Even the most sophisticated individuals hold common misconceptions about trusts.

Here, we hope to dispel three of the most widely held myths so that, if and when you choose to establish a trust, you are sure to make the best possible choices for you and your family.

Myth #1– My family member will make a great trustee

It may be true that a respected family member is intelligent, knowledgeable, organized, responsible, sensitive and financially secure enough to act as the trustee of a trust you create to support your beneficiaries.
 
But before you name the family member as the trustee (that is to say, before you make this person alone responsible for the trust that will support your children, grandchildren and legacy), consider these three questions: 

• Do you and the family member understand the impact that acting as a trustee can have on a person’s life? 
• Are you sure you want to lay such a burden on someone you care about?
• Have you looked into naming a corporate trustee but giving the family member power to oversee, remove and replace the corporate trustee? 

Most people do not fully realize what a considerable undertaking acting as a sole trustee can be. Nor do they anticipate the difficult decisions that trustees routinely face and the tensions that making those decisions can generate.

Trustees are legally responsible—and they are personally liable—for handling the trust’s investments, safeguarding trust assets, recordkeeping, tax filings and interpreting the trust, as well as making necessary disclosures and distributions to beneficiaries. 

A trustee needs specialized knowledge to comply properly with these requirements. It’s not always simple to make distributions according to a trust document’s stipulations. Beneficiaries don’t always like decisions trustees are obliged to make. Well-intentioned mistakes are all too common.  

One example: A trust required payment of beneficiaries’ educational expenses. One beneficiary attended an expensive private college with an annual tuition of more than $60,000, while another went to a state school charging half as much. The trustee, a family friend, sought to preserve family harmony by distributing the cost differential to the state school attendee—only to find that such a distribution violated his duty as the trust’s fiduciary. Family gatherings suddenly became extremely uncomfortable for all—especially when the private college attendee sued the family friend personally to recover the distributed funds. 

How might you avoid such problems?

Many find it wise to name a corporate trustee instead—with a family member overseeing the trustee. The family member can oversee, remove and replace the corporate trustee, but isn’t burdened with the same risk and fiduciary duty, and can still ensure the corporate trustee is effectively fulfilling its duty. Another solution is for the trustee to hire a trust company as “agent for trustee", allowing the trustee to pass on certain administrative responsibilities to experienced professionals. 

A corporate fiduciary can also act as a buffer between your personal trustee and beneficiaries. For example, a corporate trust officer might be charged with having difficult conversations, such as delivering news that a beneficiary’s requested distribution is outside the scope of a trust’s provisions.

Of course, many trust creators mistakenly believe choosing a family member to be the trustee is more cost-effective, as they’ll often be willing to perform the duties at no cost. However, once the family member hires all the accountants, attorneys, financial advisors and administrators to carry out the necessary duties, the aggregate cost is often higher (and less controllable) than it would have been to simply hire a corporate trustee. 

Myth #2: It’s tough to get distributions from a corporate trustee

Trust creators may wonder: “Will a corporate trustee take the time to know the beneficiaries of my trust and understand their needs?" And: “Will a firm’s bureaucracy make it cumbersome for my beneficiaries to access the trust funds to which they’re entitled?”

First, nondiscretionary distributions are automatic. If the trust says a beneficiary is to receive mandatory net income, those distributions are required and must be distributed to the beneficiary as specified in the trust.

To understand how discretionary distributions might be handled, you’ll want to look carefully at the firm you might name as corporate trustee or agent for trustee.  

You might ask the firm to detail:

• How much communication is common between beneficiaries and trust officers?
• Does the firm welcome “letters of wishes”?
• How many people are involved in distribution decisions, and how much time does it actually take, routinely, for the firm to fulfill a request for discretionary distribution that is in line with a trust agreement? 

Getting complete answers to such questions—with examples and commitments—will give you the peace of mind that your beneficiaries will be supported the way your trust agreement says they should be. 

Myth 3: A corporate trustee can’t manage a trust that has illiquid assets

Trust creators used to worry that if they put their businesses, art collections, real estate and such into a trust that a corporate trustee’s legal obligation to avoid concentrations would force them to sell those assets.

But trust law has evolved dramatically in the last 20 years. Now, as a creator of a trust, you have options both within directed and discretionary trust scenarios. 

Directed trusts

The laws of some states, such as Delaware, have become so flexible that you can break up the trust functions among multiple parties. That means responsibility for specific trustee functions such as investment management or, say, distributions, can be given to another person or committee (often a family member or close connection).

