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What is a Corporate Trustee?

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  • Written By: J. R. Prince
  • Edited By: R. Halprin
  • Last Modified Date: 30 October 2016
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A corporate trustee is a business corporation, often a bank or similar financial institution, that manages other people's property which is held in trust. Trusts are legal vehicles in which one person, the trustee, manages money, property, and other assets for the benefit of a beneficiary. The beneficiary may be the owner of that property or may be a person for whom the owner wants to provide. The trustee is obligated to manage the property exclusively or solely on the beneficiary's behalf.

Trusts are often set up by one family member, such as a parent, to take care of other family members, typically children. A corporate trustee may be chosen both for its expertise in handling money and property and because it is a neutral actor outside of the family. Corporate trustees also provide professional record keeping with expertise in distribution accounting, i.e., maintaining accurate records of how money made on trust investments is distributed to the beneficiary or beneficiaries. Such accounting is especially important when there is a large trust and many beneficiaries.

Trusts were first developed centuries ago in England, and virtually all common law legal systems have well-established trust laws on the books. These laws provide a great deal of guidance about what a trustee may and may not do with trust property. These laws and regulations require the trustee to manage the property according to the terms established for the trust.

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Perhaps the most important aspect of trust law, however, is its emphasis on the trustee's fiduciary duty to the beneficiary. The trustee is legally bound to manage the property in the best interests of the beneficiary. As a fiduciary, the trustee has a duty to manage that property with reasonable care and in utmost good faith and loyalty to the beneficiary. Trustees cannot consider their own self interest when deciding how to manage the trust.

It is often common practice to choose both an individual trustee and a corporate trustee. The individual trustee may be a member of the family of the person or persons who established the trust and provides the family's perspective in managing the trust. On the other hand, the corporate trustee provides professional management expertise. Just as important, the corporate trustee brings a more neutral, business-like approach to managing trust property. Both the individual and the corporate trustee have the same obligation to manage the trust property to the best of their ability on the beneficiary's behalf.

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