The Pros and Cons of Using a Commercial Institution as Your Trustee

Date: Jul 06 2018

Mark Harder, Partner, Chair, Private Client and Family Office Group, Warner Norcross + Judd LLP

It’s natural to want to choose a family member or someone you know well to serve as your trustee. However, it sometimes also makes sense to choose a professional trustee like a bank or trust company as the trustee or co-trustee.

The Pros of Using an Institution to Be Your Trustee

Selecting an institution to serve as your trustee may help you avoid some of the problems that can occur when a family member, friend or business associate is selected as a trustee, because institutional trustees:

  • Have the skills and experience, along with the resources and systems, to effectively administer the trust in accordance with the settlor’s wishes.
  • Can be objective and impartial and won’t have conflicts of interest that family members might have.
  • Can more easily say “no” to requests that should be declined.
  • Continue in business for decades so the family will not have to choose a successor down the road when an individual trustee dies or becomes incapacitated.
  • Have insurance to cover a mistake, so it can be easier to recover damages for ineffective management or mismanagement of the trust assets.
Sound Perfect? Consider the Drawbacks to Using an Institution as Your Trustee

Keep in mind that an institution has procedures and processes they follow, so recognize that:

  • Institutions are not always fast-moving machines and decision-making can take time.
  • They may be more conservative than your family would like.
  • In addition to being conservative, some institutional trustees are uncomfortable with holding concentrated positions in family-controlled enterprises and in private equity investments.
  • Trust officers will be less familiar than others might be with your family’s circumstances and values.

Institutions also have some disadvantages you might not face with other trustee choices:

  • Trust officers sometimes move to other positions within their organizations or to entirely different institutions and their replacements will need to be “re-educated” about the family and each trust when turnover occurs.
  • Institutions might be acquired and the character of the institution may evolve and result in a different institution acting as your trustee than the one you selected.


Click below to watch the video and download the whitepaper, Who Can I Trust to Be My Trustee?