A financial advisor may remain closely involved with a client after a separate trust company is appointed as trustee. The arrangement can involve several professionals, each with defined responsibilities under the trust documents and applicable agreements.
For advisors considering a third-party trust company for advisors, understanding how the relationship operates can help clarify responsibilities before the arrangement begins.
Start With the Trust Documents
The trust agreement is an important starting point. It establishes the trustee's authority, distribution provisions, beneficiary terms, and other requirements that may affect administration.
An advisor should review the documents with the appropriate legal professionals and understand how the trustee's responsibilities intersect with the advisor's existing engagement.
Questions about interpreting the trust should be directed to qualified legal counsel.
How Can the Advisor and Trustee Work Together?
Depending on the structure, the advisor may continue providing investment management or financial planning while the trust company performs its assigned fiduciary duties.
The trustee may handle trust administration, distributions, recordkeeping, and beneficiary communications. The advisor may provide investment-related services within the scope of the advisory relationship.
The exact division depends on the trust documents and applicable agreements.
Members Trust Company works with RIAs, financial advisors, and other professional partners through trust and fiduciary service arrangements.
What Should the Advisor Clarify?
Before introducing a third-party trustee, an advisor may want to establish:
The trustee's fiduciary capacity
Investment decision-making authority
Distribution responsibilities
Beneficiary communication procedures
Reporting and recordkeeping
Communication between the trustee and advisor
Applicable fees and administrative costs
Responsibilities of attorneys and tax professionals
Clear documentation can help the parties understand their respective roles.
How Should Client Communication Work?
A client may have questions that cross professional boundaries. For example, a distribution request could involve the trustee, financial advisor, attorney, and tax professional.
Establishing who handles each type of question can make the professional relationships easier to understand. The trustee can address matters within its fiduciary responsibilities, while legal and tax questions can be directed to the appropriate professionals.
The advisor can continue communicating with the client within the scope of the advisory relationship.
What About Directed or Co-Trustee Arrangements?
Trust structures can assign different responsibilities to different parties. Depending on the governing documents, a trust may involve a directed trustee, co-trustee, or other allocation of authority.
These structures should be reviewed carefully because the duties and decision-making authority of each party can differ.
Members Trust Company provides trustee services that can include corporate trustee, co-trustee, successor trustee, and directed trustee arrangements, depending on the applicable structure.
Review Fees and Agreements
A third-party trustee typically has a separate fiduciary relationship with the trust. Advisors and clients should understand the applicable agreements and fee arrangements before proceeding.
It is also useful to establish how changes to the trust, beneficiary circumstances, investment responsibilities, or professional relationships will be communicated.
Conclusion
A third-party trust company for advisors can serve a defined fiduciary role while an advisor continues providing investment or financial planning services. Before establishing the relationship, advisors should review the trust documents, clarify responsibilities, establish communication procedures, and understand applicable fees.
Members Trust Company works with financial professionals in trust and fiduciary arrangements. The appropriate structure depends on the trust documents, client circumstances, professional responsibilities, and applicable requirements.
FAQ
What is a third-party trust company for advisors?
It is a separate trust company that may serve as trustee or provide defined fiduciary services while the advisor continues serving the client within the scope of the advisory relationship.
Can an advisor continue managing investments?
Depending on the trust structure and agreements, an advisor may continue providing investment advisory services while the trustee handles its assigned fiduciary responsibilities.
What should an advisor ask a prospective trustee?
Questions may cover fiduciary capacity, distributions, beneficiary communication, reporting, investment authority, fees, and coordination procedures.
Can a trust have both an advisor and a trustee?
Yes. Depending on the trust structure, an advisor and trustee may have separate responsibilities and coordinate within the authority established by the governing documents.
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.
