The WAY to WOW Shows
Professional Fiduciary or Trust Company
June 2, 2025
Automatically generated from YouTube captions; names and wording may contain errors.

[0:14] Hello and welcome to Trusts and Estates Weekly. I'm your host, Kevin Bemmel, and we're here every Monday morning at 10:00 a.m. Pacific. That's 100 p.m. Eastern time. And we talk about all things related to estate planning, probate, trusts, estates, as the name might indicate, both from the standpoint of your personal financial planning, as well as from the the position of those seeking to assist in estate planning and and trust and probate and estate

[0:49] services. So either for people already involved in that or who are in a profession that they could extend their business into this area um and and and do some more good for their clients. So this morning I'm going to talk about uh trust companies and professional fiduciaries and and and the sort of the benefits and limitations of each of them. Um these are the two most common uh types of trustees um or or for that

[1:27] matter executives or administrators outside of somebody appointing an individual. And in in talking to um other people I know who are involved in this area, you know, one of the things we discussed is um how much more complicated it is uh nowadays than it was even 20 or 30 years ago. So, you know, someone acting as a a trustee. I'm just going to use the word trustee kind of as in in a general

[2:03] sense could really be an executive or an administrator um or for that matter really even a um a conservator or or a guardian. But someone acting in that position these days um is bound by a very high standard of care such that even if they make an honest mistake that may still constitute a breach of their duty. And and so, you know, the times when uh perhaps a, you know, an elderly

[2:38] spouse might ad, you know, administrate um their their family living trust or or might serve as an executive for um an estate, something like that, or or where a child would. That may not be a good idea anymore. um especially if that person doesn't have um a a reasonably high level of financial sophistication as well as the ability to understand and appreciate the various legal issues such that um they're they're getting proper guidance um in

[3:16] fulfilling that role. And so, um, that's part of the reason why here in California, um, there is now a licensed profession known as a professional fiduciary. Um, and other states, um, require various levels of qualifications for individuals um, to hold those roles. Um, and and of course, there have been trust companies for a long long time who have also held that role. So, I'm going to um as I often do, share my screen. I prepared a

[3:52] little um uh a little um PowerPoint here. Okay, there we go. Okay, so you all know our show, Trust and Estates Weekly, and this is the three pillars of attainment, which is of course the basis for everything we do on the way to WOW shows. Wow, that was weird. Um, we're dealing primarily here in the finances realm of the pursuits pillar. Um, however, relationships often are a big part of

[4:27] estate planning and dealing with trusts and estates um unavoidably. So, all right. So first of all I want to start out by talking about what are these two um types of trustees. So I spoke a little bit about a professional fiduciary. Okay. So professional fiduciary is an individual and and and that's a natural person individual as opposed to a corporation is a legal person and in that sense it's an

[5:02] individual but it's not a natural person. Okay. So in this case we're talking about a flesh and blood human being. Okay. Like me. Okay. Um they are licensed or certified. Um, and you know what? Let me I'm going to um close out of this sharing and and bring up um actually uh another uh another image. Let me find it here real quickly. I should have had this up. Okay. All right. Here we go. So, let me

[5:39] now let me share again. Share screen. Okay. Here we go. All right. So, this is an image off of the website for the um um uh CGC. Okay. CDC is the center for guardianship certification, I believe. Okay. They're actually um more concerned with uh um conservatorships and guardianships. Um, and this shows you, this is a map,

[6:14] of course, of the United States, and it shows you, it's mostly here in the West that there are rules about um who can practice and and who cannot. Okay? So, you'll notice California is the only one in this sort of blue color. That's because um California um has a um a state um licensing and certification um regime. Okay? And that that's what I am. I'm a licensed California professional fiduciary. Okay? So in um

[6:49] Washington, Arizona, Texas, and Florida, notice they're in this red regime. Okay? So they have a state administered registration, certification, and licensing program. Um, however, it's for conservators and guardians. So, to be a trustee um or an executive or something like that, you you um at least in my reading of um the rules for those four states um you don't need to um you don't need to have a uh

[7:24] certification or license. Okay? Whereas in California to fill any of those roles um well you can fill one without being licensed but any more than one and at a time and you have to be licensed. Okay. Then you'll notice these states in um the sort of gold color. Okay. So in this case CGC certification is required. So that's a certification through the center for guardianship certification. And again, it's it's necessary to be a conservator or a guardian. It's it's

[7:59] again, my read is you don't need to have that CGC certification to be a trustee, especially since the CGC has it has nothing to do with trusteeship. Okay? And you'll you'll notice here I have certain ones checked and certain ones with a zero and certain ones with an X. So, this is respect to the states that I practice in. So, the ones where there's an X, there's I think three of them here, these are states that they have um requirements that for one reason or another um I I don't want to meet and so I'm I don't practice in those states. Um the states where there's check marks, I

[8:35] meet those requirements already. And the states where there are zeros there, um it means I'm I'm open to fulfilling their requirements. I just haven't done it yet. And then you'll notice most of the rest of the United States has no um requirements at all. So I was speaking to a friend in New York the other day um who is an accountant uh I'm sorry who's a not accountant, she's a um financial services professional looking to expand her business. And I suggested to her that she might consider um acting as a professional as acting as a

[9:11] fiduciary professional fiduciary. There are no licensing requirements in California to I mean in uh New York to do that. Okay. So this gives you an idea of sort of the the patchwork and it is a statebystate thing for professional fiduciaries. There is no such thing as a national nationally certified or licensed professional uh fiduciary. Okay. And you can see so I've been talking about this category here, professional fiduciary, but also lawyers and accountants oftentimes will fill these roles. So these are the three most

[9:47] common um in addition to like I said individuals like a family member. Okay. So that's a professional fiduciary. A trust company then is a company um it can either be specifically formed in order to act as a fiduciary or it could be a part of a bank and that bank could be state chartered it could be nationally chartered it could even be a foreign bank that is permitted to do business here in the United States and they have what are usually they're not called trust companies they're usually called trust departments but in they in

[10:24] fact act as what would amount to a trust company. Okay, so it's a uh in essence a financial institution. Even a an independent trust company that isn't connected with a bank is essentially a financial institution. You'll see what I mean in a minute. And it's authorized to act as a fiduciary. Okay? And it's a typically a large multi-person firm. Okay? Okay. So, I'm I'm going to show you um here in California. Here it is. Um

[11:00] so, the Department of Financial Protection and Innovation is the state department that oversees uh trust companies. And I'm going to go back. Here's one. And oops, two actually. Here you go. Okay. So, trust companies and departments. See, they they basically fall under the same category here. Okay. and um that they're actually essentially licensed through the um uh the department of corporations and financial institutions, right? Hence why they are generally considered to be

[11:36] financial institutions even if they're an independent company. Okay? And they're regulated state by state. Now there are national trust companies and they're regulated by the controller of the currency and and are thus um essentially able to provide trust services um AC you know nationally across state lines. Okay. Um but in any event they're going to be clo they're closely regulated companies. Okay as opposed to an individual. All right. So, let's go back to our PowerPoint. We're

[12:14] doing we're doing well on time. Okay. So, basically, I think the easiest the easiest way to think of of them is a professional fiduciary is an individual. A trust company is a company. Um, but they've both been in some way authorized to act as a fiduciary either um, you know, formally because they they're licensed or certified in some way. Although, as you saw, a lot of states don't require formal certification per se, but but if for someone acting in that position and calling themselves a professional fiduciary, if they um practice

[12:51] incompetently, I think we can be pretty, you know, pretty sure that even in a state without a licensing regime or a certification regime, the attorney general is going to come after them, right? Because they're abusing people's trust. All right? and uh lawyers and accountants by virtue of um being licensed in those professions gives them um the ability to be professional fiduciaries. All right. So let's let's look at the benefits now of of the two. So for a professional fiduciary, generally speaking, they're

[13:26] going to they're going to have more personalized attention. Okay? So when I talk to prospective clients, that is one of the things that I emphasize because I I've always even in my prior life uh in real estate, I had a very clientfocused business. So um I looked at what do my clients need to accomplish? How can I aid them in doing that? Now sometimes that meant me performing services for them. Sometimes that meant me bringing

[14:01] in someone else or referring them to someone else who had the specific expertise that they needed. Okay. And because of that, I I don't know why this does this. Um, and they I had a lot of I have a lot of flexibility in how I can set up a program to serve an an a particular client. And that's again generally true of professional fiduciaries. as well because um professional fiduciaries um even even large active ones are not as large as trust

[14:38] companies. They generally speaking have lower fees. Okay? and and typically their fees will be calculated either um on a percentage of assets under administration, that's usually what they'll call it, as opposed to assets under management, which is more of a um a a securities term. So you'll hear assets under administration, AUA. Okay? Um they may charge a percentage or they may charge, you know, an hourly rate or in some cases even a fixed monthly rate. um if the if their duties are are um

[15:15] pretty standard and don't vary very much from month to month. Okay. Um now a trust company um is is a more comprehensive in-house or has more typically more comprehensive in-house expertise. So whereas a professional fiduciary is is probably not going to perform um uh what what is it called? Um um in investment

[15:50] advising. Um a trust company oftentimes will have in-house invest in investment advisory um people. Um they'll have in-house resources. is they may even have the ability to execute purchases of, you know, mutual funds and ETFs or whatever. Um, or they may do it through an affiliate of a of of their bank if they're a trust department in a bank. Okay. And the other thing that b that is a benefit of trust companies is continuity. So, um, if the professional fiduciary were to die, okay, um, there

[16:28] needs to be a plan in place for who's going to take over from that person. Now, by the way, there could be more than one professional fiduciary working together. And in that case there may be a plan that you know if if one professional fiduciary dies or retires. Okay. So one of his partners will be substituted in and and they'll be a relatively smooth transition since they work in the same firm and you know they know each other's clients. In the case of a trust company, um while there could

[17:04] be an individual in the trust company that's acting as the trustee, the trust company itself can also be the trustee. And so in that case, since it's a corporation, it doesn't die. And so there's there's there's no worry. People can join the company, leave the leave the company. It doesn't make any difference in the sense of continuity. Um okay. So um that that is one of the benefits um of a a trust company. Okay. I would say that the continuity is more I mean it's it's it's a built-in factor

[17:40] I I guess is the best way to put it. Whereas with a professional fiduciary it needs to be um considered and actively made sure that um that you know that that issue is is dealt with. Okay. So those are um the benefits. Um now let's talk about the um limitations. Okay. Um for the professional fiduciary depending the the the experience of the professional fiduciary is going to be limited by whoever the professional fiduciary is. So if that person is

[18:16] relatively new to the profession, they may have limited experience. Okay. Now again if there's um more than one professional fiduciary working together um in a practice so you know together they may have a lot of experience um now for myself um I've been in um business since um well my own business since 1986 right so that's what going close to 40 years now um and I've had a lot of experience in managing and all that kind of stuff okay but I'm I'm kind of an

[18:51] older So, you know, someone younger may not have um the breadth or depth of experience that others may have. So, that's something that needs to be investigated um if you're thinking about working with a professional fiduciary. Okay. Um, next limitation because they don't typically have a high level of um, in-house expertise and resources, they're going to be reliant on outside expertise and

[19:26] resources. So, in my case, I don't I don't um do or I don't have I should say in-house um investment advisory. Okay. So to the extent that a client needs that service, I'm going to engage another professional. All right? And I do I don't have in-house counsel either. So in the way a typical professional fiduciary works is we work as a team with other professionals to make sure that the client is properly served.

