to ask follow-up questions.
There are resources. The American College of Trust and Estate Counsel (ACTEC) has an excellent 12-page guide, What it Means to be a Trustee. Copies are available through www.actec.org. This document might be helpful not only for the lawyer, but also for the client.
With these bases covered, here are the 10 questions to ask in interviews with potential trustees:
What are your fees?
This unfortunately always seems to be the first question — when it should be the last. It's like asking about plans for marital income sharing before the first date. Fee information is irrelevant if a client decides that this is not an institution he wants for a long-term relationship.
Most corporate trustees have printed fee schedules, but those fees are often negotiable. When making fee discounts or concessions, the corporate trustee will take into account the nature (and size) of the client's assets and the complexity of administering his trust(s).
If you're interviewing for a co-trustee and there are statutory fees, ask whether each trustee would receive the full fee or whether they'd divide the fee. Some jurisdictions have legal requirements that control this arrangement; many institutions have policies on the matter.
Fees often can be reduced if a trustee's duties and liabilities are reduced. Trustees whose duties are primarily administrative, rather than discretionary, may reduce their standard fees.
The fee often will depend, also, on what other relationships the client has already (or could have) with the institution. If the client has (or could have) additional relationships, it's a good idea to mention that.
The fee should be the last question asked because it should depend on the services to be provided. Questions about services should come first. Also, because the trustee is so important to a family, other considerations can be far more important than cost.
One corporate trustee1 who supplied background information for this article has a request for lawyers: “Please don't call us and just ask about our fees. We are likely to assume that there is no real interest in working with us, and that our information will only be used to negotiate with another corporate trustee.”
What would it be like to work with you?
This question is intended to create an open-ended, general and even personal conversation with the trustee representatives. Lawyers in particular tend to see business conversations as information exchanges. But the focus in these interviews also should be on the intangible, “soft” issues. That's why one Florida-based, independent family wealth consultant says that she advises her clients to “visit” with potential trustees “as if they were friends sitting at your kitchen table. What are they like? Do they have (and seem to care about) a family? What are their interests?”
A corporate trustee reinforced this point, saying that the item on the agenda should be finding out how comfortable a client is with the potential trustee. To that end, a personal, leisurely conversation is invaluable. It's important to match a client's expectations with the corporate trustee's. Families with substantial wealth and complex issues often want a very experienced trust officer. Yet a senior lawyer who works with such clients confided that he's distressed to see how green so many trust officers are: They themselves don't have a lot of life experiences, making it difficult for them to be true advisors to complex families. But a European advisor sees it another way: In his practice, he says, families may dine with trustees but still see them as employees and don't want advice from them. (Bach and Mozart ate with the kitchen staff, he notes.)
Whether the trustee is to be viewed more as a friend or an employee, an independent New York-based family trust consultant insists: “Chemistry is key.” It's critical to determine that the client can actually work on a day-to-day basis with the trustee. In fact, this may be the most important point of all.
A related point: One of clients' major objections to corporate trustees is their perception that staff turnover is high at institutions, and there's no assurance of continuity of personnel. Be sure to ask how long these representatives have been in the trust department. Ask about the average tenure for trust officers.
Could we remove you as trustee at any time for any reason, without an additional fee? (and would you agree to a change in situs?)
Although this sounds like signing a pre-nup before you start dating, the answer to this question will give you a good sense of a corporate trustee's confidence in its ability to retain clients. If the institution has restrictions regarding termination, ask for explanations. Do the same about any fees charged for transferring to a successor trustee. If there are such fees, ask if the trustee would be willing to negotiate them (this is the time to ask for what the client wants.) You should be able to find qualified corporate trustees who are flexible regarding removals and transfers.
There could be a number of reasons why a family would like to change the situs of trust administration. Find out what the options would be.
Note: one consultant advises her clients whose older trusts do not contain trustee removal provisions that they should have their lawyer prepare a one-page agreement for the bank to sign, agreeing that the trustee will resign upon request. This may not be enforceable in some jurisdictions.
What is your client retention rate on an annual basis? For the past five years?
No one asks this question but the answer will be interesting — and signal to the trustee that the client wants to be with an institution that keeps its clients satisfied over the long haul. Most banks track these numbers. Just be careful to make sense of the figures; noting which departures are being counted (death, end of trust term, dissatisfied beneficiaries, etc.) so that you can make solid comparisons between institutions. You also could ask for client references, and have the client talk with those people. Realize, though, that many banks are reluctant to ask clients to be references. So, if you do get some, by definition they'll be the most satisfied clients. Your client's informal networking among peers might prove more fruitful — or misleading (if not put into context.)