Many families opt for a directed trust, as it gives them a great deal of control over heirloom assets. For example, if the asset is an art collection, the investment manager would make all decisions about holding, selling, insuring, maintaining and loaning the art. The corporate trustee then would carry out the directions of the investment advisor with respect to those decisions.

At the same time, a directed trust provides the family with the benefit of a corporate trustee’s experience and administrative expertise (handling, for example, the tax work, bookkeeping and communications to beneficiaries). Having a corporate trustee also helps with continuity, as a corporate trustee does not age out of the position as individuals do.

Discretionary trusts

Trustees have a duty to invest a portfolio prudently, which includes a duty to diversify investment portfolios. At J.P. Morgan, we generally ask that no single asset (such as real property) is more than 10% of the total assets in a trust.

A trust document might be worded so that it relieves the trustee of the duty to diversify specific assets. Your J.P. Morgan team would be happy to work with your attorney on appropriate enabling language. 

In addition, you might want to look into the benefits of having our experienced specialists manage the real estate, oil and gas interests, or closely held entities that are held in trust.  

Stay up-to-date. We can help.

After you’ve established and funded your trust with a structure and trustees that work for you, it is extremely important that you check regularly to make sure everything continues to operate as you intended, and that life events haven’t made some of your trust’s terms obsolete. 

Your J.P. Morgan team can help you and your estate planning lawyers review your options and holdings, and their projected growth, to help you make sure your estate plan and trusts are supporting the goals you have for yourself—and for all of your loved ones.

Important Information

Investment trends may not materialize. Sustainable Investing and investment return are not always aligned, and may lose value.

This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g., equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

NON-RELIANCE

Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request.

J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.  

IMPORTANT INFORMATION ABOUT YOUR INVESTMENTS AND POTENTIAL CONFLICTS OF INTEREST

Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account.

Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward-looking views in order to meet the portfolio’s investment objective.

As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

The Six Circles Funds are U.S.-registered mutual funds managed by J.P. Morgan and sub-advised by third parties. Although considered internally managed strategies, JPMC does not retain a fee for fund management or other fund services.

LEGAL ENTITY, BRAND & REGULATORY INFORMATION

In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

In Luxembourg, this material is issued by J.P. Morgan Bank Luxembourg S.A. (JPMBL), with registered office at European Bank and Business Centre, 6 route de Treves, L-2633, Senningerberg, Luxembourg. R.C.S Luxembourg B10.958. Authorized and regulated by Commission de Surveillance du Secteur Financier (CSSF) and jointly supervised by the European Central Bank (ECB) and the CSSF. J.P. Morgan Bank Luxembourg S.A. is authorized as a credit institution in accordance with the Law of 5th April 1993. In the United Kingdom, this material is issued by J.P. Morgan Bank Luxembourg S.A., London Branch, registered office at 25 Bank Street, Canary Wharf, London E14 5JP. Authorized and regulated by Commission de Surveillance du Secteur Financier and jointly supervised by the European Central Bank and the CSSF. Deemed authorized by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the United Kingdom for a limited period while seeking full authorization, are available on the Financial Conduct Authority’s website. In Spain, this material is distributed by J.P. Morgan Bank Luxembourg S.A., Sucursal en España, with registered office at Paseo de la Castellana, 31, 28046 Madrid, Spain. J.P. Morgan Bank Luxembourg S.A., Sucursal en España is registered under number 1516 within the administrative registry of the Bank of Spain and supervised by the Spanish Securities Market Commission (CNMV). In Germany, this material is distributed by J.P. Morgan Bank Luxembourg S.A., Frankfurt Branch, registered office at Taunustor 1 (TaunusTurm), 60310 Frankfurt, Germany, jointly supervised by the Commission de Surveillance du Secteur Financier (CSSF) and the European Central Bank (ECB), and in certain areas also supervised by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). In Italy, this material is distributed by J.P. Morgan Bank Luxembourg S.A., Milan Branch, registered office at Via Cordusio 3, 20123 Milano, Italy, and regulated by Bank of Italy and the Commissione Nazionale per le Società e la Borsa (CONSOB). In the Netherlands, this material is distributed by J.P. Morgan Bank Luxembourg S.A., Amsterdam Branch, with registered office at World Trade Centre, Tower B, Strawinskylaan 1135, 1077 XX, Amsterdam, The Netherlands. J.P. Morgan Bank Luxembourg S.A., Amsterdam Branch is authorized and regulated by the Commission de Surveillance du Secteur Financier (CSSF) and jointly supervised by the European Central Bank (ECB) and the CSSF in Luxembourg; J.P. Morgan Bank Luxembourg S.A., Amsterdam Branch is also authorized and supervised by De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM) in the Netherlands. Registered with the Kamer van Koophandel as a branch of J.P. Morgan Bank Luxembourg S.A. under registration number 71651845. In Denmark, this material is distributed by J.P. Morgan Bank Luxembourg, Copenhagen Br, filial af J.P. Morgan Bank Luxembourg S.A. with registered office at Kalvebod Brygge 39-41, 1560 København V, Denmark. J.P. Morgan Bank Luxembourg, Copenhagen Br, filial af J.P. Morgan Bank Luxembourg S.A. is authorized and regulated by Commission de Surveillance du Secteur Financier (CSSF) and jointly supervised by the European Central Bank (ECB) and the CSSF. J.P. Morgan Bank Luxembourg, Copenhagen Br, filial af J.P. Morgan Bank Luxembourg S.A. is also subject to the supervision of Finanstilsynet (Danish FSA) and registered with Finanstilsynet as a branch of J.P. Morgan Bank Luxembourg S.A. under code 29009. In Sweden, this material is distributed by J.P. Morgan Bank Luxembourg S.A., Stockholm Bankfilial, with registered office at Hamngatan 15, Stockholm, 11147, Sweden. J.P. Morgan Bank Luxembourg S.A., Stockholm Bankfilial, is authorized and regulated by Commission de Surveillance du Secteur Financier (CSSF) and jointly supervised by the European Central Bank (ECB) and the CSSF. J.P. Morgan Bank Luxembourg S.A., Stockholm Bankfilial is also subject to the supervision of Finansinspektionen (Swedish FSA). Registered with Finansinspektionen as a branch of J.P. Morgan Bank Luxembourg S.A. In France, this material is distributed by JPMorgan Chase Bank, N.A. (“JPMCB”), Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers. In Switzerland, this material is distributed by J.P. Morgan (Suisse) S.A., which is regulated in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA).

