Financial advisors may work with clients whose planning includes trusts, estates, beneficiary arrangements, or other structures that require ongoing fiduciary administration. A third-party trust company for advisors may provide trustee or trust administration services while the advisor continues providing services within the scope of the advisory relationship.
Understanding how this arrangement works can help advisors explain the respective roles to clients and coordinate with other professionals.
What Is a Third-Party Trust Company?
A third-party trust company is a separate organization that may serve as trustee or provide other fiduciary and administrative services under an applicable agreement.
The trust company's authority generally comes from the trust documents, its appointment as trustee, applicable law, and any relevant service agreements.
Depending on the engagement, trustee responsibilities may include administering trust provisions, maintaining records, processing distributions, and communicating with beneficiaries.
How Does the Advisor Remain Involved?
The involvement of the financial advisor depends on the advisory relationship and the responsibilities assigned to the trust company.
An advisor may continue providing investment advice or financial planning while the trustee administers the trust. For example, the advisor may provide investment recommendations within the advisory relationship, while the trustee handles distributions according to the trust documents.
The parties should establish how investment information, distribution requests, beneficiary matters, and other relevant information will be communicated. In an arrangement for example with Members Trust Company, these responsibilities can be defined according to the applicable trust documents and agreements.
Why Define the Roles Clearly?
Trust administration and investment management involve different responsibilities. A client may also have an attorney and tax professional involved in the relationship.
Clearly identifying responsibilities can help establish who handles:
Trust distributions
Beneficiary communications
Trust records
Investment management
Tax-related information
Legal matters
Reporting
Other administrative functions
The actual allocation depends on the governing documents and applicable agreements.
What Should Advisors Ask a Trust Company?
When evaluating a third-party trust company for advisors, relevant questions may include:
What fiduciary responsibilities will the trust company assume?
What trust administration services are included?
Who handles beneficiary communications?
How are distributions administered?
What reporting is provided?
How does the trust company communicate with the advisor?
What investment responsibilities does each party have?
What fees and administrative costs apply?
How are client onboarding and documentation handled?
The answers can help advisors understand how the relationship would operate before discussing it with a client.
When Might a Third-Party Trustee Be Considered?
A third-party trustee may be considered when a client needs corporate trustee services, ongoing trust administration, estate settlement, or other fiduciary responsibilities that are not part of the advisor's existing service structure.
The appropriate trustee depends on the trust documents, client circumstances, and applicable requirements.
Conclusion
A third-party trust company for advisors may provide trustee and fiduciary administration through a separate professional relationship. The advisor may continue providing investment or financial planning services when appropriate, while the trust company performs its assigned responsibilities.
Members Trust Company provides trust and estate services for relationships involving financial advisors and other professionals. Advisors considering a third-party trust arrangement should review the proposed roles, responsibilities, fees, and communication procedures with appropriate professionals.
FAQ
What does a third-party trust company do?
Depending on the engagement, it may serve as trustee or provide trust administration and other fiduciary services.
Can an advisor continue working with the client?
Depending on the arrangement, the advisor may continue providing investment or financial planning services.
Who handles trust distributions?
The trustee generally administers distributions within the authority established by the governing documents.
What should advisors review before selecting a trust company?
Advisors may review fiduciary responsibilities, services, reporting, communication, fees, technology, and coordination procedures.
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. Investment products and services are not deposits or obligations of, and are not guaranteed or endorsed 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.
