Trust administration can become part of an RIA's client relationship when a client has an existing trust, needs a trustee, or has estate planning arrangements that require ongoing administration. The key consideration is determining which responsibilities belong to the RIA and which belong to the trustee.
How RIAs handle trust administration can therefore vary based on the firm's services, the trust documents, the client's circumstances, and applicable requirements.
Start by Reviewing the Trust Structure
Before determining how trust administration will be handled, the relevant trust documents should be reviewed. They establish the trustee's authority, distribution provisions, beneficiary rights, and other requirements.
The RIA may also need to understand how the trust fits into the client's broader financial plan.
Legal interpretation of the trust should be addressed by a qualified attorney. Tax questions should be reviewed with a qualified tax professional.
Define the RIA's Role
An RIA may provide investment management or financial planning services while a separate trust company handles fiduciary administration.
Depending on the arrangement, the trustee may administer distributions, maintain trust records, communicate with beneficiaries, and perform other duties established by the governing documents.
The RIA's responsibilities should remain within the scope of its advisory relationship and applicable agreements.
Establish a Coordination Process
Once responsibilities are defined, the professionals involved can establish how information will be exchanged.
Coordination may involve:
Investment information
Distribution requests
Beneficiary communications
Trust reporting
Changes in the client's circumstances
Requests from attorneys or tax professionals
The appropriate communication process depends on the relationship and should respect applicable privacy and documentation requirements.
When Does a Separate Trust Company Make Sense?
An RIA may encounter situations where a client needs a corporate trustee, successor trustee, or ongoing trust administration that is outside the firm's existing service structure.
A separate trust company can serve in the fiduciary capacity established by the trust documents and applicable agreement.
Members Trust Company is one firm that provides trust and estate services for financial professionals and their clients, including trustee and trust administration services.
The decision to involve a separate trust company should be based on the client's circumstances and the responsibilities that need to be addressed.
Keep Investment Responsibilities Clear
Trust administration and investment management can intersect, but they involve different functions. Depending on the arrangement, the RIA may continue managing investments while the trustee handles its assigned fiduciary responsibilities.
The applicable agreements and trust documents should establish who has authority over investment decisions, distributions, reporting, and other administrative matters.
Clear role definitions can also help the client understand which professional to contact for different questions.
Review the Arrangement Periodically
Trust relationships can continue for years, and circumstances may change. Beneficiaries may change, a trustee may resign, or the client's financial situation may develop in ways that affect the existing arrangement.
When circumstances change, the RIA and other professionals may need to determine whether the existing responsibilities and communication procedures remain appropriate.
Conclusion
How RIAs handle trust administration depends on the firm's role, the trust documents, and the responsibilities assigned to each professional. A separate trust company may handle fiduciary administration while the RIA continues providing investment or financial planning services.
Members Trust Company provides trust and estate services in relationships involving RIAs and other financial professionals. Advisors should review trust administration arrangements with appropriate legal, tax, compliance, and fiduciary professionals.
FAQ
Do RIAs handle trust administration themselves?
Some firms may provide certain trust-related services, depending on their structure and responsibilities. Others may work with a separate trust company for fiduciary administration.
Can an RIA manage investments while a trust company serves as trustee?
Depending on the arrangement, an RIA may continue providing investment advisory services while the trust company performs its assigned fiduciary duties.
Who handles legal questions about a trust?
Questions involving interpretation of trust documents or legal rights should be addressed by a qualified attorney.
What should an RIA establish with a trustee?
The parties should clarify fiduciary responsibilities, investment authority, distributions, reporting, communication, and other administrative duties.
This article is provided for educational purposes only and does not constitute legal, tax, accounting, or investment advice. Trust, estate, retirement, and tax considerations vary based on individual circumstances and applicable law. Trust and fiduciary services are subject to review, acceptance, applicable law, governing documents, and Members Trust Company's policies and procedures. Investment products and services are not deposits or obligations of, and are not guaranteed by Members Trust Company, any credit union or government agency. They are not federally insured and are subject to investment risk, including possible loss of principal. Readers should consult qualified professionals regarding their specific circumstances.
Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not NCUA/NCUSIF/FDIC insured. May lose value including the possible loss of principal. No financial institution guarantee. Not a deposit of any financial institution. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.
