Who Do You Trust? Selecting an Executor or Trustee - A Primer
by James V. Quillinan, Attorney at Law
The Letitia Building
70 South First Street
San Jose, California 95113-2406

Corporate Fiduciary.

Naming a corporate fiduciary, such as a bank or trust company, is the main alternative to designating an individual.

Potential benefits. The corporate fiduciary handles fiduciary matters on a regular basis and is usually well-equipped to handle the day-to-day affairs of an estate or trust (e.g., accounting services, recordkeeping, allocation of receipts and expenditures between principal and income, determining the tax basis of property, filing tax returns, etc.). In addition, the corporate fiduciary has the ability to provide certain services without additional cost to the estate, e.g., protecting valuables in the bank's vault, providing routine administration services, rendering advice on investment and tax matters, etc.

Likewise, the corporate fiduciary usually has experience with making prudent investments and will have available to it investment opportunities that individual fiduciaries do not. For example, state law often permits corporate fiduciaries to create common trust funds to achieve diversification and risk-spreading for even estates and trusts with relatively small values. Large corporate fiduciaries employ experts to deal with different types of investments, such as securities, real property, farms and ranches, closely held businesses, mineral properties and perhaps even collectibles. The staff of a corporate fiduciary will have far more experience collectively than any individual fiduciary.

Many states have enacted the Uniform Prudent Investor Rule (or a similar stature), based on the Restatement (Third) of Trusts, which liberalizes the standard of care applicable to trust investment and management. Under this Rule fiduciaries are bound to consider the purposes, terms, distribution requirements and other circumstances of the trust. The fiduciary's decisions regarding individual assets are no longer evaluated in isolation, one investment at a time, but rather are examined in the context of the trust portfolio as a whole and as a part of an overall investment strategy that has risk and return objectives that are reasonably suited to the particular trust. The fiduciary is authorized to consider a wide range of factors, including:

1. general economic conditions
2. potential inflation and deflation
3. tax consequences
4. the ramification of each investment on the entire portfolio
5. anticipated income and appreciation
6. the beneficiaries' other resources
7. the need for liquidity, income or appreciation
8. any special relationship that an asset has to the purposes of the trust or to a beneficiary (e.g., real estate that has been in the family for generations or heirlooms)

If the state has not enacted this type of rule, or if you wish to authorize investments that would not satisfy the prudent investor standard, you may provide specific instructions in the trust.

Investments held by corporate fiduciaries are likely to be more closely monitored than they could be by an individual. This constant watch permits the fiduciary to respond rapidly as the market or other circumstances require and to adjust investment strategies accordingly. Likewise, the corporate fiduciary has an enhanced opportunity to spot good investment opportunities and to take advantage of them.