Individual vs Institutional Trustee

The individual trustee (natural person)

An individual trustee is a natural person appointed to administer a trust. This may be a family member, a trusted friend, a lawyer, an accountant or any other qualified professional. The individual trustee acts in their own name in their capacity as trustee and personally assumes the fiduciary obligations attached to this role.

Advantages of an individual trustee

• Personal relationship: The individual trustee often has a close relationship with the settlor and beneficiaries, facilitating understanding of the family's needs and expectations. This human dimension can be particularly valuable in sensitive family situations.
• Flexibility: The decision-making process can be quicker and more agile than within an institutional structure, without approval committees or formal internal procedures.
• Potentially lower cost: An individual trustee's fees may be lower than those of a trust company, particularly for simple, small to medium-sized trusts.
• Intimate family knowledge: A long-standing individual trustee knows the family history, interpersonal dynamics and the settlor's values, which enriches their decision-making.

Disadvantages of an individual trustee

• Continuity risk: The death, incapacity, illness or retirement of the individual trustee creates a governance vacuum that may disrupt trust administration. The appointment of a successor can be complex and costly.
• Limited capacity: An individual has limited resources in terms of staff, IT systems, compliance and specialist expertise. Managing complex or multi-jurisdictional trusts may exceed their capabilities.
• Personal liability: The individual trustee bears personal liability and their personal assets are exposed. In the event of a fault or dispute, their personal property is at risk (unless covered by adequate professional indemnity insurance).
• Conflict of interest risk: A trustee who is also a family member or close to the settlor may face conflicts of interest, particularly when they are themselves a potential beneficiary.
• Regulatory compliance: A FINMA-licensed individual trustee must single-handedly satisfy all regulatory requirements (risk management, internal controls, reporting), which represents a considerable administrative burden.

The institutional trustee (trust company)

An institutional trustee is a legal entity (stock corporation, limited liability company) whose principal activity is the administration of trusts. In Switzerland, professional trust companies must be licensed by FINMA under the FinIA. They have a dedicated organisation, personnel and systems for carrying out this activity.

Advantages of an institutional trustee

• Permanent continuity: A trust company exists independently of its directors and employees. The death or departure of a team member does not affect the continuity of trust administration. This is a decisive advantage for long-duration trusts (dynastic trusts).
• Professional infrastructure: The institutional trustee has a dedicated infrastructure: a multidisciplinary team (lawyers, tax specialists, compliance officers, accountants), IT systems, documented procedures and internal controls.
• Deep expertise: The concentration of activity on trust administration enables the institutional trustee to develop deep expertise in all aspects of the activity: structuring, compliance, taxation, litigation management.
• Robust compliance: The institutional trustee has a dedicated compliance department, formalised anti-money laundering procedures and automated screening systems. It is better equipped to meet ever-increasing regulatory demands.
• Limited liability and insurance: The corporate form limits exposure to share capital, and professional trust companies take out significant professional indemnity insurance policies.
• Credibility with third parties: Banks, tax authorities and other stakeholders generally place greater confidence in a FINMA-licensed institutional trustee than in an individual trustee.

Disadvantages of an institutional trustee

• Higher cost: An institutional trustee's fees are generally higher than those of an individual trustee, reflecting the cost of infrastructure, staff and compliance.
• More formal processes: Internal procedures, approval committees and compliance checks may slow certain decisions and reduce flexibility.
• Staff turnover: The primary contact within the trust company may change over time, which can affect the continuity of the personal relationship with beneficiaries.
• Standardised approach: Some trust companies, particularly the larger ones, may apply standardised procedures that do not suit every family situation.

The hybrid model

In practice, many trusts adopt a hybrid model combining an institutional trustee with a personal element. The most common configurations include:

• Co-trusteeship: An institutional trustee and an individual trustee (often a family member or trusted adviser) act jointly. The institutional trustee provides infrastructure and compliance, while the individual trustee provides family knowledge.
• Institutional trustee + family protector: The institutional trustee administers the trust while a family member or trusted adviser exercises the role of protector with supervisory powers.
• Institutional trustee + advisory committee: An advisory committee composed of family members or advisers guides the institutional trustee in its decision-making, without binding authority.

The hybrid model combines the advantages of both approaches and is often the optimal solution for medium to large family trusts.