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Understanding Administrative Trustee Services

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If you have a trust, you are probably familiar with the idea of trustee (which could be yourself) who oversees the administration of the trust and has a fiduciary duty to act in the best interests of the beneficiary(s) of the trust. However, you may not be aware that the asset custodian may be able to accept a trustee appointment. With Charles Schwab and Fidelity, for example, this arrangement is referred to as “Administrative Trustee Services” and with TD Ameritrade it is called “Advisors Private Wealth Trust,” and there are several distinct advantages to employing it.

  • The grantor of the trust retains the freedom to choose his own investment advisor and estate planning attorney.
  • The trust is domiciled in Delaware which provides a favorable legal and taxation environment for trusts. For example, Delaware has no “rule against perpetuities” which means that a generation-skipping Delaware Dynasty Trust could last indefinitely without incurring additional gift, estate, or transfer taxes. Delaware does not impose a state income tax on a trust’s income or capital gains. For beneficiaries in high-tax states such as California, this could be a huge benefit.
  • Delaware law also provides favorable terms for protecting a trust against potential creditors, and it is very conducive to maintaining the confidentiality of trusts.  This is very important when the grantors do not want the extent of their wealth to be known to potential beneficiaries.
  • Delaware allows trusts to be managed with a “total return” rather than “maximization of income” objective. The calculation of income to be paid to current beneficiaries can be based on a percentage of total return, minimizing potential conflicts between current and future beneficiaries. From an investment standpoint, utilizing a total return objective allows for optimization of returns at a given level of risk.

To summarize, under this arrangement, the asset custodian provides full fiduciary administrative tasks such as income and principal distribution, accounting and recordkeeping, and preparation and filing of federal and state tax returns. Naturally, there is a fee for providing these services that will vary with the size and the required administrative tasks of the trust. At Index Fund Advisors, we consider this to be an excellent alternative to appointing a friend or family member with as a trustee, which can prove to be a substantial burden on their time or quite possibly place them in a situation where they are out of their depth.

If you would like to learn more about how IFA can help you with your estate planning needs, please call us at 888-643-3133.