How likely is your institution to remain in its current state? (and what is its current state?)
Many clients understand that smaller banks often are bought and large ones merge with other institutions. Such changes can be very disruptive to the client relationship. Recently, a person2 who was very dissatisfied with his long-standing corporate trustee but willing to stay out of sense of family loyalty, was surprised when his bank merged with a larger institution: He wished he had started interviewing other trustees earlier.
It's worth asking about the corporate structure. Is there a related corporate entity? Is there an affiliation with an investment company? Is it owned publicly or privately? For a lawyer it should be relatively easy to get this information, and to explain it to a client.
There are certainly no guarantees against major changes, but the nature of the answers should show you whether they have considered this internally and what their strategic direction might be. Also, one independent consultant suggested asking if the institution has a policy allowing for its removal if there is a merger or acquisition.
Where would the client fit?
Be sure to ask about the average size of the institutions' trusts, the median size and the total number. You don't want the largest house on the block — or the smallest.
If the client's assets are too large relative to the rest of the corporate trustee's holdings, you should be concerned that this trustee won't have enough in-house experience or sophistication to meet your client's needs. If the family's assets are too small, you should be concerned that the client might not be entitled to the most responsive service. Ask about the number of trusts the potential officers would be handling. This will give you an idea of their day-to-day availability.
How would the trustee handle the client's trust investments?
This question relates to a serious, substantive part of the interview. Many firms now offer “open architecture,” meaning they'll provide access to a number of investment managers outside of their firm. There's usually a list of approved managers; ask to see it. Ask, too, how the institution decides to add and remove managers from the list. If the institution has in-house investment officers or portfolio managers, ask to meet with those who would be working on your client's account. Discuss their investment philosophy, and yours. Ask to see sample statements. Make sure that the client's statements would be available online.
What you want to see is a sense of professionalism and competency. It's not helpful to focus only on rates of return: There are too many variables involved in results. (I met with one independent consultant who'd analyzed a client's trust3 in great detail, found they were in the bottom quartile and — based on that information alone — advised the client to sue the trustee! Clearly, a lot more information was needed to understand the returns and what, if any liability, there might have been.) In certain cases, the corporate trustee might be glad to delegate the investment function to an outside professional. In others, the beneficiary might have a family investment committee that would want to be involved.
It is, however, worthwhile when preparing for the interview to get a good sense of your client's (or the beneficiary's) needs from the trust, in terms of annual distributions. A lawyer or accountant can be very helpful in reviewing this with the client in preparation for the interviews. The corporate trustee should show a fair amount of flexibility in trying to manage the trust funds to satisfy those needs.
Could we see some sample accounting statements? (and will those statements be available online?)
One of the biggest client frustrations is not being able to receive clear and consolidated accounts and investment reports. Find out if the institution's accounting statements can show not only the records for the entire family's accounts (which might include multiple trusts), but also the institution's holdings for each beneficiary. See if the institution will aggregate all of the trust interests of each beneficiary.
What is the internal review process for a principal distribution request? (and how long does it take?)
Institutions usually have internal procedures to follow whenever there is a request for a principal distribution. Find out what those procedures are. Some institutions leave these decisions to a committee of experienced trust officers who are available to beneficiaries on a fairly frequent basis; others have a committee that may meet once a week or only twice a month to make these decisions; and others may leave these decisions to each trust officer, experienced or not.
How involved could the trustee be with the client's entire family?
At a minimum, family representatives might want to have regular meetings, semi-annually or annually, to review trust performance and any administrative issues. Many families with large holdings and numerous generations are increasingly interested in providing their younger members with an education in financial management. See how willing your corporate trustee might be in assuming this role — and how capable.
Citigroup Family Wealth Advisory Services is a business of Citigroup Global Markets Inc., Member SIPC (CGMI). Opinions in this article are the author's, and may differ from the opinions expressed by others at Citigroup. Although information in this article is believed to be reliable, Citigroup and its affiliates do not warrant the accuracy or completeness and accept no liability for any direct or consequential losses arising from its use. Citigroup does not provide tax or legal advice.
- This corporate trustee was not with Citigroup.
- This person was not a Citigroup client.
- This person's trustee was not affiliated with Citigroup.