“Pot Trusts” Need a Corporate Trustee

In the recent post on funding the grandchildren's college educations with pot trusts, my first instinct was to delete this plug for a family trustee. After all, the sponsor of this blog has numerous corporate trustees as clients. 

How do you choose a trustee for a trust that will outlive you? Ms. Goldsmith typically advises parents to name a family member who isn't benefiting from the trust, such as an uncle or cousin, who can then hire a professional investment adviser if necessary.

I was wrong. The more you think about Ms. Goldsmith's suggestion, the better a corporate trustee looks.

Consider: With four years at Yale costing close to $250,000 – more if you throw in the BMW convertible every trust-funded student deserves – multiple millions will be required to fund college for all one's grandchildren, present and future.

Perhaps youngest son isn't even married yet. How many grandchildren might he produce with his first wife? How many more with his trophy wife?  The pot must be big, and it may need to be managed for a long time, half a century or more.

Suppose cousin Joe is the first trustee. How often will he change investment advisers? How will the changes impact the trust's portfolio, taxes and transaction costs?  At Joe's death, will his niece Jill take over? What investment advisers will she choose? How will she get on with the last few grandchildren, all seeking four-years-at-Yale money from a rapidly dwindling trust?

A pot trust needs a trustee schooled in long-term investing, experienced in dealing with young beneficiaries and clearly impartial (no BMW for Chris if Brittany has to settle for an Elantra.) Naming a corporate trustee really does sound like a no-brainer.

Full disclosure: This blogger and his immediate family own three Hyundais and no BMWs.