Choosing the right trust administration is a crucial step for business
owners who are incorporating a great deal of wealth, business assets or ownership and investments into a fund for beneficiaries and heirs.
When it comes to setting up a trustee, business owners should be fully informed about the potential pitfalls of relying on an inexperienced individual, such as a friend or family member, versus a corporate trustee that may be more equipped to navigate the complex process of transferring business assets. Because there are several types of trusts and financial arrangements available, each with different trustee stipulations and responsibilities, choosing a trustee with strong financial and business knowledge may be in a company owner’s best interest.
A recent CFA Institute
report noted that corporate trustees are better prepared to understand and address the risk and liability issues that go into setting up and executing a trust. This can help mitigate potential lawsuits and beneficiary disputes in the future.
In addition, independent trustees may be in a better position to manage the complex recordkeeping responsibilities that are associated with some trusts. Consistent accounting and proper documentation is a routine aspect of a trustee’s responsibilities, and failing to keep up-to-date and organized records could result in legal actions and challenges to investments and distributions, according to the CFA Institute.
Further, the correct distribution of income and choice of sound investments is imperative for business owners who set up a trust as part of their business succession planning. A lack of understanding about investment decisions and holdings can have significant business consequences if the trust is in inexperienced hands, which may jeopardize a company and have a negative impact on beneficiaries.