In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. For materials which constitute product advertisement under the Securities and Futures Act and the Financial Advisers Act, this advertisement has not been reviewed by the Monetary Authority of Singapore. JPMorgan Chase Bank, N.A. is a national banking association chartered under the laws of the United States, and as a body corporate, its shareholder’s liability is limited.

With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. We may offer and/or sell to you securities or other financial instruments which may not be registered under, and are not the subject of a public offering under, the securities or other financial regulatory laws of your home country. Such securities or instruments are offered and/or sold to you on a private basis only. Any communication by us to you regarding such securities or instruments, including without limitation the delivery of a prospectus, term sheet or other offering document, is not intended by us as an offer to sell or a solicitation of an offer to buy any securities or instruments in any jurisdiction in which such an offer or a solicitation is unlawful. Furthermore, such securities or instruments may be subject to certain regulatory and/or contractual restrictions on subsequent transfer by you, and you are solely responsible for ascertaining and complying with such restrictions. To the extent this content makes reference to a fund, the Fund may not be publicly offered in any Latin American country, without previous registration of such fund’s securities in compliance with the laws of the corresponding jurisdiction. Public offering of any security, including the shares of the Fund, without previous registration at Brazilian Securities and Exchange Commission—CVM is completely prohibited. Some products or services contained in the materials might not be currently provided by the Brazilian and Mexican platforms.

JPMorgan Chase Bank, N.A. (JPMCBNA) (ABN 43 074 112 011/AFS Licence No: 238367) is regulated by the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority. Material provided by JPMCBNA in Australia is to “wholesale clients” only. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Corporations Act 2001 (Cth). Please inform us if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

JPMS is a registered foreign company (overseas) (ARBN 109293610) incorporated in Delaware, U.S.A. Under Australian financial services licensing requirements, carrying on a financial services business in Australia requires a financial service provider, such as

J.P. Morgan Securities LLC (JPMS), to hold an Australian Financial Services Licence (AFSL), unless an exemption applies. JPMS is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (Cth) (Act) in respect of financial services it provides to you, and is regulated by the SEC, FINRA and CFTC under U.S. laws, which differ from Australian laws. Material provided by JPMS in Australia is to “wholesale clients” only. The information provided in this material is not intended to be, and must not be, distributed or passed on, directly or indirectly, to any other class of persons in Australia. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Act. Please inform us immediately if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

This material has not been prepared specifically for Australian investors. It:

• May contain references to dollar amounts which are not Australian dollars;
• May contain financial information which is not prepared in accordance with Australian law or practices;
• May not address risks associated with investment in foreign currency denominated investments; and
• Does not address Australian tax issues.

References to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide.