Just because you or your parents name a national bank as successor trustee in the trust document does not mean that the bank is obligated to accept the appointment. Bank trustees use a process known as Pre-Acceptance Review to evaluate prospective fiduciary accounts before accepting the appointment.
I’m sure you can see how this is good for the bank. They get a chance to evaluate whether they have the proper knowledge and systems in place to effective manage your family’s trust account. It also gives the bank the chance to evaluate the risks associated with taking on the account, and of course, whether doing so would be profitable.
But the bank’s pre-acceptance review is good for you too. You want your account to be a good fit.
Those of us that evaluate our circumstances through the lens of the 80/20 rule expect that an organization will spend 80% of its time and energy servicing the 20% of the work that is more profitable and less risky. A corollary to this point is that the less systematically profitable your account is for an organization, the less attention it will get. And, as a matter of bank efficiency, if you are an outlier for the bank’s systems and it’s people don’t know how to handle the peculiarities of your trust – such as complex investments, real estate portfolios, special needs beneficiaries – you will find friction and frustration throughout the trust administration.
So what does this have to do with real estate?
A pre-acceptance review of real estate owned by the trust account is an integral part of the evaluation process. Corporate trustees work to situate real estate assets held in trust within the context of the overall trust portfolio. Here are a few of the areas of investigation:
Account Mix. As we touched on in an earlier blog, the bank is held to the standard of the Prudent Investor, which in today’s world adheres to the modern portfolio theory. Diversity of account mix matters. Relative to real estate, an estimate of value up front is critical in determining whether the account will come in overweighted in one class. Corporate trustee real estate asset managers will work with their trust officer counterparts to determine how the trust-held real estate contributes to the account mix and whether the real estate held would need to be sold to balance the portfolio.
Physical Condition. A visual inspection of the property is also conducted to verify such things as that in fact the property exists (yes, you heard that right), if the buildings or land are being cared for, or whether there are any environmental concerns on site like evidence of contamination or occupants that might be generators of pollutants.
Title & Taxes. A preliminary look at titling and public data is conducted to confirm that the trust does in fact hold the real estate and that the property taxes have been paid.
Remember, once the bank accepts the appointment as trustee, it is named on title. The bank wants to make sure it’s not taking on too much risk by adding its link to that chain of title.