[20:03] Okay. So rather than having everyone as part of our organizations um we you know we like I said we create a team oftent times we may be the kind of the team captain other times the lawyer or the accountant may be the team captain and and we're you know more so kind of one of the players. Okay. So, but in any event, um it's it's it's going to be um that kind of situation relying on outside expertise and resources. Finally, um professional fiduciaries can have conflicts,

[20:39] potential conflicts of interest and so that's something that needs again needs to be looked at carefully. So um sometimes uh professional fiduciaries provide other services. So in my case I'm also a licensed uh real estate salesperson. I have um a life insurance license. I have several security licenses. So, um, I have to be careful about the services that I provide to make sure that I'm not creating any potential

[21:14] conflicts of interest and making sure that I disclose any to a potential client. Um, you know, if to make sure or to be assured whether they do or do not exist. Um, and and then to make sure that they're handled properly. And that's true of other professional fiduciaries uh as well. Okay. Um and there could be even um business interests. So um you know I I have various you know business partners. So if one of them um asked me to be let's say a trustee for their trust. It's not

[21:50] that I can't do it. it's that um we would need to recognize any potential conflicts of interest and make sure that they're properly handled. All right. So, um with a trust company, one of their limitations is they tend to be less personalized. They tend to give less personalized attention and flexibility like any larger organization. Okay? especially if you're talking about a large national trust company. All right, they they um typically have a lot of controls in

[22:26] place and to modify those controls for individual clients can sometimes be uh difficult at best. Okay, so they're less likely to do that. Now there are smaller trust companies um that that that um can provide um personalized attention and flexibility. Okay. Um but be also because of how they're regulated. So they do have to be careful. Okay. So there may be um certain things that they'll be less likely to want to do um

[23:01] just because they don't want to skirt um you know the edges of the regulatory regime. So, um, you know, again, that's something to talk to a trust company or if you're, you know, if you're looking for a trustee or or, you know, someone to act in in the fiduciary capacity. Um, as you talk to trust companies, um, that's an important issue to discuss with them. Um, what kind of personalized attention and flexibility are you going to get? Now the next one sort of um is related to this and that is the turnover

[23:38] of personnel. So um in a trust company um because it's it's typically a larger organization you know people come and go. So um you know a person handling a particular account they may be there a few years and then they move on or they may get promoted and they're no longer doing frontline account services. that sort of thing. So, they may still be in the company um but they're not going to be the person that uh someone deals with a beneficiary, for example, deals with on a day-to-day basis any longer. Okay? Whereas with a professional

[24:14] fiduciary, you know, that that person is essentially that not essentially, that person is the fiduciary. So, that that person's going to be there. Okay. And then the other um limitation on trust companies is they tend to have higher fees. So it's not unusual for a trust company to charge between a quarter of a percent and 2% of um assets under administration as as their fee. So, for example, if they're managing a $20 million trust, okay, maybe they're

[24:50] charging, let's say, even a half a percent. Um, that's uh roughly um let me make sure I'm doing this right. Um let's see, 1% of 20 million. No, I'm sorry. They're going to charge more than that. So, what they're going to charge probably about 1% I suspect of of 20 million assets. That's $200,000 a a year. In fact, they may even charge a little more than that. They might charge, you know, a percent um and a half. So, it could be $300,000 a year to manage um you know, a trust

[25:26] with those kind of assets. All right. So, um that is again another um issue to consider is you know what is the fee structure? Um, how is how is that going to impact the performance of the assets in the trust? Okay. Well, I think we're doing all right. All right. So, which one is right for you? Um, that is not a question that I'm answering today. Okay? I'm giving you some basic information. This is not,

[26:01] you know, legal advice, financial advice, anything like that. It's making you aware of issues. So as you decide or or as you work on making a decision as to which is right for you um I I I recommend considering these four points. First of all, what are your individual needs especially as they connect with the various benefits and limitations of the two? Okay. Um, next is um what what is your preferred manner of working?

[26:38] Okay. So, um do you like a lot of flexibility? Do you bristle when being told that's not in our policy, we can't do that, right? Um, if those kinds of, you know, if those are going to be issues for you, um, then a professional fiduciary that offers you more flexibility may be a better choice than a trust company. Okay. Now, I I should hasten to add that um, professional fiduciaries tend to not work in the very high end of of of uh, trusts and in the

[27:15] very complex trust. Once you get into um you know kind of ninef figure trusts in that case you probably are going to be dealing with a trust company. Okay. Um but and so that gets back to individual needs. What is the size of the trust etc. Um although I can imagine there are some sophisticated um fiduciaries out there lawyers etc. who are trustees on on on large trusts. Um okay. So, how do you like to work and and and how can that be best accommodated between a professional fiduciary and a trust

