Searching through the BestCashCow bank database, there are 722 institutions that are not only banks but that have Trust in their name. For example: Century Bank and Trust Company, or Alliance Bank in Trust Company. What does the Trust part of the name signify and what is the Trust function within these banks?
What is a Trust?
A Trust is a legal structure put in place to help individual dispense with all or part of their assets. Trusts can be operate of behalf of an individual whether that individual is alive or dead. Trusts are usually created for a variety of purposes: to minimize estate taxes, avoid probate, protect assets from creditors, provide for personal care in the event of incapacity, fund charities, and more.
Trusts can also be set up by corporations to serve in a fiduciary capacity, representing bondholders or stock holders.
Trustees manage the Trust and ensure that the wishes of the individual who established the Trust are met. A common role of a Trustee is to be the executor of an individual's will. In that role, they may settle debts, account for taxes, and distribute the proceeds to the heirs. Many people can be named a Trustee by the person setting up the Trust. It can be your wife, children, lawyer, your best friend, or your banker (this is the situation we are talking about here).
Trustees may also be tasked with taking a more day-to-day role in managing the Trust. For example, if an individual sets up a trust to ensure that their disabled child is financially supported, then the Trustees can manage the money, write checks, ensure the child's rent and other payments are met, pay medical bills, and more.
Trust Companies can also serve corporations, collecting payments on bonds the company has issued and facilitating payment to bondholders. The Trust would monitor the company to ensure it is complying with all covenants and in the case of a default, would represent the bondholders and work to recover as much of the loan proceeds as possible for the bondholders. In general Corporate Trusts are also generally run by banks. Mellon Bank and Trust and State Street Bank and Trust are examples of banks that also serve as large corporate trusts.
Should A Bank Be Chosen as a Trustee for an Individual?
In general, there are several factors commonly used to determine if someone is suitable to be a Trustee. They include:
- Professional Management - Someone to manage investment decisions, deal with taxes, accounting, etc.
- Continuity - Will the Trustee be around to manage the Trust?
- Objective Exercise of Discretion - Someone who can be unbiased and objective.
- Avoiding Conflicts of Interest - Has no stakes in how the funds are distributed.
- Insulation for the Individual - Does not have a strong personal relationship with the beneficiaries and doesn't mind saying no to inappropriate requests.
- Trustees Protection Against Misappropriation of Funds - It is more unlikely funds will be stolen by a bank, with their checks and balances, then with an individual Trustee.
In all of these, banks score pretty high. One reason some people do not hire banks as Trustees are the fees. But even amateur Trustees are expected to be paid and often bank fees are not much higher than what a friend or a relative might charge.
How Much Do Bank Trust Companies Charge?
How much do Trust Companies charge to manage a Trust? Trusts generally charge an annual fee which is determined as a percent of the grantor's assets. The percent can vary from between .20 percentage points to 2 percentage points depending on the Trust Company and the required involvement of the Trustee. So on a $2 million dollar Trust with a 1% annual fee, the cost to manage the Trust would be $40,000.