Consider A Trust Bank

Last week we covered choosing a trustee. However if you can’t find the right individual family member or friend to take on the job of trustee, and you don’t like the idea of an independent professional fiduciary, you might want to consider a “trust bank” to administer your living trust.

Trust banks are institutions or branches of institutions that provide trust administration as a business. They will typically name a person to administer your trust, but that person will change over time, just as your bank representative may change over time. You are naming the trust bank, not their representative, as your trustee.


You will find two basic categories of trust banks, which charge radically different fees.

A “traditional” trust bank operates as a division of a large, traditional, general-purpose bank. The traditional trust bank handles both trust administration and investment of the trust funds. Traditional trust banks charge the highest fees, and they’ve been increasing their minimums over the years. Typically, you will have to pay them 1 percent to 2 percent of the total estate value each year. Over time, that can really add up.

Traditional trust banks also often invest in proprietary funds, so the bank earns revenue not only when they serve as trustee, but when the bank, as trustee, buys investments from the same bank that created the investments. Getting paid five times on the same money isn’t a bad deal for the large banks, but may be a bad deal for you and your beneficiaries.

But, you can also find a newer breed of what I call “non traditional trust banks.” These are smaller institutions, with the important difference that they don’t handle the investments within the estate. These non-traditional trust banks perform only a fiduciary function, and leave the investing to you and your own financial advisor. When you walk in, a non-traditional trust bank looks less like a bank and more like an accountant’s office. Fees at nontraditional trust banks generally tend to run only 30 percent or less compared to those at a traditional trust bank.


The location of the bank and the assets matter. A lot.

If you live in a high-tax jurisdiction, you should consider a trust bank which operates only in a state without state income tax, because this may help your trust avoid your own state taxes. If you live in a state without state income taxes, this may not be an issue.

The state residency of the beneficiaries and the trustees will also matter.

Hence, a California resident may choose a trust bank in Nevada, South Dakota, or Alaska, so that after their death, continuing trusts for their loved ones don’t pay state income tax. However, if you are a Nevada resident and you name a California resident as the trustee of your trust, and this person actually starts serving as trustee, your Nevada-based trust will become subject to California state income taxation.

Astounding? Yes. Do you need a tax-savvy estate attorney to consult on these complex choices? Without question.


The chief advantage of naming a trust bank is simple. It won’t steal from your trust. I consider this a big plus. Why? Because the chief disadvantage of naming any individual, civilian or professional, as your trustee is equally simple. He or she can easily steal from your trust. Why? Because no one is watching what they do.

Throughout this book, I have urged you to create a living trust in order to avoid probate court. But yes, in a court proceeding, other people are at least watching. Indeed, with a court-supervised proceeding, any executor who is named for an estate must typically operate with a bond.

A bond is not exactly a form of insurance, but if the executor steals the money in your estate, the bonding company will replace the money. If the bond is for $100,000 and the executor steals $100,000, the bonding company will deposit $100,000 back into the estate. After that, of course, the bonding company will go after the thief to get the money back.

Trusts do not typically operate with bonds. And yes, thefts by the executors of wills and the trustees of living trusts do occur.

Some years ago, I was handling a probate case for a modest estate. The deceased left no will or living trust, but an executor had been named by the court. That executor was my client. About a month before the final hearing, my firm filed an accounting with the court in which we said, “Your honor, here’s all the money we started with. Here’s all the money that went out. Here’s what’s left, and we are pleased to say that all the numbers add up.”

A couple of days before the hearing, the judge asked, in a tentative ruling, “I want to know exactly how much cash this estate now has on hand. I know you filed this petition a month or two ago, so how much does the executor have today?”

He had asked a reasonable question, and I called my client. She picked up the phone and said, flat out, “Well, Jim, I gambled all the money away.”

Now I have a dilemma, because my client has told me she has committed a crime. She has admitted to embezzling the money from the estate, but because of attorney-client privilege, I cannot tell the judge. On the day of the hearing, however, I have to stand in front of his bench.

“Okay, Mr. Cunningham,” says the judge. “Tell me, how much is now in this estate?”

“Your honor,” I reply, “there’s nothing in the estate. The estate has zero dollars.”

“Well, what happened to all the money?”

“I can’t tell you.”

Now the judge gets a little angry. “The heck you can’t tell me. What happened to that money? You are the lawyer for the estate. You must know what happened.”

I say, “Your honor, I can’t tell you what happened to the money. That’s privileged.”

You can see the light go on in his head. His eyebrows go up. “Ah,” he nods. “Okay, I get it.”

Right then and there, the judge signed a bench warrant for my client’s arrest. She was picked up the following weekend and charged with embezzlement.


In the story about the gambling executor, it turned out that she stole the money and blew it in less than a week. If a trustee decides to steal from a trust, actually holding her accountable for her crime can take a year or longer with a trust as opposed to a will, and drain tens of thousands of dollars in a way that no one notices. No lawyers or judges will be around to see it happening.

The power and independence of trustees provide the key benefit to living trusts, but that same power and independence means you must choose your trustees very wisely, indeed. If you have the slightest doubt about a potential trustee, choose someone else.

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We look forward to working with you!

Best, Jim

James Cunningham Jr., Esq.

Founder, CunninghamLegal

At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.

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