[27:51] company? Next, what pre-existing relationships do you have? So, do you already have a relationship with a lawyer? And so, you have no need for in-house counsel? Do you already have an investment advisor that you uh work with? And so you have no need for uh you know an in-house investment advisor. Well, and if you value those pre-existing relationships, so that might um kind of push you in one direction. If you don't have those pre-existing relationships and you like

[28:26] the idea of it all kind of being inhouse, so then that might push you in in the direction of a trust company. Okay. So again, these are all it all gets back to what your uh individual needs are. Okay. And then finally, what is your budget? What can the uh trust or the estate that you're dealing with sustain in terms of fees in order for it to be managed uh well, okay? And especially as you move into smaller and smaller ones, um it can get harder

[29:01] and harder to afford a trust company. Okay? So, if you've got a $2 or $3 million trust, okay, where you might say, well, gosh, you know, 2% of $2 million is uh let's see, 2 million 200,000 20,000. That'd be about $40,000 a year. Okay. Uh if I hope I'm doing the math right on that. 2 million 10% would be 200,000. 1% would be 20,000. Yeah. $40,000 a year um to manage that $2 million trust. That's

[29:38] that's pretty high. Okay. Um but that's probably what a trust company is going to need to charge and may maybe even more you know to manage the trust properly within their systems. Okay. So, think about your budget. Um, you know, what what can what can you afford um in that's that's not going to so substantially um um take money out of the funds generated by the trust that you know the managers

[30:14] are getting all the money or the fiduciary is getting all the money um and there's nothing left for the assets to grow or to pay over to the beneficiaries. Okay. So, that is the difference between a a professional fiduciary and a trust company. And if you need help, here are some places to do so. This will also be in the show notes. You have my email address, various um social media outlets. Feel free to post uh a question, especially if it's a general question. if you have something specific to your own situation,

[30:50] um especially if it's something that you want to be private. So then please don't post that publicly. Feel free to send me an email. Um although don't include um you know private financial information or anything like that. Um if there's anything that needs to be looked at in that regard, we'll arrange to have it uh transferred in in a way that protects the integrity of the data. Okay. Um, but in any event, please do feel free to reach out to me if you have any questions. I'm happy to help you. Okay, here's the legal stuff as always. Blink. There we go. Stop our sharing. So,

[31:25] that's our show for today. Um, pretty straightforward in the sense of what these are and how they work. Not at all straightforward in determining which will be which would be best for you. that that is as in in all of these things is really an individual um decision and something that has to be looked at very carefully before deciding. So, thanks very much for joining me. Um want to mention that tomorrow at 11:00 a.m. Pacific time is business lessons from the military. We're going to be continuing our discussion of how to use intelligence

[32:02] doctrine um in Marine Corps warfighting doctrine in a business setting. Okay, it's um interesting topic I think you'll find. So, we're going to be moving on to the next part of that. And then on uh Wednesday at 12:30 p.m. Pacific time is people making money. And our topic this week are um um tax breaks for 2023. So it's already what the middle of November and there are um some strategies that you might want to discuss with your accountant or your tax

[32:38] preparer getting ready, you know, to file your taxes for this year. Of course, you don't have to file them until um next next year, you know, the deadline next year. Nonetheless, there are certain things that you may want to take a look at now. Um, and even if you and especially if you prepare your own taxes. So, you know, you you may not have anyone kind of pinging you and saying, "Hey, have you looked at these things? It's it's, you know, we're heading toward year end. So, it's time to give some thought to that." So, that'll be on Wednesday again, 12:30 p.m. Those are all um Pacific times. So, thanks again for joining me here at the

[33:13] beginning of the week, Monday for Trust and Estates Weekly. I appreciate it. And um if you um know of someone who's you know dealing with these issues, um do them a favor. Maybe send them a link to um the uh the show list so they can see the different episodes that are available and that might might help them. Maybe suggest that they subscribe to our YouTube channel so they can always be notified when a new uh a new show posts. So again, thank you very very much for joining me. Look forward to seeing you again later this week.